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Surrounded by a consolidating industry and fewer customers the flavouring industry faces a tough examination of its business practices. However, as Sarah Diston reports, innovation in a looming recession may provide the players, large and small alike, the boost they need.

Flavouring houses are the building blocks behind almost all the success stories of the soft drinks category, from energy drinks to carbonates, currently on the market. In short flavourings are paramount to the industry. Nevertheless the global market for flavours and fragrances was valued at US$11bn in 1999, having grown by less than 5% since 1995 (Euromonitor).

Furthermore, around 500 specialist-flavouring companies currently operate worldwide, although more so on a regional basis rather than globally, and consolidation in the industry is leaving them with fewer and fewer customers.


The cost of developing any brand brief lies with the flavouring house and this is an expensive gamble for anyone

Competition is high and the nature of the business is no help. The basics for pitching for new business remain the same wherever. A producer will often issue a brief along with a price constraint and a description of the proposed brand image and any potential brand positioning. Anywhere between two to five flavouring houses will then compete for that particular business.

Ultimately the cost of developing any brand brief lies with the flavouring house and, with no prizes for the runner-up, this is an expensive gamble for anyone, particularly when most are small, regional, specialist companies operating in a global environment.

According to a report by UK-based research company Euromonitor, there is now a growing trend towards a more collaborative approach, whereby a major flavours company and a leading client may work together on the development of new flavour opportunities in a particular sector.

The benefits of working together with a client are obvious - the risks are less. But as the industry continues to speculate over the possible effects an economic slowdown will have, the flavouring houses continue with their consumer research, flavour testing and in-house trials - without any guarantees that it will pay off.

Manufacturers can always find ways of cutting costs and streamlining businesses in a slowdown. For the flavouring companies this is not such an easy task. Consumer awareness, health scares and trends towards healthier lifestyles mean that to find a concept that will not only work, but will sell, even more research and data analysis has to be undertaken.

The business environment for the flavourings manufacturer is a tough one, with fewer manufacturers and stiff competition arising from consolidation and little room to cut costs. To stay ahead of the competition, therefore, innovation and NPD have become the overriding factors in success in today's flavours market.

The manufacturers brief may have the basic fundamentals to the product, but it is the companies behind the flavour who can be ultimately responsible for any innovative ideas in the form of flavourings and eventual positioning.

Quest International, the flavours and fragrance arm of the global giant ICI, has activities in 38 countries and employs over 4000 staff. It specialises in protein, lactose, and the application of soluble proteins, peptones and protein hydrolysates.

Quest's latest concept is a prime example of how a flavour may reinvent or breathe new life into an already highly competitive market. Hyprol is being described as a new generation sports recovery drink, which can half recovery time after intense sport. Quest has carried out clinical trials with athletes in the Netherlands and claims that the addition to sports drinks of food protein hydrolysates (known as peptides), rich in amino acids, greatly boosts the speed of energy restoration after intense exercise.

Claiming that no other commercially available sports drink yet contains peptides, although some do have proteins, the company says: "Consumed directly after exercise and in combination with the sugars, these peptides highly stimulate the restoration of the energy supplies in your muscles. Peptides also quickly restore the muscle damage normally seen after intense physical exertion.

"As a result of both mechanisms, Hyprol ensures a very fast recovery from intense physical exertion."

Dr. Marcel Hakkaart, Quest's global business director says: "In more technical terms, when an athlete drinks this new combination after exercise, the research demonstrates that the plasma amino acid levels rise significantly, creating a high insulin response. As a result glycogen production is stimulated, muscle cells repair more quickly and the person makes a faster recovery."

This kind of research and product development does not fall onto the production line overnight and the example of Hyprol demonstrates what a costly and time consuming business this can be. In fact it has taken Quest almost four years to develop Hyprol at a cost rumoured to be around US$2-3m so far. And although it is currently being tested in some US and European markets, a buyer for the idea still has to be found.

But the rewards could be great and Dr Hakkaart says: "Although it is such a competitive field we believe we can convince our customers this is a new innovation, and most are keen. The Hyprol concept is already available and we expect, in principle, our first sales next year.

"In principle there is not a company in the world that can do a similar concept proposition, that can combine the protein expertise we have with the taste and texture, something we can do on a global scale," he adds.

Quest, can afford not only to supply flavours and brand concepts to drinks manufacturers, but it can also provide technical, taste and texture support to drinks manufacturers. This is an obvious benefit of being part of a large multinational company such as ICI.


"Although it is such a competitive field we believe we can convince our customers this is a new innovation, and most are keen."
Dr. Marcel Hakkaart

For the smaller companies - and the majority of flavour houses are small specialists operating on a local basis - cost plays an important role, and to dedicate a team of experts for such a long period of time to one specific formula is probably, for many, out of the question.

But according to one flavours expert, a slowdown in the economy might actually work in favour of these smaller houses, which in accordance to their size tend to work on smaller products than the likes of Quest. While the present climate may see producers quick to tighten the purse strings and put new product launches on hold, they will still be keen to tweak the market as much as they can, by offering flavour extensions to existing brands.

"A recession could work advantageously to the flavour houses, particularly the smaller companies. Manufacturers are always looking to increase their share of the market and going by figures from previous recession periods, a recession might not make too much difference," he says.

"I know in the last UK recession for example, numbers showed that the total number of new products launched in the UK market was actually higher than it was in previous years. Companies were desperately trying to get things out to get some attention.

"Where you probably won't see a lot of new products if there is a recession, it is highly possible to see new flavour extensions," he adds.

So while the Quest's of the world can continue to concentrate on the breakthrough flavours and concepts, that will yield the big returns, the smaller flavour houses are able to concentrate on new flavours and line extensions.

The market is certain to get tougher as producers merge and margins are squeezed, but with sales forecast to increase by 10.5% between 2000 and 2005 reaching the level of US$12.2bn (Euromonitor) the flavours industry remains well placed to deal with any downturn.

To view related research reports, please follow the links below:-

Flavours and Fragrances: A World Survey
Strategic Outlook for the Soft Drinks Industry in 2010


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