A year after Givaudan's acquisition of Quest International, a new competitive force is emerging that the combined company hopes will reshape the map of the merger-prone fragrance supply landscape, which has undergone countless seismic shifts in the past.
"In fine fragrance, Givaudan was clearly number three, and Quest was number four, but when you put them together, it propels us to number one," said Michael Carlos, president of Givaudan's fragrance division. "Now the challenge is to keep us on top."
According to Gilles Andrier, chief executive officer of Givaudan, one of the primary reasons for the acquisition was to grow the company by dramatically increasing the business size and multiplying its resources.
"We've launched two major initiatives from researching the sense of smell [to] understanding what's going on between ingredients and receptors so we can find new molecules," said Andrier. "This requires a lot of investments and taking risks and that requires us to have a bigger size. We hope to leverage this increased size by [harnessing the synergy] of creative capabilities, innovation and consumer understanding to grow."
Carlos noted the company's objective is to grow faster than the market and, to do that, it needs a higher win rate.
"The merger between the two has created a formidable fragrance house and I look forward to seeing what evolves from the result," Robin Burns, chairman of Batallure Beauty LLC, said of the Givaudan-Quest deal, which was finalized last year.
Fragrance consultant Ann Gottlieb said, "There's a new energy and spirit, which will lead to better work." She added, "The synergy is already noticeable and I've seen an increased success rate."
The company has plenty of experience with mergers and acquisitions, dating back to 1991, when fragrance suppliers Givaudan and Roure merged.
Carlos noted, "Givaudan has always grown through acquisition, so we've gone through it already. Culturally, there's lots of commonality and similarity with Quest. So from that point of view, we thought it could be a [smoother] acquisition."
Givaudan's fragrance division increased revenues 54.9 percent in local currencies, and 55.3 percent in Swiss francs to 1.9 billion Swiss francs, or $1.58 billion, last year. Pro forma, sales grew 3.9 percent in local currencies and 4.2 percent in Swiss francs.
While the global fragrance market adds up to 17 billion Swiss francs, about $13 billion, Givaudan sales account for 25 percent of the total market, or 4.2 billion Swiss francs, said Andrier. He added that the breakdown between flavors and fragrances is 53 and 47 percent, respectively.
Fine fragrance accounts for 25 percent of the total perfumery business, and the other three-quarters of the fragrance business is generated by consumer products and proprietary ingredients, according to Carlos.
In addition to Givaudan, other top global fragrance suppliers include International Flavors & Fragrances, Firmenich and Symrise.
As a result of the acquisition, roughly 90 top-level managers have been reshuffled in a reorganization across the globe, with perhaps the greatest impact in the consumer products division. In addition, the U.S. creative centers of Givaudan and Quest were combined and are located in New York.
According to Carlos, the merger didn't force Quest to close any of its departments. "The Quest business was very complimentary to us, so there was no need to make many changes to the various departments," he said.
Andrier added that the company found that Quest's international infrastructure, product categories and technologies were complementary to Givaudan.
Executives felt the acquisition of Quest would help strengthen certain areas of Givaudan's business, particularly with its oral care segment and flavors division. Known for its stronger men's business, Givaudan hoped that Quest could round out its women's fine fragrance portfolio.
"Quest brought a fine fragrance business with lots of strength in its overall portfolio, especially in Europe," said Carlos. "Looking historically at the kind of business Quest had, it created many classics in Europe including Thierry Mugler's Angel and Jean Paul Gaultier, which have been important milestones in perfumery from a global standpoint."
Greater size on the supply side could also be seen as an advantage when it comes to "core lists," a specific number suppliers with which manufacturers do business.
"The two companies' core lists were complimentary, and when we put together our lists, we now cover almost every single core list that exists, whereas before, the 'old' Givaudan and Quest had some gaps," said Carlos. "The complementary core lists meant that we weren't eroding our business."In addition to restructuring its European and U.S. offices to achieve increased communication and better collaboration across all departments, Givaudan perfumers have been pushed to the forefront when working with clients by involving them in briefs during early stages, and assigning customers specific teams.
Quest saw itself more as a global organization that was run and controlled out of Ashford, U.K., while Givaudan previously operated in more of a decentralized fashion, said Carlos. Perhaps the biggest restructuring came in combining the research and technology departments. "We restructured everything from marketing and evaluation to sales," he said, pointing to efforts to enhance internal communication. "What's driving success between Europe and the U.S. today is having dedicated teams."
Kate Greene, Givaudan's vice president of marketing, added, "Clients are noticing the new type of focus we are offering and are [receptive] because it's truly a real extension of their creative teams."
According to Carlos, Givaudan had previously focused on maintaining strong regions with less emphasis on global functions — something executives aimed to change with the Quest merger.
"In the new organization, we tried to have more global functions across different segments of business," said Carlos. "In terms of consumer products, our leaders are responsible for categories around the world, including global marketing and consumer understanding."
Givaudan executives said they are intent on maintaining client service during the transitional period, adding the company has appointed sales teams to be responsible for specific accounts overseen by a global account manager. Previously, an executive would manage multiple accounts. Today, account executives are dedicated to single global accounts.
In addition to making sure that perfumers are more actively involved with briefs early on, the company also is trying to increase collaboration between perfumers on a global basis. With about 170 perfumers across all categories, there are 35 perfumers in fine fragrance.
The traditional business model of fragrance houses has been based on longevity — supplying a classic winner for decades — but the lifespan of new fragrances has been growing shorter and shorter.
According to Carlos, the company is basing its success rates on this year's projects. "If the life cycles of projects get shortened, we have to learn how to work much more efficiently in terms of proactive programs and consumer understanding," he said."We have to develop banks of great fragrances," said Carlos. "If you look at the business model today, we don't sell juice, we sell a service. It's a creative sensory element that goes into a product."
Givaudan is now looking to invest in emerging markets like China, Latin America, India and Russia. "Emerging markets continue to be an important growth opportunity for fine fragrance and today market data shows that Latin America and Eastern Europe account for nearly one-third of the global fine fragrance market," said Carlos. "In Latin America, Givaudan has roughly a 50 percent share of the fine fragrance market and when you consider this region's projected growth rate, it will likely become larger than the U.S. market in the foreseeable future."
The company has invested in things like ethnographic studies in markets such as China to better identify consumers' attitudes towards fragrance.
"There's a debate, but many believe the market will blossom over the next 10 years," said Carlos. "The Chinese market will have the biggest cosmetics market in world very soon, but India has a bigger fine fragrance market than China."
On the ecological front, Givaudan is focusing on sustainability by partnering with various global groups to give back to communities and changing where and how ingredients are sourced.
According to Greene, Givaudan teams are seeking new ingredient sources that both benefit the environment and enrich the perfumer's palette through the Givaudan Innovative Naturals Program. As part of this program, the company focuses on organic ingredients, ethical sourcing, biotechnology and new naturals. The company has about five different projects, including the ethical sourcing of tonka beans in Venezuela and sandalwood in Australia.
Demonstrating its sense of community both as a company and from an ecological front, Givaudan recently flew 140 employees from its fine fragrance creative centers from around the world to Costa Rica for a week to plant 2,000 trees and 5,000 medicinal plants, paint schools and teach students about how to take care of the environment.
The company gave a $5,000 grant to Tropical Sierra, an educational foundation, which planned to use the funds for elementary school textbooks.
According to Wendy Liebmann, president of consulting firm WSL Strategic Retail, there is added value in the combination of Givaudan and Quest. "It's about being a smart strategic partner" and helping clients gain a "competitive edge in a struggling category."