Consolidation to continue for $18bn flavor market

In 2006, the global flavor and fragrance market was worth $18bn with the first ten players racking up 66 per cent of the total market, claim market researchers Business Insights. Price pressures, a reduction in margins, the absolute need to gain competitive advantages through economies of scope and scale will all converge to keep consolidation an ongoing trend, at the very least, in the short term. "Companies are acquiring both larger and smaller companies in order to gain market share. The acquisition of Quest is consistent with Givaudan's objective to be the leader in every strategic business area,"​ states the report. The €1.7 billion bolt-on acquisition of Quest last year confirmed Givaudan's slot as the number one player in the global flavors and fragrance market. According to the Business Insight report, in 2006 the Swiss firm held a 13 per cent slice of the global market, followed by US company International Flavors & Fragrances with 12 per cent. Swiss, family-owned Firmenich followed a close third with an 11 per cent share. Although Firmenich's recent €0.45bn acquisition of Danisco's flavour division in 2007 may shed new light on these figures. In parallel, a recent study from Frost & Sullivan states that in flavours, the difference in market share between top and smaller companies is widening. "This may drive consolidation among the smaller companies to expand market access and take advantage of the skilled R&D departments,"​ states the report. Supporting a strong stake in the market requires a considerable, and ongoing, investment in innovation. The majority of leading players spend about 10 per cent of their annual turnover on R&D costs, says Business Insight. For Givaudan, for example, this would translate to a figure of over €50 million, based on figures for 2007 and annual EBITDA in pro forma (not including Quest integration) comparable terms equalling €565 million in 2007. A further example, the Business Insight report cites US colour, flavour and fragrance manufacturer Sensient, that in 2006 spent $26m on R&D. Reflecting the global state of play, the health and wellness trend is "a core focus for flavor companies"​ continues the report. In particular, consumers are driving food manufacturers to turn to natural flavors that, in addition to offering an all-natural ingredient appeal, meet clean label needs. Earlier this month, for example, Dutch flavour firm Exter Aroma rolled out a new range of natural savoury flavors -​ meat, roasted beef, chicken, roasted chicken, and boiled chicken - that specifically targeted the growing demand for natural, clean label ingredients. Touching on expansion, the report cited French flavor and fragrance firm Robertet that broke ground at the end of 2007, and expected to come online at the end of 2008, on a 60,000sq feet dry blending site. Part of a strategy to expand the firm's large-scale liquid production capabilities, the site will include juice blending and high volume homogenization, and will further increase the company's refrigerated, frozen, and ambient warehouse storage and high speed packaging capabilities. At the time, Peter Lombardo, President of Robertet North America, commented: "The twenty-million dollar capital investment further demonstrates Robertet's commitment to our customers and to the Robertet Group's growth in the U.S. market"​. Again, mirroring trends across the food industry as a whole, the report cites particular growth opportunities for flavor and fragrance firms in Asia Pacific. "Increased spending power and changing eating habits of Asian consumers are driving the market and transforming the region's flavour and fragrance sector,"​ said the report. Demonstrating interesting in honing in on this region, flavors and fragrance firm Symrise announced this month that it will open a creative centre in Shanghai, China in an attempt to capitalise on the potential of this growing market. For Symrise first quarter results in 2008 were boosted by a 7.1 per cent sales increase on last year's figures in the Asia-Pacific region.