Investigators sniff out hidden perfume industry

Besides being scented liquids, Gucci’s Flora Gorgeous Gardenia Eau de Parfum and Unilever’s Dove Go Fresh Pomegranate & Lemon Verbena Scent Shower Gel don’t have much in common. One is 100 times more expensive than the other by volume and is sold by a fashion brand, not a packaged goods company.

But both were created by the same company, Swiss fragrance group Firmenich. You may never have heard of it, but the scents it concocts permeate thousands of products, from perfumes, toothpastes and deodorants to liquid detergents. Invisible and unannounced, it is an ambient presence in homes.

It’s a good time for luxury perfumes. Sales of scented candles and perfumes from brands and celebrities such as singer Ariana Grande have increased as people indulge. Firmenich, which quietly produces many of them (including Grande’s RE M), has been swept away: its fine fragrance sales rose 33% last year.

The ride was abruptly halted last week when Firmenich and its three main competitors were raided by antitrust investigators from Switzerland, the EU, the US and the UK. They are suspected of collusion to increase prices, preventing competitors from supplying their customers and limiting the production of certain perfumes.

Firmenich, the Swiss Givaudan, the German Symrise and the American group International Flavors & Fragrances have not admitted any wrongdoing: they say they are cooperating with the investigation, which may not lead to prosecution. It not only covers fragrances but also “fragrance ingredients”, which go into food to make it smell good.

We don’t know which products the regulators have their eyes on, but I can make an observation on the gap between the prices of luxury perfumes and shower gel. You don’t have to fight too hard when customers will happily pay for a tag and a small bottle of perfume. Producing basic foodstuffs is a struggle that creates a temptation to collude.

The presence of Firmenich and others is the hidden factor behind the “perfume boom” of the luxury industry. Labels realized there was money to be made by adding fragrances to their clothing lines, but few had Chanel’s ability to make the fragrances themselves. They needed partners and the perfume groups were eager to help them.

The rise in luxury fragrance sales began during the pandemic and has continued. Sue Nabi, chief executive of US beauty company Coty, which makes fragrances for brands including Burberry, Chloe and Tiffany, noted last year that shoppers were “buying more and more. . . expensive items” for themselves, not just as gifts.

But while luxury fragrance is growing rapidly, it is only a small part of the industry. Most are less glamorous and more everyday: making air fresheners, deodorants, soaps, gels, detergents, floor cleaners and all sorts of other aromatic products.

The Geneva-based International Fragrance Association is part of the antitrust investigation and told me it was conducting all meetings “under strict competition policy guidelines.” She estimates that in 2017, fine fragrances accounted for 9% of sales of scented products; nearly 70 percent were for personal care items such as shampoo.

Life is harder in the latter sector: growth is much weaker and perfumeries face price increases from their 3,000 raw material suppliers, including lavender and patchouli producers. They also have to negotiate with the world’s largest packaged goods companies to sell their fragrances, including Unilever and Procter & Gamble.

The industry produces a huge range of scents and fragrances: Givaudan alone manufactures 176 “fragrance molecules”, ranging from Benzyl Salicylate (“floral, balsamic, sweet”) to Alicate (“fruity, rhubarb, aromatic, lilac”). But no matter how good they smell, selling chemicals to multinational corporations is a hassle.

The fact that people choose scents carefully but care little about where the pine scent in floor cleaner comes from dictates the terms of trade. When Gucci wanted a fragrance with “ultra-dry woody notes”, he consulted one of Firmenich’s master perfumers, who mixed the formula. When a multinational manufactures a supermarket product, it has a plethora of supplier choices.

Perhaps the perfume companies have agreed to restrict these choices: we will know when the investigation ends. Meanwhile, the raids tell a story of making money in perfumes or other products. Get closer to price-insensitive buyers and away from industrial supply chains.

I have another observation: a legal way to limit competition is to merge. When leaders agree on prices within a company, it is called strategy, not collusion. Like others, the industry has consolidated: Firmenich is merging with Dutch biosciences group DSM: the 41 billion euro deal was cleared by European competition authorities last month.

Expect more merges after this. And the next time you’re spraying perfume or washing your hair, check out the fine print on the back as well as the labels on the front. The smell could have come from Switzerland.


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