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Investigators sniff out the hidden fragrance industry

by Pinchas Cohen
March 18, 2023
in Business News
Reading Time: 3 mins read
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Investigators sniff out the hidden fragrance industry
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Aside from being scented liquids, Gucci’s Flora Gorgeous Gardenia Eau de Parfum and Unilever’s Dove Go Fresh Pomegranate & Lemon Verbena Scent shower gel do not have a lot in common. One is 100 times more expensive than the other by volume and is sold by a fashion label, not a packaged goods company.

But both were created by the same company, the Swiss fragrances group Firmenich. You may never have heard of it, but the smells it concocts permeate thousands of products, from perfumes, toothpastes and deodorants to laundry liquids. Unseen and unheralded, it is an ambient presence in homes.

These are good times for luxury fragrances. Sales of scented candles, and perfumes from brands and celebrities such as the singer Ariana Grande, have grown as people indulge. Firmenich, which silently produces many of them (including Grande’s R. E. M) has been carried along: its fine fragrance sales rose by 33 per cent last year.

The ride was rudely interrupted last week when Firmenich and its three biggest competitors were raided by antitrust investigators from Switzerland, the EU, the US and the UK. They are suspected of colluding to raise prices, blocking competitors from supplying their customers, and limiting production of some fragrances.

Firmenich, Givaudan of Switzerland, Symrise of Germany and the US group International Flavors & Fragrances have not admitted any wrongdoing: they say they are co-operating with the inquiry, which may not lead to charges. It covers not only fragrances but “fragrance ingredients”, which go into foods to make them smell good.

We do not know which products regulators have their eyes on, but I can make an observation on the gap between prices of luxury scents and of shower gel. You need not fight too hard when customers will happily pay for a label and a tiny bottle of scent. Producing household staples is a struggle that creates a temptation to collude.

The presence of Firmenich and the others is the hidden factor behind the luxury industry’s “fragrance boom”. Labels realised there was money to be made by adding perfumes to their apparel lines, but few of them had Chanel’s capacity to make the scents themselves. They needed partners and the fragrance groups were eager to assist.

The rise in sales of luxury fragrance started during the pandemic and has carried on. Sue Nabi, chief executive of the US beauty company Coty, which makes perfumes for brands including Burberry, Chloé and Tiffany, noted last year that shoppers were “buying more and more . . . expensive items” for themselves, not just as gifts.

But while luxury fragrance is growing fast, it forms only a small part of the industry. Most is less glamorous and more quotidian: making air fresheners, deodorants, soaps, gels, washing powders, floor cleaners and all kinds of other products aromatic.

The Geneva-based International Fragrance Association is part of the antitrust inquiry and told me that it conducts all meetings “under strict competition policy guidelines”. It estimates that in 2017, fine fragrances accounted for 9 per cent of sales of scented products; nearly 70 per cent involved personal care items such as shampoo.

Life is tougher in the latter business: growth is far weaker and fragrance companies face price rises from their 3,000 raw material suppliers, including farmers of lavender and patchouli. They also have to negotiate with the world’s biggest packaged goods companies in selling their fragrances, including Unilever and Procter & Gamble.

The industry produces a huge range of smells and scents: Givaudan alone makes 176 “fragrance molecules”, ranging from benzyl salicylate (“floral, balsamic, sweet”) to Alicate (“fruity, rhubarb, aromatic, lilac”). But no matter how sweet they smell, selling chemicals to multinationals is a slog.

The fact that people choose perfumes carefully but care little about the provenance of pine scent in floor cleaner dictates the terms of trade. When Gucci wanted a scent with “ultra-dry woody notes”, it consulted one of Firmenich’s master parfumiers, who mixed the formula. When a multinational makes a supermarket product, it has a plethora of supplier choices.

Perhaps fragrance companies colluded to narrow those choices: we shall know when the inquiry ends. Meanwhile, the raids tell a story about making money in scents, or other products. Get as close as possible to shoppers who are insensitive to price, and keep away from industrial supply chains.

I have another observation: one legal way to limit competition is to merge. When managers agree on prices within a company, it is called strategy, not collusion. Like others, the industry has been consolidating: Firmenich is merging with the Dutch biosciences group DSM: the €41bn deal was cleared by EU competition authorities last month.

Expect more mergers after this. And when you next spray perfume or wash your hair, examine the small print on the back as well as the labels on the front. The smell could have wafted all the way from Switzerland.

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