The Smell of Competition

By Jeremy Caplan

Call it the Davos of nose, the olfactory Olympics, the Sundance of Scent. On June 5, representatives of more than 50 top fragrance-and-flavor companies will converge at the World Perfumery Congress in Cannes, France, to charm potential customers and herald their latest innovations. Gilles Andrier, CEO of Givaudan, the industry leader, will speak on "The Noses of Tomorrow." The latest robotic smell mixers will be on display. International Flavors and Fragrances (IFF), Givaudan's closest rival, will fly in most of its 96 top scent developers separately to the June congress; their noses are so precious that IFF prohibits more than two from ever traveling on the same plane. In addition to trading tips on new smell-rendering techniques and technologies, these wizards of whiff will toss around novel scent combinations employing hydroponic vegetables, Chinese herbs, Indian spices and other recent additions to their olfactory palettes.

But the scent business isn't all wine and tuberoses. Technological advances, consolidation and the race to get into new markets are shaking up the industry. IFF is Pepsi to Givaudan's Coke, and the two firms account for about 30% of the $18 billion global market for flavors and fragrances. Givaudan lurched ahead this spring by buying Quest, which had been the market's fifth leading player. IFF is coming out of a rough spell, with three different CEOs since 1999. "There has been a lot of turmoil at the top," says John Leffingwell, president of Leffingwell & Associates, an industry consulting firm. "But for the first time in years, things seem to be turning around." And the smell of competition is in the air.

Some experts warn that as the industry heats up, its traditions of artistry and creativity could be eroded. "We're in danger of losing our identity, becoming more concerned with Wall Street than our consumers," says Jean-Pierre Subrenat, chairman of the World Perfumery Congress and former head of the American Society of Perfumers. He is worried that industry specialists will lose their jobs and that financial demands will squelch creative freedom.

For now, IFF and Givaudan are thriving. The global market for flavored packaged foods tops $1 trillion, and consumers spend hundreds of billions on scented cleaning and hygiene products. In the flavor-and-fragrance industry, the toughest battles are fought not behind the perfume counter but on grocery-store shelves. When whipping up a product meant to hook billions of taste buds and olfactory receptors, the biggest consumer-product corporations in the world don't gamble on hunches. That's where the million-dollar noses come in.

A Smell for Every Nose

Within an hour of waking, many Americans interact at least five times with companies most of them have never heard of. Lather up with any popular brand of shampoo or soap in the shower; apply deodorant; brush your teeth; and put on sunblock, skin cream or hair gel, and chances are you are relying on creations touched by IFF, Givaudan or smaller competitors like Firmenich and Symrise. IFF's five largest customers, according to a recent JPMorgan report, are Procter & Gamble, Unilever, Colgate, Estee Lauder and Pepsi.

Robert Amen, IFF's CEO, would prefer to keep those relationships quiet. In other industries, execs love to crow about their deals with big, powerful companies. Not here. When you partner one day with, say, Colgate and the next with Crest, you're better off keeping your list of friends to yourself. "We're the ghostwriters," says Nicolas Mirzayantz, 44, head of IFF's smell division.

The only thing more closely guarded than its client lists are the formulas in IFF's manufacturing process. No two production operators have a complete recipe, and the employees who compile ingredients aren't privy to the name--or even the type--of a final product being prepared. A stolen vial of manufactured fragrance isn't the easiest thing to fence on the open market. "It would be very unusual to sell a fragrance or ingredient for more than a few million dollars," Amen says.

But it's worth much more than that to IFF and its clients. The company devotes 9% of its revenue, or $185 million a year, toward research and development, employing more than 100 scientists whose task is not just to brew up new smells and flavors but also to rethink how smells and flavors are embedded in products. That investment is a sunk cost for fragrance companies; they get paid only when a manufacturer buys the finished product as an ingredient. So IFF makes money on volume. A sodamaker, for example, would buy vats of flavoring for every batch of a popular drink. But unlike other raw ingredients, like corn syrup or carbonated water, flavors are unique. When a flavor or fragrance hits big, IFF scores a guaranteed revenue stream.

To come up with the next big things for the nose or taste bud, fragrance-and-flavor companies send their scientists on "scent treks." On a recent trip to Papua New Guinea, Roman Kaiser, director of smell research for Givaudan, collected more than 50 samples, including a rare hoya plant. "The scent reminds you of dark chocolate, with olfactory notes rarely found in flowers," Kaiser says. He has amassed more than 2,500 natural scents over the years and has reconstituted more than 450. To create authentic flavorings, Givaudan's researchers go on "taste treks" to gourmet restaurants and popular street stands. On a recent trip to a hot-pot restaurant in China's Sichuan province, they sampled a spicy noodle soup that they hope to reproduce in bouillon.

