2016 total sales: CHF 4.7 billion / $4.5 billion
Estimated market share: 18.7%
Gilles Andrier, CEO
One year into its five-year strategy cycle to 2020, Givaudan is confident of maintaining a positive momentum despite the changing industry landscape and a range of market volatilities and challenges it has in common with other global flavor and fragrance companies.
With about 25% of the market share, the Swiss-based company has been the industry leader for some time. CEO Gilles Andrier is convinced that capitalizing on this leadership and continuing to build close partnerships with customers is central to creating long-term value. “We will sustain and expand our market leadership by executing our 2020 strategy, nurturing organic growth, pursuing acquisitions that enhance and diversify our offering, and most importantly, by offering a superior customer experience at every point of contact,” says Andrier.
Givaudan’s 2020 strategy, which comprises ambitious financial targets alongside an operational road map, seeks to ensure responsible growth and shared success for all its key stakeholders. The ambitions for 2020 are to outpace the market with 4-5% sales growth and an average free cash flow of 12-17% of sales, both measured as an average over the five-year period of the company’s strategy cycle. In 2016, with a free cash flow of 12.8% of sales and sales of CHF 4.663 million, topline growth was in line with its average 2020 targets. The operational road map for this strategy plots the three pillars of growing with customers, delivering with excellence and partnering for shared success.
Andrier says it’s a strategy that is about recognizing consumer trends and translating these into business activities and growth while taking into account the needs of customers. “We have a strong global footprint, and to further build our presence and capture new opportunities we are focusing investments in high growth markets.” He says this is part of Givaudan’s commitment to meet the expectations of its customers in offering highly differentiated consumer preferred products so their brands can win in the market. “And we cannot, of course, meet this commitment without the talented teams we are fortunate to have.”
Partnerships and Acquisitions
As part of its strategic ambition to be the partner of choice and to grow with its customers, partnerships and acquisitions in a range of different areas have been a focus of activity for the company.
Givaudan has made recent acquisitions, for example to grow its new active cosmetics business. “We decided three to four years ago to expand our offering in this area. We inherited a small but highly specialized active cosmetics business with our acquisition of Quest in 2007, and we have recently built on it by acquiring Soliance and Induchem, and are intending to further grow this business that we have now branded Active Beauty.”
Partnerships are also an area for growth. “Being the partner of choice is a critical success factor in driving growth, and this involves building strong partnerships with innovators, suppliers, employees and communities in which we operate,” says Andrier. Givaudan is partnering with its local producers and suppliers, for example, to transform the way it sources raw materials for its products. “By embedding sustainability into all aspects of our approach, we are generating new value to be shared by all,” says Andrier.
Consumers today want to know more about how a flavor or fragrance has been produced and are increasingly asking about the provenance of the ingredients. “We have to help our customers answer those questions, and we are pursuing a set of practices that seek to ensure our ingredients are responsibly sourced, that we minimize the impact of their production on the environment, and that local producers and their communities truly benefit from supplying our industry.”
Last year, for example, Givaudan inaugurated its Natural Extracts Madagascar (NATEMA) joint venture with Henri Fraise Fils. It is one of the largest clove leaf oil processing plants in the world. NATEMA is part of the company’s commitment to establish direct sourcing models in countries of origin that offer the best ingredients to customers and create value in the company’s partner communities.
Givaudan’s partnerships are extending into fostering new ways of securing tomorrow’s food supply. An example is its participation along with 25 global companies, policy and scientific experts in FReSH, the World Business Council for sustainable development’s new initiative to transform global food systems for sustainability and health.
Another example is Givaudan’s involvement in the European Institute of Innovation and Technology (EIT) Food Knowledge and Innovation Community (KIC), a unique partnership of 50 leading companies, universities and scientific partners covering the entire food value chain. Givaudan has worked with food partners in EIT for several years, and in 2016 the EIT Food KIC was chosen as the pan-European winning KIC to drive sustainable transformation towards a more consumer-centric and resource-efficient food sector.
“Innovation is key to our customer offering and future success, which is why we are committed to invest significantly in this area. Each year we invest about 10% of our sales into R&D,” says Andrier. To complement this internal R&D, Givaudan is increasingly engaging in external collaborations in innovation.
This is a relatively new approach for Givaudan, but the company now has about 20 such partnerships around the world. “Traditionally our innovation was mainly in-house, but this new approach to partnerships gives us an excellent opportunity to accelerate innovation and gain access to new technologies and innovation ideas.”
