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Faced by bearish competition from a dramatically consolidating industry, Firmenich is reenergizing its winning formula from the mid-Nineties by reemphasizing team building among its perfumers as a way of maintaining its position among the top tier of global fragrance suppliers. The company is also banking on making strides in emerging markets and stepping up investments in research, and is contemplating acquisitions.

“By 2015, it’s estimated that the middle classes of China, India, Russia and Brazil will be larger than the middle classes of the U.S., Europe and Japan,” said Patrick Firmenich, chief executive officer of the Geneva-based fragrance and flavor supplier. “These countries are going to offer a tremendous opportunity for growth.”

This story first appeared in the December 22, 2006 issue of WWD. Subscribe Today.

So the firm has invested heavily in China, where it has a fully owned subsidiary and, during the past three years, opened a center for fragrance creation and consumer and market understanding. The company also opened a manufacturing facility there.

In Latin America, where Firmenich claims to be the market leader, plans include expanding its presence in Brazil.

“There are emerging companies in those countries, and people are more interested in growing local brands to become international,” said Michel Bongi, corporate vice president of Firmenich’s fragrance division, who pointed out the success of Latin American beauty players, such as Brazil’s Natura.

However, the company is not putting all its eggs in one geographic basket. Bongi noted the bulk of Firmenich’s net sales are still generated in the developed world, and a strong focus is on expanding business there. Firmenich will unveil a new fine fragrance development center in Paris in 2007, for instance, and is “taking advantage of new distribution channels and developing strong partnerships with brands in specialty retail distribution” in the U.S., where it’s clocking good gains.

“We are growing at double-digits in local currency. Of course, the dollar being stronger helps,” said Firmenich. “There is potential for growth in the U.S.” He added that fragrance consumption there is lower than in Europe, which generates most of the firm’s business.

“We keep reinventing and reevaluating ourselves,” said Jerry Vittoria, who was named president of Fragrances North America earlier this year. “As part of this reinvention, we’ve put creativity at the center of all that we do. We’re coming from a good record of growth in the personal and home care divisions, which we’re most known for and have had the fastest organic growth over the past 10 to 15 years.” He later added, “It’s not just about winning, but winning the right projects that have longevity.”

And the Firmenich chief apparently is a believer in patience. “We take a long-term view to try and minimize the degree of competition internally,” Vittoria added. “We’re not just going for a quick fix and giving something half finished. It takes time to build a great product.”

Firmenich stated in its annual report that it is the volume leader in fragrance­ — when all categories are added together — with total perfumery sales for the year ended June 30, 2006, up by 8.7 percent in local currencies and 13.5 percent overall in Swiss francs to 2.31 billion Swiss francs, or $1.85 billion at current exchange rates. Of that, $1.2 billion was generated by fragrance sales. Firmenich generates 65 percent of its revenue from fragrances and 35 percent from flavors.

Moreover, the path to dominance is slipperier than ever. International Flavors and Fragrances has won an impressive share of fragrance briefs during the past 18 months and grabbed the headlines to match, while chalking up 2005 fragrance sales of $1.14 billion. According to a ranking earlier this year that appeared in WWD Beauty Report International, Symrise was fourth with 609 million euros, or $758 million, in sales volume, according to industry sources. Quest came in fifth with sales of 301 million pounds, or $548 million. Givaudan was listed as third in that survey with 1.13 billion Swiss francs, or $910 million.

But on Nov. 22, Givaudan shook the industry by announcing a $2.3 billion acquisition of Quest International. The combined fragrance sales would weigh in at an estimated 1.76 billion Swiss francs, or $1.43 billion. In a single stroke, Givaudan-Quest became the new number one.

All the talk about being number one was irrelevant to at least one competitor, who scoffed that the volume means nothing compared with being seen as the leader in creativity and innovation.

During an interview conducted before the Givaudan acquisition, Vittoria agreed, “Being number one is not our strategic objective. It’s very nice to be number one,” he added, “but somebody else will buy another house and they’ll be number one. We want to be the most preferred fragrance house for our customers. Healthy competition is always good for the industry and makes you work harder. It’s the global reality of the business.”

Based in Geneva, Firmenich has made several changes in its North American offices this year. The family-owned company consolidated its fine fragrance and home and body care divisions, in addition to appointing Vittoria as president of Fragrances North America in a restructuring of its management team. Vittoria, who held various leadership positions at Firmenich over 16 years, was previously vice president and general manager of the company’s perfumery division for body and home care in North America. The company hopes this initiative will maximize cross-functional synergies to keep up with a changing market.

Cathleen Quinn was also appointed as vice president, creative development center for fine fragrances. Quinn will provide strategic alignment to perfumers by managing all creative development resources in North America, including evaluation, marketing and laboratories. With 13 years of management experience in the marketing and creative development of fine fragrance, Quinn relocated from Firmenich’s global fine fragrance center in Paris where she served as vice president of creative marketing. Marc Salmon also assumed the role of vice president of sales for fine fragrance North America.

Firmenich’s business is broken down into four segments, which include fine fragrances, personal care, home care and ingredients, which is the backbone of the company’s success. The company has placed a strong emphasis on research — both in terms of ingredients and marketing — to develop a creative edge as competition to win briefs remains fierce. Vittoria stressed Firmenich’s investment in creating new molecules. The company has been plowing 10 percent of its annual sales into research and development with an eye to discovering new ingredients. Firmenich spends up to $2 million per new molecule on various regulatory and safety approvals and comes out with five to 10 new ingredients per year.

“Forty percent of our fragrance ingredients are [proprietary] Firmenich molecules,” said Armand de Villoutreys, the group’s vice president of fragrance worldwide. “Of those, 20 percent are captives only used by our perfumers, so the product is unique and cannot be counterfeited.”

Recent developments include a new extraction method to create a jasmine sambac note.

“It is a superior quality of natural jasmine. It completely matches the flower, avoiding the burnt effect that is often a result of using other extraction methods,” maintains Firmenich perfumer Olivier Cresp.

Firmenich has also recruited five perfumers in two years to handle the rising pressure on its development teams, which includes 80 noses. They have been increasingly active this year following a weaker launch season in 2005 versus prior years, according to Firmenich. Company executives declined to disclose how many scent projects it has won. However, recent fragrances created by Firmenich include names like Hypnôse by Lancôme, Pure Turquoise by Ralph Lauren, Emporio Armani City Glam for Him and for Her, Baby Phat Goddess, Cherry Blossom by Bath & Body Works, Juicy Couture and Princess by Vera Wang.

“We have a high number of launches with our existing celebrity brands,” said Firmenich. “Forty-five percent of our launches are flankers or celebrity fragrances.”

As well as growing organically, Firmenich said he is open to acquiring companies.

“Our acquisition strategy is to target firms that bring specific technologies or access to new segments or markets,” he said. “One example is our successful integration of Noville Inc.” Firmenich acquired the South Hackensack, N.J.-based firm in February 2005.

“In less than one year, this acquisition has helped us to react to new opportunities on the home care and oral care markets,” he continued. “We are continuously on the lookout for acquisitions to complement our strength. However, a large proportion of acquisitions fail. We have made a few good acquisitions so far, and we would like to keep that track record.”

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