Subha Patel, Kaiser's counterpart at IFF, has journeyed to Kenya and Guangzhou in China. In Southern India, she drew smell samples from cardamom flowers, local tea and fresh red clay. In lieu of bringing back buckets of samples or dead flowers, Patel records her findings chemically. Her primary tool, a solid-phase microextractor, is a $100 penlike device that can record the specific molecules present around anything with a smell. Fennel, cucumber, melon, tomato leaf, black plum and hydroponic celery might soon start to show up as notes in consumer fragrances. Scent notes of Japanese ginger, Indian mango, lantana leaves, evening maiden orchids and pickled jalapeno peppers could also appear in the next generation of soaps and shampoos.

Like top athletes or singers, IFF's best perfumers draw salaries that approach $1 million, including bonuses based on successful fragrance sales. Even for someone with a naturally strong sense of smell, it takes more than a decade of training and apprenticeship to develop a refined understanding of the thousands of compounds smell authors draw upon. "Not everyone who blends a few ingredients is a true perfumer," says Subrenat. "Just as not everyone who burns a steak at home is a three-star Michelin chef." The best scent specialists are so savvy that they can identify the most prominent three "notes" in any commercial product with a smell, and can often guess who designed it.

Racing to Get Ahead

The perfect scent isn't worth anything, though, until it leaves the laboratory. To capture and translate the smell of a plant for consumers, IFF relies on a kind of camera for smell. The bell-shaped glass tool captures a living plant's "headspace": the air surrounding it. Using chromatography and mass spectrometry, scientists analyze the captured molecules, and computer programs help map out the plants' primary components. Most have between 60 and 120, with as many as 100 minor notes. Developers re-create the smell using natural or synthetic oils. To do that, IFF draws on a rotating mix of more than 2,000 plants, flowers and herbs at its R&D facility in New Jersey, which is home to the world's largest collection of aromatic orchids, with 750 distinct varieties.

IFF's most successful products, of course, use these thousands of scents in perfumes. In 1996, Estee Lauder's Clinique brand wanted to put joy in a bottle. What does happiness smell like? IFF's smell scientists have been studying the psychological and physiological responses evoked by fragrances since 1983, so they answered that question with research rather than poetry. They blended dozens of scent notes from flowers, herbs, plants and fruits and tried them on hundreds of test subjects. The citrus-heavy perfumes were consistently associated with joy, well-being and, well, happiness. Clinique Happy, which has earned a queen's ransom for Estee Lauder, went on to become one of the top five perfume launches of the decade.

Fragrance makers are using this long history of intensive research and development to expand their markets by introducing scent into unexpected places. IFF, for example, has embedded lavender and chamomile in pillows for Marks & Spencer and has woven the smell of "clean" into socks for Target. The textiles in these products use microcapsules filled with scent that lingers even after dozens of washings. Another recent innovation from IFF resulted in smell-blocking garbage bags.

One of the biggest opportunities for flavor makers is the recent push by food manufacturers to market healthier packaged foods. A team of five researchers at IFF spent more than three years coming up with a low-sodium flavoring that could reproduce the salty taste of canned soups, for instance. Givaudan is also developing low-sodium, low-sugar and low-fat flavors intended to replicate the taste and texture of their full-figured counterparts. "We know how ice cream needs to taste to please an Italian, American or a Swede," says Givaudan spokesman Peter Wullschleger. "Taste and smell are cultural."

That cultural sensitivity is a crucial competitive advantage. The fastest-growing markets are in Eastern Europe, Latin America and Asia, and the fragrance giants hope their staff's noses and palates are global enough to understand their new customers. At Givaudan the CEO is French, the CFO Swiss, the head of fragrance Indian, and the flavor director Mexican. IFF has an American CEO and a Frenchman and Argentine in charge of fragrances and flavors, respectively.

However tough the competition, the industry is united in one concern. Development, says Subrenat of the World Perfumery Congress, is endangering its raw materials. India has lost thousands of acres of its sweet-smelling sandalwood trees, for instance, over the past decades. If that trend continues, it will be even harder for fragrance-and-flavor companies to develop the next blockbuster smell or taste. Already, for every five to 10 samples perfumers dream up and perfect, just one generates a sale.

For now, the sultans of smell continue their quest for the countless smells and flavors yet to be unearthed. Trekking to ever more remote spots, they nose around, smell cameras in hand, hunting for the next sensory masterpiece.