SCENTS: MORE ACTION, LESS CERTAINTY
NEW YORK — The good news for fragrance suppliers is that projects should be plentiful in the near future.
The bad news: The increased activity is no guarantee the fine fragrance industry will be able to pull itself out of the doldrums.
Michael Sweeney, vice president of creative and commercial resources at International Flavors & Fragrances, sees a short-term softening of the fragrance business with “a rather challenging” first half in the offing.
But beyond that, “We see signs of increases in the amount and quality of briefs that will take us into the second half of 1996 and the beginning of 1997,” Sweeney noted.
IFF bills itself as the world’s largest fragrance supplier with estimated 1995 sales hitting $1.45 billion, a 9 percent increase over 1994. Fragrance accounts for 60 percent of the total.
Sweeney said he is seeing new product activity from all his major accounts, including prestige and mass marketers and specialty store chains.
“They feel they have to do better,” Sweeney noted. “Everyone suffered through a difficult 1995.”
Elizabeth Arden’s decision last year to curtail launches was symbolic of the problem, Sweeney said, adding the EstAe Lauder Cos. benefited — its EstAe Lauder Pleasures and Tommy were launched with little well-financed opposition and as a result were the biggest introductions of the season.
“[The manufacturers] didn’t pull the trigger in 1995, but they’ll be back this year and in 1997,” Sweeney said.
“The big companies are going to be active,” said Patrick Firmenich, vice president and general manager of his family’s supplier firm. “There will be an acceleration of activity — partly as a reaction to the retail demand for new products.”
Thomas Malone, senior vice president for fine fragrances at Givaudan Roure, has also noticed an upsurge in the amount of profiles. “Every major company has a big project in the works,” he said.
Firmenich stressed that the amount of new activity won’t guarantee big dividends.
“The question is, is it quality activity?” he said. “We would prefer quality over quantity — but we just have control over the juice.”
He noted many vendors are turning to smaller, tightly controlled launches as opposed to broad, blockbuster introductions.
“More companies are targeting a niche market from day one,” he said. “This is true for a lot of the smaller players — having more narrow, focused plans means their advertising and promotion dollars are much better used.”
Sweeney said one step that needs to be taken is to reinvigorate consumer interest in the prestige retail channel. “Things have to be done to get the consumer back there,” Sweeney said. He stressed the rise in prominence of apparel chains like Victoria’s Secret and The Gap. “Anchor department stores are not what malls are about anymore,” Sweeney said, adding, “We are seeing a lot of activity in the specialty store groups.”
Yves de Chiris, vice president of fine fragrances worldwide for Quest International with responsibility for marketing the entire fragrance division, said there has been a slight shift in the business, with some of the more interesting fragrance work done in the mass market and some of the more directional projects in specialty store chains. “People are observing to see how it’s doing; not stepping back, but trying to analyze what it all means,” he said.
“The major companies are always working on new products,” said Michael Conti, director of fine fragrance sales at Haarman & Reimer, which reached $1.4 billion in global sales last year. “The traditional business won’t go away, but people are looking for new directions. “We’re seeing that retailers are getting more and more involved with launching their own fragrances,” he continued. “Of course, there’s The Gap and Victoria’s Secret, which is doing a better business with its toiletries than its [apparel]. But we’re going to see more get into it that aren’t now.”
Karen Elliot, senior vice president of marketing and fragrance development at Fragrance Resources, noted the increasing retailer involvement in fragrance creation.
“Retailers are doing their own lines, and we’re also seeing more specialty fragrances,” she said, citing Paul Sebastian’s Casual brand, which was created solely for Lord & Taylor. “The success of The Gap and The Limited means we’re only going to see more activity on that end. Even the Wal-Marts and the Kmarts might get involved. It just costs less money to get into the business that way.”
Richard J. Panzarasa, senior vice president and general manager of the fragrance division at Mane USA, said the recent trend to consolidation on both the supply and retail ends is one to watch.
“Considering the recent plight of the retailer, I do believe the consolidation wave has not yet crested,” he said. “I think retail consolidations, manufacturer consolidations and supplier consolidations will continue as sluggish markets and reticent consumers drive these mergers to increase profit by reducing redundancy. In the end, all this may encourage a new wave of entrepreneurs.”
While the business is starting to come from new directions, developing markets are still on the agenda.
“It’s no big secret that the big growth will come from Asia,” said Conti. “In the U.S., people are fighting over the same pie. How much more perfume can people buy? How many times can they shampoo their hair?”
Conti said Haarman & Reimer is investing heavily in Southeast Asia and recently opened a facility in Singapore.
“China is booming, India is booming. There is no doubt about that,” agreed Victoria Alin, vice president of fragrance creative projects at Dragoco. “The U.S. is a mature market and most of Europe is a mature market. When you look at the size of China and India, coupled with the rising middle class in those countries, you’ve got one heck of a hot market.”
Just as the composition of the market is changing, so have the dynamics of the job, with manufacturers expecting suppliers to help out more and more with marketing chores, not only fragrance concepts but packaging design ideas and possible names.
Like other fragrance suppliers, IFF is doing more work surveying consumer tastes and brainstorming on marketing ideas. But Sweeney feels suppliers cannot take the place of marketing executives: “We leave that to the experts.”
Elliot cited the increased responsibility of suppliers in bringing a product to the market; for example, Fragrance Resources came up with the concept for Vanilla Fields and presented it to Coty, which then scored a success in the mass market.
Added Conti, “Our clients are very receptive to concepts. Let’s face it — most [suppliers] can come up with a good fragrance. The vendors are looking more and more to us for the full idea.”
Alin also noted an increased reliance on marketing strategies.
“It’s more marketing, more consumer research, more strategic thinking, such as, ‘What kind of ideas do you have for extending my brand or improving my competitive positioning? What are your views on how we can globalize this brand?’ There is much more of a partnership between client and company.”
Quest International, which was formed by Unilever in 1987, has been on an accelerated growth curve, particularly in the U.S. Herb Kellhoffer, vice president of fragrances for North America, said he plans on doubling his American fragrance business in 1996, following a 30 percent jump in 1995.
He declined to be specific, but market sources estimate the size of the U.S. fragrance business at $100 million for 1996, with 15 percent of that sum in fine fragrances and the rest in functional products.
The growth in North American sales is driven by new business ventures, like the upcoming Royal Copenhagen Sport, which Quest developed.
“We are very optimistic about next year,” said de Chiris.
“The flow of new projects has far from dried up. The pace of launches is accelerating,” he continued, “because [manufacturers] are accepting the fact that products may have shorter life cycles.”
But as always, the shortened lifespan of fragrance brands is a concern. Firmenich described the launch cycle as “a dangerous circle, if not a vicious circle. We need introductions, but that means shorter lives for the products.”
“The industry has responded to a consumer who expects something new all the time — and the new tends to cannibalize the old,” said Elliot. “Chanel No. 5 had a good year because [Chanel doesn’t] schedule a new launch every single season. They’re able to support what they already have.”
Panzarasa at Mane said the challenge for fragrance suppliers will be to “continue to keep ahead of the attrition of those newer pieces of business.”
“With attrition running at about 20 percent a year, up from 10 percent only a few years ago,” he noted, “it is necessary to increase business by about 30 percent a year just to come out 10 percent ahead.”