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By: Jeb Gleason-Allured
Posted: September 4, 2009, from the September 2009 issue of GCI Magazine.
  • Businesses have been built on the premise of giving consumers more and more; now, serving and selling to consumers has shifted to creating better and better products.
  • A superior fragrance or flavor experience in the context of an established brand makes the overall consumer experience better, building that brand.
  • A brand has the potential to live forever, if managed well.
  • Constantly assessing how much to invest in core brands versus how much to invest in new product categories and brands that will grow the business is crucial in rough economic climates.

Two key factors are simultaneously converging on and, in the process, reshaping the beauty industry, says Steve Hicks, P&G’s director of flavor and fragrance development global capability organization.

The first is the global economic crisis, which is hitting both fragrance and flavor suppliers and their customers. “This is going to put a lot more [emphasis on] innovation to grow sales and profitability,” Hicks says. In addition, he notes that regulatory pressures and criticisms from NGOs regarding ingredients continue to ramp up. These challenges, he says, are epitomized by REACH legislation in Europe and recent negative attention on air fresheners in California. How, then, will the industry be impacted?

Fewer, Better Launches

“The demand from [brand owners] is going to shift,” says Hicks. “It’s going to shift from more perfumes to better perfumes.” From fine fragrance to consumer products, he explains, the market, and thus the consumer, is oversaturated “with every conceivable consumer product line extension.” The ever-growing pace of launches simply cannot continue. “Certainly, we and others are going to continue to launch smart line extensions of our brands and fill consumer segments,” Hicks says. “But we’re going to put more and more emphasis on big blockbuster fragrances that have real staying power and things that we can view as classics in time, as opposed to fragrances that just come and go. I think the consumers are going to want that in a world where they’re looking for more simplicity. We’ve all built businesses giving them more and more, and now I think they want better and better.”

Reshaping the Industry for Financial and R&D Depth

In addition to the products it formulates, Hicks believes that the fragrance and flavor supplier landscape will evolve in response to both the dramatic cost of doing business under REACH and maintaining the resources necessary to continually deliver new technologies and materials—in addition to creativity. “There are about 800 ingredients that will have to go through REACH registration for perfumes,” he says, adding that the cost of doing so is “not insignificant.” The financial pressure on companies could make some reconsider whether or not to invest in certain materials. Meanwhile, he says, “Companies that have a pipeline of good technological and chemical innovation, and the great creative resources to be able to use them are going to continue to thrive. I think companies that lack one of those things—more specifically, if they lack the pipeline of new technology and new chemicals and rely only on creativity—are going to suffer. If you’re missing one of those, you’re really playing in the same sandbox as everybody else, and that’s a tough place to compete. What I advise the industry is: I need both. I’m sure other consumer product companies look at it the same way.” As a result of these factors, Hicks says that fragrance and flavor suppliers could likely see further consolidation in order to achieve sufficient “financial and R&D depth.”

Continued Strong Investment in F&F