Scent that attracts
Fragrances and flavours heighten the senses and tickle the palate. From being the “flavour of the month” or whether “salt can ever lose its flavour” to fragrances being described in “A Rose by Any Other Name would be Just As Sweet” in Romeo and Juliet by William Shakespeare – both fragrances and flavours have tantalised the minds of people in their creation.
The global fragrance and flavour industry today is estimated to be worth $23.90 billion with an almost equal split between the fragrance and flavour market. The global fragrance and flavour industry is expected to grow at a CAGR of 4.7 per cent by 2016 to reach an estimated value of $27.5 billion. In 2013, the global fragrance and flavour industry derived approximately 57.0 per cent of its revenue from North American and Western European markets, and 43 per cent revenue from rest of the world.
While the global fragrance and flavour industry is highly-fragmented with thousands of players, there is increased consolidation among the larger companies. In 2013, the top 12 companies operating in the global fragrance and flavour industry held approximately 83.0 per cent of the global fragrance and flavour industry. These top 12 companies can be further broken down into the top four companies, consisting of Givaudan SA, Firmenich, International Flavours and Fragrances, Inc. and Symrise AG, that individually hold a market share of above 10.0 per cent, and collectively hold 57.0 per cent of the overall global fragrance and flavour industry among them. The remaining eight companies individually have a market share of between 1.0 per cent to 10.0 per cent and collectively hold 26.0 per cent of the global fragrance and flavour industry. Regional companies make up the balance of companies in the global fragrance and flavour industry.
The global fragrance market accounts for approximately 51.0 per centof the total global fragrance and flavour industry in terms of value at $12.2 billion for 2013. The main product categories in the global fragrance market for 2013 were soaps and detergents, cosmetics and toiletries and fine fragrances accounting for 32.0 per cent, 27.0 per cent and 18.0 per cent respectively, of the global fragrance market, according to Nielsen Market Study on Fragrances and Flavours.
The global flavour market accounts for approximately 49.0 per centof the total global fragrance and flavour industry in terms of value at $11.7 billion. Over the last six years, from 2007 to 2013, the global flavour market has increased its share of revenues from 44.0 per cent to 49.0 per cent. The main product categories in the global flavour market for 2013 were beverages, savory and convenience foods and dairy, accounting for 34.0 per cent , 16.0 per cent and 13.0 per cent respectively.
The dynamics of the global fragrance and flavour industry are gradually changing. Disposable incomes are rising in the world’s emerging markets together with consumer spending, especially in the emerging middle class that is increasingly able to afford package food and beverages and personal care items. Emerging markets are expected to be the primary growth driver of the global fragrance and flavour industry. As one of the largest fragrance and flavour companies in India with four manufacturing facilities – three in India (Mumbai, Vapi and Raigad) and one in the Netherlands – having total installed manufacturing capacity of over 19,819 tons annually, S H Kelkar And Company Limited stepped in with its IPO at Rs 173-180 per equity share in October to raise Rs 500 crores for debt repayment, investment in their wholly owned subsidiary K V Arochem Pvt. Ltd and general corporate purposes. “Our fragrance products and ingredients are used as a raw material in personal wash, fabric care, skin and hair care, fine fragrances and household products. Also, our
flavour products are used as a raw material by producers of baked goods, dairy products, beverages and pharmaceutical products. We export fragrance products to 52 countries and are an emerging flavour producer in India with exports to 15 countries,” said Kedar Vaze, Group CEO, S H Kelkar & Company.
The total market size of the Indian fragrance and flavour industry is estimated at Rs. 38.05 billion in terms of value and 63.72 thousand tons in terms of volume for the calendar year 2014. Out of this total value, 55.0 per cent was attributable to the Indian fragrance market, and 45.0 per centto the Indian flavour market. The Indian fragrance market grew at a CAGR of 10.1 per centover the last four years, and the Indian flavour market grew by CAGR of 10.4 per cent over the same period.
The organised fragrance and flavour industry is expected to reach Rs 35.48 billion by 2016, and the unorganised fragrance and flavour industry is expected to reach Rs 10.14 billion by the same period. Imports in the Indian fragrance and flavour industry grew by 15.1 per cent from Rs 3.35 billion in 2013 to Rs 3.88 billion in 2014. Exports in the Indian fragrance and flavour industry grew by 17.2 per cent from Rs 4.18 billion in 2013 to Rs 4.90 billion in 2014. In 2014, there were more than 1,000 companies in the Indian fragrance and flavour industry, ranging from multinational companies and large Indian industrial houses to small-scale units and local manufacturers. Large Indian industrial houses in the Indian fragrance and flavour industry are comprised of a few well-established companies with decades of experience.
In 2013, the top five companies operating in the Indian fragrance and flavour industry – Givaudan SA, Firmenich, International Flavours and Fragrances, Inc, S H Kelkar and Symrise SA – each held a market share of approximately 23.0 per cent, 14.0 per cent, 14.0 per cent, 12.0 per cent and 7.0 per cent respectively, and collectively held a market share equivalent to approximately 70 per cent. These major players remained competitive by leveraging on their resources and research and development facilities to produce high quality, custom-made products, particularly for their quality-conscious multinational customers.
The key drivers of growth in India’s fragrance and flavour industry include: India’s population of 1.21 billion is growing at a rate of 1.41 per cent annually. It is a young country with almost 65.0 per cent of the population below the age of 30 years. The consumption of goods will therefore be driven by younger and more affluent consumers. Additionally, India also has a growing population of working women, which is expected to emerge as a large consumer group of FCMG products; increasing literacy levels will have an impact on consumer awareness and knowledge. Such consumers will demand better quality products with a keen focus on value for money. The demanding younger population will also drive a shift in the Indian fragrance and flavour industry towards more creative and innovative products; disposable income plays a pivotal role in determining the growth of the Indian fragrance and flavour industry. Since 2012, disposable income has been increasing annually, and is expected to grow by 6.0 per cent in 2015 – from $1,712.00 billion in 2014 – to $1,808.00 billion in 2015. Growth in the fragrance and flavour industry is directly correlated to growth in the FCMG sector. The total FCMG market is expected to treble in growth by 2020 from $37.00 billion in 2012. The principal products of the FCMG industry are household care, personal care, food & beverages and healthcare products; Changing lifestyles is a major driver leading to greater demand for processed and packaged foods in India and consequently in the flavour industry. The Indian population is gradually progressing towards convenient food items that are easy to prepare and consume, such as ready-to-eat food products, fortified juices and milk products in a variety of flavours. The retail market is expanding in India at a rapid pace. A large number of malls, shopping complexes and convenience stores have been built in several cities.
Moreover, the mall culture is picking up in Tier I and Tier II cities across India, boosting the packaged FCMG market. There is also an increased dependence of the working population on the retail sector, particularly for FCMG products consumed on a daily basis; urbanisation in India drives growth, especially in the processed food industry, which in turn leads to growth in the flavour industry. Urbanisation is expected to become more widespread in India, having increased from 27.8 per cent in 2001 to 31.2 per cent in 2011. Together with an increase in disposable incomes, there will be greater diversification of food consumption patterns among the Indian population; Globalisation will further enhance and influence customer preferences by bringing in new product concepts and ideas into the Indian market. Globalisation will also bring in India fragrance and flavour products and ideas into the international market.