While innovation partnerships are increasing, Andrier says in-house work to bring through new molecules for fragrances is critical. “The sustainability agenda is driving change in this area and we are moving from traditional to more sustainable molecules. And getting this right is about choosing the right biotechnologies and other technologies,” he says, adding that Givaudan’s leadership in innovative delivery systems for fragrances, as well as flavors, will also see further investment and growth.
In the shift to naturals, Givaudan has been working with its suppliers to complement its own efforts in finding innovative new ingredients for its flavors and fragrances. More than half of the company’s flavors are now 100% natural, says Andrier, and this proportion will increase as demand from consumers and customers grows.
Agility and Flexibility
Givaudan has seen the marked growth in many regions of small and regional customers, which have different requirements. “We are expanding our footprint to serve global and international customers, as well as local and regional customers, to speedily meet their needs and offer solutions for local consumer preferences,” says Andrier. “At the same time, we are standardizing certain processes to ensure efficiency and continued quality. But while we grow, we are determined to maintain our agility and flexibility, and offer a superior customer experience.”
This is the background to Givaudan Business Solutions (GBS), the formation of which was announced last year.
“GBS is all about harnessing our expertise and talents in a more efficient, customer-focused and agile way, creating a platform for continuous improvement. It will support the company in delivering on this commitment by reducing internal complexity and offering best-in-class business processes to our customers,” says Andrier.
The industry has enjoyed reasonably good growth in recent years, especially in the high growth markets, notably Asia Pacific. Despite a more recent and significant slowdown in this region, Andrier is confident that growth will return.
“In the U.S. and Europe, we are seeing a lot of political uncertainty, but paradoxically we have had growth in these markets and this growth—and by being close to our customers as well—enables us to navigate our way through the uncertainties of these two big markets,” says Andrier.
The sort of growth through large acquisitions of the size last seen 10 years ago with Givaudan’s purchase of Quest is unlikely in the near future, he says, adding carefully that nobody can say never.
The company’s executive committee has gradually changed in shape and membership over the past two years or so, with all new appointees coming from within the company, as well as appointments in areas not previously represented at executive-level innovation, procurement and Givaudan Business Solutions.
“This reflects the consistency of our management and succession planning, as well as the talent we have,” he says, adding that it’s an approach that serves the company well in maintaining market leadership.
President, Flavor Division
A Changing Landscape
The role of food is changing with an increased focus on health and well-being, naturals and more demand for functional foods, transparency and clean labels.
Givaudan is looking to help customers create the future generation of food and beverage products that will capture consumers in an environment where the pace of change and scale of disruption is unprecedented, from how food ingredients are sourced to how products are developed, produced and distributed. Flavor, taste and food technology will continue to be fundamental in balancing the needs for nutrition, mobility, sustainability and feeding a growing global population.
“We also see digitization playing a big role. This has a positive aspect for the industry, as it puts food high in the agenda, and it also increases consumer desire and empowerment for transparency. This is influencing food innovation and creating new challenges and opportunities for us,” says Mauricio Graber.
Broadening the Portfolio
The launch of the first year of Givaudan’s 2020 strategy addresses the changes in the food and beverage landscape, and the beginning of its execution in 2016 was a personal highlight for Graber. “I was genuinely excited to see the deployment of the strategy and getting it started so quickly,” he says.
A key area of focus has been on executing its plans in naturals, proteins and health and well-being, and Graber describes the acquisition of Spicetec in 2016 as an important move in supporting customers by offering integrated savory solutions and strengthening the natural portfolio in flavors and broader natural solutions. And this year, Givaudan further strengthened its capabilities in natural flavor solutions with the acquisition of Activ International, adding natural and organic flavors, extracts, seafood and vegetable-based culinary solutions for its customers.
Another example how the flavor division is expanding its health and well-being capabilities is the ‘non-dairy dairy’ addition to its TasteEssentialsc Dairy program, which helps address needs concerning allergens and vegan products. “It offers new opportunities for our customers who seek rich, creamy or authentic dairy flavors for their products with no dairy content,” says Graber.
High Growth Markets
“Another key focus is high growth markets, which we aim to grow at an accelerated pace to 2020. We will focus resources on further building our presence in markets where we see high growth opportunities and can accompany our customers in growing their business,” says Graber.
