Flavor And Fragrance Industry Faces Wide-Ranging Challenges
A. MAUREEN ROUHI, C&EN WASHINGTON
Consolidation in the flavor and fragrance industry continues. Last month, two German companies--Dragoco and Haarmann & Reimer--merged to become Symrise (see page 61). In 2002, Givaudan acquired the flavor business of Nestlé. And in 2000, International Flavors & Fragrances (IFF) took control of Bush Boake Allen.
Against this backdrop, C&EN turned to Charles H. Manley for an overview of the industry and its current challenges. Manley is vice president of science and technology at Takasago International Corp., based in Rockleigh, N.J. A chemist with a Ph.D. in food science from the University of Massachusetts, Amherst, Manley has worked in the industry for 34 years. Before joining Takasago in 1988, he held positions at Givaudan-Roure and Unilever. He has helped advance efforts to harmonize flavor ingredients worldwide.
C&EN: What are the scenarios for further consolidation?
MANLEY: We've seen a lot of mergers in the past 10 years. That's because the big customers--Nestlé, Kraft, Kellogg's, General Mills, Johnson & Johnson, S. C. Johnson, Estée Lauder, Coty, Avon--don't deal with smaller companies. It's not cost-effective.
Another driver is huge overheads. To maintain service, innovation, and research, we need more sales, because the downward pressure on prices just keeps intensifying. Our customers have to dance to Wal-Mart to get on Wal-Mart's shelves.
Givaudan and IFF are racing to be the biggest, and either one may buy something to stay ahead of the rest. They have deep pockets and they can do that, but that wrecks a lot of good companies. We expect further consolidation in the coming years. Although there are few major companies available, there have been public reports that Quest International may be one.
Takasago is still a predominantly Japan-based company. Our Eastern outlook will not allow us to make big acquisitions. Our strategy is to leverage technology and to grow globally by building regional capabilities.
C&EN: What are some of the challenges facing the industry?
MANLEY: In the U.S., we have a problem of obesity. We have an abundance of food, and it all tastes so great. We need to learn how to make something taste good but not make people eat so much. On the fragrance side, lots of people don't like fragrances. In California, for example, there is resistance to odors in public places. Those are the two major issues industry is facing.
We also have to contend with materials we use that remain in the environment. Many companies, including ourselves, are very much involved in making materials that are environmentally friendly.
C&EN: What is driving innovation?
MANLEY: Leveraging technology efficiently is a driver. The industry, because it has had good margins in the past, has been lax in terms of efficiency. You will see much more efficiency in how companies run their business, how they develop products, and whom they work with.
The days when Kraft, for example, invites 10 companies and says, "You're all going to do this work for us, and one will win the business," are over. We're saying, "If you narrow it down to two or three competitors, we'll work for you. But we're not taking the risk of doing a lot of work and losing."
A lot of effort will be invested in forming good partnerships. And they will not be based on playing golf or having lunch together as they were 30 years ago but on technology, innovation, and how soon you can bring products to market.
C&EN: Globally, what is the industry watching out for?
MANLEY: The industry is following its customers into countries where demand for consumer goods is rising. China, for example, is a huge market. Living standards there are improving. The people may not yet be able to afford BMWs in the driveway, but they can now afford toothpaste, beverages, and snacks. Or rather than buying a stick of gum at a time, they can now buy a whole pack.
The industry also is trying to prove the safety, and globalize the use, of raw materials. In the U.S., the trade group Flavor & Extract Manufacturers' Association (FEMA) has taken the initiative in establishing the safety of flavor ingredients, now embodied in the so-called GRAS list, generally recognized as safe. The list includes more than 3,000 ingredients considered safe for use in the U.S. The Food & Drug Administration acknowledges not only the safety of the materials on the list but also the science that has gone into establishing safety.
Over the past 10 years, FEMA has been working with the European flavor industry to get the European Union to harmonize what flavor ingredients they're using in Europe with what we're using here.
A global effort under the World Health Organization, called JECFA (Joint Expert Committee on Food Additives), is also under way. Trade organizations are working to develop and present safety data for flavor substances for a world list of flavoring substances and ingredients. In three or four years, the list will be completed. The list will be open to allow industry to continue to add safe ingredients as companies create new materials. Then food and beverage companies can buy flavors and easily use them around the world.
On the fragrance side, the Research Institute for Fragrance Materials, based in Hackensack, N.J., has represented the global fragrance industry. The fragrance side has had much more focus on globalization of ingredients. On the other hand, acceptance of fragrances worldwide is also easier.
Safety is more serious with flavors, and this has caused many gray hairs in the industry. It is frustrating to develop a product that will meet regulations everywhere.