Industry

A Closer Look at the Industry

The fragrance industry is not one particular industry but rather encompasses a wide group of related industries. Fragrance and flavors are very closely related with many substances used in both applications. Many of the companies involved in the development of fragrances are also involved in the development of flavors. Further some chemical companies also produce and sell fragrance and aroma chemicals. There is also a niche market for essential oils and other natural products. The retail market for scented products encompasses a wide variety of products formulated primarily for their fragrance as well as functional items to which fragrance has been added.

The top ten industry leaders account for over 75% of the sale of fragrance/flavors materials. These are large fragrance houses whose business is fragrance and flavors. Many popular fragrances originate in these companies. Fragrance for a variety of products, proprietary aroma chemicals, bases, and other aroma chemicals are developed, produced and sold.

There are smaller companies that also develop and produce fragrance and fragrance chemicals on a much smaller scale. These companies often fill specialized markets. While a viable and important part of the fragrance industry, most will never become major forces in the industry.

Chemical companies also produce aroma chemicals. These companies find fragrance/flavors chemicals a profitable addition to their product lines, but have no role in the development of new materials or formulating fragrances. They profit from the demand for fragrance materials without the investment that the fragrance houses have put forward.

A niche market in the fragrance industry is that of essential oils and other natural materials. Natural fragrance materials were the primary ingredients in perfumes of the early 1900's. Chemical synthesis has largely replaced these materials with those that can be manufactured. Some 80-90% of all fragrance chemicals are now synthesized. Recent years have seen an increase in interest in natural materials. Aromatherapy has become quite popular and essential oils play a significant role in this segment of the market, but only a minor one in the overall industry.

World sales of fragrance and flavors materials were estimated at 10-12 billion dollars in the year 2000. Sales have over doubled in the past two decades. Ten companies made up the bulk of these sales. Fragrance materials make up slightly more than one half of the sales. Almost a third of consumption of fragrance materials was in North America, 25% was in Western Europe, 26% in Asian-Pacific countries and the remaining in South America, Eastern Europe, the Middle East, and Africa. 25% of these materials were used in cosmetics & toiletries (includes perfumes), 34% were used in soap and detergents with the remaining 41% used in other applications which include candles, air fresheners, aromatherapy and pesticides.

Approximately 17-18% of the value of sales is in aroma chemicals. The US and Western Europe accounted for approximately 70% of the consumption of aroma chemicals and more than 90% of synthetic musk compounds. There was an estimated 100.4 thousand metric tons at a value of over $1.2 billion in sales of aroma chemicals in 1992. Based on a conservative 4% yearly increase, over 137 thousand metric tons of aroma chemicals were consumed in the year 2000.

In 1998 fragrance sales were $5.39 billion. Candle sales make up about 75% of the environmental fragrance market with sales of around $2.24 billion in 1999. Total retail value of fragrances is difficult to assess as fragrance is contained in many functional products that are not purchased primarily for their scent.

The industry is continually expanding its market. Children as young as three are targeted for "kid's" versions of adult products. There are a few companies that make "baby" colognes and aromatherapy products are being marketed for infants and children. Environmental fragrance is being expanded to include fragrance in heating, ventilation, and cooling systems in the home. Emerging technology will enable computers to emit a scent. One company even proposed putting fragrance in mulch.