EUR 850.00 For Business Accounts Only

Morningstar | Raw Material Inflation and Naturex Crimp Givaudan's Margins

Givaudan is the largest company in the global flavours and fragrances, or F&F, industry, with 25% market share. The company creates customised flavour and fragrance formulations from over 10,000 natural and synthetic raw materials for customers that manufacture consumer staples like food, beverages, and household-care products. F&F companies occupy a strong position in the value chain, as their formulations make up only a minute portion of the final product cost, but play a decisive role in the consumer’s purchasing decision. The company spends heavily on research and development as innovation is critical to ensure a steady stream of new products are available to satisfy changing consumer preferences. Current trends have consumers demanding healthier, safer, and more natural products. Accordingly, regulation has increased significantly in the past decade as consumers demand to know what is in their food and household products, and where the ingredients are sourced. The increased complexity and costs around regulation and raw material procurement have made it difficult for smaller companies in the F&F industry to compete. As a result, the industry has been steadily consolidating, to the benefit of the leading companies. Compared with peers, Givaudan has strong positions in the subsegments of beverages and fine fragrances, which generate high margins. As the industry leader, Givaudan has a significant exposure to large multinational customers. This is currently a headwind to growth, as local and regional competitors are growing swiftly and taking market share from the multinationals. Consequently, Givaudan is now investing to get closer to local and regional players. Around 43% of sales are in high-growth emerging markets, and the company is looking to increase this number to 50%-plus by 2020. Givaudan was late to the trend of expanding to higher-growth adjacent markets. It is now building an active cosmetics business via acquisition, with a target of CHF 100 million in sales over the medium term.