Last month equity group EQT announced to the flavours world the arrival of Symrise - the new flavours company created by the merger between Haarmann & Reimer and Dragoco. The merger has created a company thought to be capable of sales of €1,245 million, allowing it to join the ranks of the top industry players.
The merger is not unusual in today's food ingredients sector, where consolidation increasingly features in the headlines, not least in the flavours sector. While the world's flavours leader is based in the US (IFF), Europe holds many of the leading players in the market and the region accounts for a third of all flavouring sales. One company trying to make inroads into the market is Danish ingredients company Danisco which recently announced an ambitious goal - it wants to be among the world's five leading flavour businesses.
The company which also makes emulsifiers, sweeteners and antioxidants, bought Belgium-based flavour house Perlarom in May 2002, pushing it up the flavours ladder to world number nine and European number six. Can it reach number five given the lead of international flavour companies Givaudan and the new Symrise?
A visit to the old Perlarom site in Louvain-La-Neuve gave FoodNavigator the chance to assess its chances. Louvain-La-Neuve is now the flavours headquarters for the group, having previously been located in England.
The acquisition of Perlarom gave Danisco strategic presence in Asia Pacific because of the offices in Singapore, which serve as an entrance to the entire South East Asian flavour market, currently experiencing solid growth rates. And the purchase also boosted production capacity in Europe considerably. Sales by Danisco Flavours now reach around €240 million annually.
The group says it is aiming to be recognised for flavours with the unit representing a highly innovative element of the ingredients group. The division started out with a citrus flavours business in Kansas, US. It was not until a series of acquisitions during the late 90s in the UK and US meant it added a range of cola flavours and natural vanilla.
"We are recognised for the technical service we provide our customers. We offer a full marketing consultation, from analysing global trends to designing concepts and products," said Germain Despres, vice president of Flavour and Fragrance Ingredients.
With production now taking place in Brazil, China, France, India and Singapore, the aim is to offer global clients such as Kraft and Nestle a local service. "We focus on our key customers. We can't provide services to all clients, but we want to be the core supplier at key accounts," added Despres.
The breadth of Danisco's product range works to its advantage by providing a one-stop shop. "There is obviously a synergy between ingredients and flavours. Often the texture of a product may come before the flavour, for example, so having a department that can begin work on this is a bonus for the customer," explained Despres.
With Perlarom, which specialises in beverages, the group has certainly bought into the dynamic sector of the market and the company is Europe's third supplier of beverage flavours. "Beverages represent almost half of the unit's activity, and there is a high turnover of products. Fifty per cent of products available now weren't around four years ago," said Despres.
He estimates that beverages are growing around 10 per cent each year, undoubtedly fuelled by growth in flavoured alcohols and both milk-based and non-dairy soft drinks.
The focus is on natural flavours, in keeping with current consumer demand. "We work mainly with natural flavours because this is what the consumer wants, especially in the Western world," said Stephen Catling, president of the division.
This is reflected by the company's new branding campaign which puts an emphasis, if a rather subliminal one, on natural raw materials.
Vanilla beans are the most important raw material in the company's activities and Danisco claims to be one of the world's five largest suppliers of vanilla extract. Hence the impact of current crop failures on the company's results.
Organic growth in flavour sales accounted for around 11 per cent in the second quarter of the group's current financial year. But high raw material costs, particularly of vanilla, negatively impacted the operating margin. This is expected to impact profits for the rest of the year too.
Catling tries, like most, to come up with much of a solution to the problem. "The key to the vanilla problem is how we manage it," he said. He suggests that India could become a new market yet young crops have a long way to go before the country can be seen as a significant new source of the raw ingredient.
As well as coping with the vanilla issue, the Danish company also has to be a 'specialist' in a broad range of ingredients while competing with leading flavour houses.
"We will need to make acquisitions to achieve such ambitious growth, but flavours businesses are currently very expensive," said Catling.He will certainly be keeping an eye on the new Dragoco/H&R business.
"H&R also make fragrances and we are not interested in this side, unless a partner takes over this side of things," commented Despres. "It will have to be something bigger than what we have already taken on in the last few years. But then we also need to spend time integrating the segments of the flavour unit better."
And what of the competitors? "There are some very good ones out there. There are also some other ingredient companies looking at flavours and using their expertise and client-base," added Despres.
Irish firm Kerry recently reported good progress from R&D investment in Mastertaste last year, which focused on the development of natural flavours for both savoury and sweet applications.
The world market for flavours is estimated at around €5.5 billion, and this is expected to grow, in harmony with the continuing developments in food processing. For Danisco Flavours, areas of innovation will be new products based on established tastes, such as different vanilla varieties. Butter flavour also holds promise.
Innovation also depends on the different markets. "Different countries have different expectations. For example Fanta tastes different in every country," explained Catling.
The director seems unperturbed by the task ahead for the division. The unit is certainly forging a new path for the company which has long been regarded as a conventional ingredients company. Reconciling the aims of the different units may pose as much conflict as the flavourist himself faces. "A flavourist needs to be both an artist and a chemist," summed up Catling.
Dominique Patton