Last year saw investments to build a new or stronger presence in these different markets. In Delhi, India, a new laboratory enables closer customer interactions, faster turnarounds and higher quality solutions, and Givaudan’s newly renovated flavor innovation center in Singapore will provide differentiated flavor solutions for consumer preferred products in the region.
The company also opened a new facility in Karachi, becoming the first global flavors company to do so in Pakistan. In China, Givaudan marked an important milestone in the expansion of its business in this country with the opening of a new office along with sweet and savory application laboratories in Zhengzhou.
With the increasing focus on natural solutions, sourcing raw materials in ways that ensures supply security is critical. “As an example, we’ve built sustainability into our citrus business model. And we have sustainable flavor development practices and a robust research pipeline focused on citrus sustainability,” says Graber.
The company’s leadership in citrus features a number of developments built on its TasteEssentialsb citrus program. In 2016, Givaudan market the tenth anniversary of its collaboration in citrus with the University of California, Riverside (UCR) and also launched a new ingredient that enhances juiciness and offers cost advantages for customers as well as an improved flavor profile.
“We continue to build on our collaboration with UCR and on our TasteEssentials citrus program, and our technologies enable us to develop sustainable enablers and taste solutions for our customers’ products,” says Graber.
President, Fragrance Division
Givaudan’s fragrances aim to help customers build memorable brands and craft scents that surprise and delight, and the company’s strengths are in understanding what consumers seek and translating this knowledge into products that please customers.
The company’s fragrances range from prestige and designer perfumes to the scent of functional cleaners, laundry and personal care products. Its new Active Beauty business harnesses the power of nature for cutting-edge cosmetics.
“It is the creative ideas and passion that lie behind our products and their creators that drives our customers’ trust in us,” says Maurizio Volpi. “The care and concern we show for our customers, keeping our promises and delivering results is at the core of a superior customer experience.”
The division’s success in 2016 has seen a number of highlights, including international recognition for its new business, Givaudan Active Beauty, and a further strengthening of its manufacturing capacity in high growth marketssuch as Asia Pacific.
In China, for example, its joint venture with Zhejiang Xinhua Chemical for the production of fragrance ingredients was strengthened, enabling the company to best meet regional demand and improve the company’s competitive position globally. The division’s global footprint was also strengthened, with new offices in the Ivory Coast and Algeria.
With Givaudan Active Beauty, the company is boldly going into the expanding area of active cosmetics ingredients. For Volpi, it was particularly pleasing that the new business won gold for Neurophrolinec in the active ingredients category of the in-cosmetics Innovation Zone awards.
Neurophroline is an active that can combat the signs of environmental aggressors such as pollution and climate. Also during the year, Givaudan expanded its collaboration with the industrial bioscience company Amyris to reinforce innovation in active cosmetics ingredients.
“We are investing a lot in new molecules and were very pleased with the launch over the last three years of a trilogy of captive molecules with different benefits for perfumers,” says Volpi. These captives were Mahoniald, Nympheale and Rosyfoliaf.
Innovation in encapsulates has also been a real success story for Givaudan. The growth of this delivery technology in a range of fragrance applications and the advances in sophistication and performance effectiveness has been notable. The company’s new generation of encapsulates enhances the impression of long-lasting freshness in the fabric care category, as well as in personal care.
Volpi says the prolonged feeling of fragrance freshness that encapsulates can enable is appreciated across ages, social class and geographies, and their benefits are bound to advance in line with those in fragrances. The future of this technology is promising, and the potential range of applications is wide. “Encapsulates are going where consumers want them to go,” says Volpi.
A further area of fragrance innovation is in naturals. “The level of innovation that can be done in naturals is very significant and we are investing a lot in this promising space. It may seem counter-intuitive, but the new olfactory directions created in synthetic chemistry can also be done—in a different way—in natural raw materials.”
“In fine fragrances, consumers are becoming more passionate about fragrances globally,” he says. This passion coincides with the benefits and challenges arising from social media that must be recognized by the industry, he adds.
Bloggers have a reach that was unimaginable not so many years ago and a definite place in driving the understanding of a range of topics throughout the industry.
With the rise of digital media, especially smartphones, it might seem that younger consumers have distanced themselves from the sensory experience of fragrances.
However, Volpi reckons there is an appetite to compensate for this lack of sensory engagement the digital world brings, and this appetite can be seen in the demand for products such as perfumed candles and fabrics. So he is optimistic about how younger consumers connect with perfume.