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Purpose

In modern economies, wealth and employment, along with other public benefits, are often created because ideas and technologies are embedded in other more complex products and services, adding value through progressive stages of the production process. This often culminates in the final purchase of a product or service (which contains the embedded ideas or technologies) by consumers who satisfy multiple complex functional and emotional needs. This process of up-grading generates successive increases in value added and employment, and is described as a “value chain”.


downstream fragrance industry value chain

mid-sized fragrance houses | global fragrance houses | specialist suppliers of ingredients
fine fragrance
household products
personal care products
industrial products
  • advertising
  • market research
  • sales promotion
  • media buying & management
  • packaging & design
  • marketing consultants
  • distributors & cleaning
retail
retail &
service businesses
retail
commercial
end users

The creation, supply, and consumption of fragrance technologies generate wealth, jobs, and other public benefits through three distinct and sequential phases of economic activity:

“The Fragrance Industry”
this is made up of the global specialist fragrance companies, mid-sized specialist fragrance companies, and specialist suppliers of ingredients. This stage of the value chain makes major investments in science, creativity, and market knowledge, and then exploits these assets to create and supply proprietary fragrance blends, based on a wide range of ingredients, to manufacturers of fine fragrances, beauty, personal care and household care products for consumer and business-to-business markets.

investements in intangible assets
16 to 18% of annual turnover

science

  • new molecules
  • research into smells
  • improving dellivery systems
  • new manufacturing processes

creativity

  • knowledge & skills building
  • market & needs of brad owners
  • creative flair & artistry

safety

  • safety testing
  • understanding the properties of materials
  • enhaces safety information

market knowledge

  • understanding values, atitudes and end consumers' behaviours
  • anticipating social trends
resulting
5000 to 6000
new briefs world-wide anually

“Manufacturers”
companies in a range of consumer and luxury goods sectors use investments in creativity, science, and market knowledge by the Fragrance industry to create new sectors, build brands, and differentiate themselves in competitive markets. Economic benefits created here are of a significant scale, and of considerable importance. Direct economic benefits are created through production, sales, marketing, product development, R&D, administration, and logistics activities.

“Retailers”
in the final stage of the Fragrance value chain, end consumers purchase the consumer products and luxury goods that contain fragrance technologies. They do this through expenditure in a wide range of retail outlets. Spending by consumers in these stores creates jobs and wealth. The main types of store and non-store retail outlets distributing products that contain fragrances are: Grocery Retailers, Supermarkets, Department Stores, Pharmacies, Parapharmacies, and Drug Stores, Beauty and Well-Being Specialists, Beauty Salons, and, Direct Selling.

Number of European stores
selling products or services ('000)
source: Veredict, Euromonitor, Study Estimates 2010

625,000
grocery retailers
4,000
department stores
280,000
beauty and well being specialists
120,000
beauty salons

Number of US stores
selling fragrance based products
or services ('000)
source: US Department of Commerce Business Census (2007). Euromonitor

89,000
grocery retailers
37,000
mass merchandisers
9,000
department stores
42,000
pharmacies and drug stores
13,000
beauty and well being specialists
82,000
beauty salons

Fragrance companies meet the needs of their direct customers (manufacturers of consumer products and luxury goods) by creating and supplying proprietary blended fragrances. Each blend is unique and is only sold to one brand owner for use with a specified brand in a single application. Each blend may contain up to 250 different ingredients, a mixture of essential oils, natural aromatic molecules, and complex synthetic aroma chemicals. A “palette” of more than 3,000 ingredients is used by the fragrance industry to create, produce, and supply the 60-80,000 unique proprietary blends sold world-wide each year. Blends are created through the exploitation of long-term investments by fragrance companies in science, creativity, input materials, and market knowledge.

To develop large-numbers of new, unique fragrance experiences, fragrance companies make very large scale investments, equal to approximately 16-18% of annual turnover, in product innovation. This encompasses all forms of expenditure, short and long-term, associated with the creation of new or improved products.

The Fragrance industry has made major investments in production, innovation, creativity, and strategic management. Production assets, innovation facilities, and creative centres are concentrated in New York, New Jersey, France, Germany, Switzerland and the Netherlands. Whilst a substantial proportion of these investments support production and innovation activities needed to meet the needs of customers, additional investments in strategic management, innovation and creativity have been made by major fragrance companies to support global activities.

Fragrance companies invest in the development of long-term assets and in funding project-specific activity in advance of receiving payment from brand owners. The costs of investments and product development can only be recovered through regular purchases of the blend of materials, if the fragrance wins the competition to be used in the new product and if this product is then successful in the market. To ensure that the fragrance company benefits fully from this, and hence is able to recover the costs of investment in innovation, the unique fragrance is protected by intellectual property which is, in turn, owned by the fragrance company. Only this fragrance may then be used in the final article.

Loss of trade secrecy impact on downstream value chain
full disclosure on the formula will lead to:

loss of unique fragrances
customers' needs no longer satisfied
effectiveness of future innovations limited
key source of difference loss
difficulty for global brands to generate developing markets
global brands replaced by store brands
increased counterfeit problems
limited growth in developing markets
reductions in sales, revenues and volumes
reductions in overall returns
reduced "brand equity"