Firmenich - A very private affair

20 October, 2006

At a time when fragrance and flavour suppliers are constantly seeking scale and commercial advantage in a cut-throat business environment through consolidation, there is one company that remains in family hands. Firmenich is the largest privately-owned fragrance and flavours company in the world, and is apparently determined to stay that way.

Only last month, fellow Swiss supplier and arch-rival Givaudan’s chief executive Jürg Witmer denied rumours that a merger between the two companies was in the offing. There was more than a touch of wistfulness in his statement: “Firmenich is a private company, and it takes two to make a merger”.

And Firmenich would certainly be a worthwhile partner for any of the leading fragrance companies. The company ranks third in the worldwide fragrance and flavours ratings, with sales of SF1.976bn in the fiscal year ended 2004, beaten only by Givaudan and IFF. This represents an enviable growth rate of 6.6% year on year in local currencies and an impressive 4.1% in Swiss Francs.

The company says that the consolidated results in Swiss Francs would have been even stronger were it not for the weakness of the US dollar, which was only partly offset by the strength of the Euro. What’s more, the growth took place against a backdrop of a weak world economy in the first semester and uncertain recovery in the second.

Such strong organic growth has helped Firmenich obtain healthy margins and generate average annual growth of 8.7% since 1989. As a result, its share of the market has steadily increased to reach just under 12% of worldwide fragrance and flavours sales.

The company was founded in 1895 in Geneva by a Swiss chemist called Philippe Chuit, who then joined forces with Martin Naef, a businessman and financier, to form Chuit, Naef et Compagnie. In 1990, the two founders were joined by Fred Firmenich, Chuit’s brother-in-law, who within ten years had bought out Philippe Chuit to become the majority shareholder of what was renamed Naef et Cie. When Naef retired in 1934 the company became Firmenich & Cie and was controlled by four partners: Fred, his brother Hugo and sons André and Roger.

Move on some 70 years, and the company is still 100% owned by the Firmenich family. It is now under the direction of the fourth generation of Firmenichs – Fred’s great-grandson Patrick, who took over as ceo on the retirement of his uncle Pierre-Yves in 2002. In fact, Firmenichs are strongly involved in every area of the business, guiding strategy and operations.

Fragrant beginnings

The company initially concentrated its activities on synthesising fragrances. Within a year, it had produced a novel synthesis of vanillin and steadily built up a portfolio of novel and commercially successful ingredients, eventually moving into the creation of fragrance compounds.

In the 1920s, Firmenich began its collaboration with Leopold Ruzicka, a professor at ETH-Zurich who became the company’s first research director and life-long consultant, and who went on to win the Nobel Prize for chemisty in 1939 for work done in cooperation with the company. Ruzicka’s involvement took Firmenich into flavours following his synthesis of raspberry ketones in the late 1930s and the company set up its flavours division in 1945, producing the first strawberry flavours. The division has grown rapidly in recent recent years, buoyed by the acquisition of MCP in the 1990s and the 2002 purchase of Bjorge Biomarin, a Norwegian producer of natural seafood extracts.

Firmenich is still headquartered in Geneva was been keen to expand overseas from its very beginnings. By 1898, the company had already opened offices in Moscow and New York and in the 1930s set up subsidiaries in the US and France. In the 1940s, it founded companies in Mexico and the UK, followed by further offices in Canada, Brazil, Argentina and Venzuela in the 1950s. The next decade saw Firmenich Germany, Australia and Japan open for business, while the 1970s saw further expansion into Italy, Netherlands, Singapore and Austria. More offices opened their doors in Spain, Hong Kong and Turkey in the 1980s.

Ever keen to move into emerging markets, Firmenich followed the prevailing wind and re-opened in Moscow in 1993 and joined the Philippine market, while setting up a joint venture in Indonesia. In 1994, it opened representative offices in China, India and Malaysia and created a joint venture in China, now responsible for approximately 13% of all fragrance and flavours sales in the country. In all, Firmenich is now present in virtually every part of the world, with 50 proprietary operations and 20 agencies, operating 26 production sites, which together employ 4,500 people.

Meeting the challenge

The company has three spheres of activity. The fragrance and flavours divisions each account for approximately 40% of Firmenich’s business, with the remaining 20% going to its chemicals division.

The perfumery division reported a successful year in 2004, with the fourth quarter setting a sales record. The home care and body care segments both notched up double-digit growth, while fine fragrance revenues rose despite lower sales volumes in Europe and North America, increasing its share of the international market and indicating a rebound in the coming year.

Globally, Firmenich says its perfumery division outpaced the market, recording high double-digit sales growth in the developing markets of Latin America and Asia Pacific.

The flavour division also had an excellent fiscal 2004. Double-digit local currency growth meant that the division exceeded its sales forecast for the fifth year running, and the end of June marked the 17th consecutive quarter of fixed currency growth. Firmenich says that Latin America and Europe both saw double-digit increases, North America outperformed its mature market, but Asia Pacific saw a slower increase than in previous years.

The chemicals division also performed strongly. The division operates seven factories in the US, Brazil, Switzerland, France and China, and prepares and evaluates 1000 molecules every year, from which a handful are selected for commercial application. It also owns 800 active patents, and the company says it filed more than ever in the last year.

Firmenich’s commitment to R&D underpins all these activities. The company spends more than 10% of its annual sales revenues on R&D. Two centres in Geneva and Princeton, US, house 230 R&D staff, who work closely with the fragrance and flavours division to produce a stream of low-cost, environmentally friendly and effective ingredients and delivery systems. They have also helped Firmenich to develop new technologies such as the Softact, Natureprint and Scentwaves fragrance capture systems and flavour encapsulation technology such as Flexarome.

Marketing support

In such highly competitive markets, it is vital to gain an edge over rival suppliers. Firmenich carefully monitors and anticipates trends, studies the markets, analyses brands and examines consumer behaviour to offer the right products for its customers. The flavours division has a Creative Marketing Studio that forecasts trends, while its global sensory network helps monitor consumer perceptions around the world.

The fragrance division is particularly fashion-driven, and Firmenich runs consumer research programmes to help it, and its clients, keep up with shifts in preference and usage. One tool that has proved particularly valuable is Osmoz, Firmenich’s online portal, which is used to gather information from consumers about their fragrance preferences and shopping habits by persuading visitors to join a club, fill in questionnaires and participate in the creative process. This has helped the company build a database of some 100,000 consumers.

Firmenich also built up a partnership with Sephora, exchanging data and expertise. The company was able to build olfactory profiles of Sephora card-holders and witness the practical aspects of fragrance retailing.

The company also sought to improve its service to clients through a new Supply Chain Division, which has been set the target of refining every step of the supply chain to improve efficiency and deliver at the lowest cost.

A number of capital projects also saw completion in 2004, including the upgrading of its perfume ingredients facility in La Plaine, Geneva, a new perfume facility with an integrated functional fragrance laboratory in Princeton, and a new fragrance and flavour facility in Shanghai, China. Firmenich also inaugurated new premises in Mumbai, India, and invested in its Brazilian site.

Firmenich says that the business is well placed for both short term and long term growth. The company remains commited to maintaining a sound financial base with a very low level of debt, and is confident that it will extend its market share in the coming year. There’s little hope, therefore, for any supplier hoping to prise Firmenich out of family hands.