The example of ISO-E SUPER is quite significant: almost all perfume formulas contain 20% to 40% of this hugely convenient ingredient (fine and functional perfumery). Tens of thousands of tonnes of this turpentine derivative are produced for a most attractive price and used more or less as a solvent: woody/musky notes… an all-purpose substance. This derivative is manufactured by a few plants mainly based in India (including French manufacturer DRT). At the beginning of 2018, the two main suppliers of the perfume industry saw their plants burn in just a few months… which led to shortages for all fragrance companies. The latter had to go see their customers (L’Oréal, P&G, Unilever, Coty and others…) to offer to modify the formulas of existing recipes in order to reduce the impact of this famous ingredient which, suddenly, no one was able to provide.

Agilex published an interesting press release on this issue on their website:

There is actually a more global reality behind this seemingly trivial example. The industry boasts high growth rates, so the pressure on raw materials (in particular synthetic ones, which are increasingly used – they are the cheapest) is soaring. The industry’s concentration for the past ten years led to the birth of giants: only a few groups control more than half of the global market, both among fragrance manufacturers and their customers (perfume/cosmetics groups). The strong buying power and the volumes acquired by these groups enable them to impose a dramatic price pressure on perfume ingredient manufacturers: at the end of the day, most of the latter throw in the sponge, leaving the market in the hands of a handful of players on whom the whole industry depends.

As a consequence, there is no need to have second sight to understand that in the years to come, this type of situation will keep repeating itself, since in most strategic segments (in particular synthetic ingredients, as they represent the largest volumes), molecules are now manufactured exclusively by a small oligopoly: the tiniest issue for one of these manufacturers (raw material access, production capacity, sudden, disruptive political/economic/climate-related event…) will shake the whole industry.

The conclusion is quite clear: as they keep trying to save as much money as they can to enhance their margins through cost reduction, these giants get weaker and weaker because they destroy part of their own supply sources themselves…

CPOs will definitely have a few more sleepless nights, because it is actually the whole purchase strategy that should be rethought to ensure – first and foremost – sourcing regularity for their customers. The price impact of an ingredient is easy to measure, but what is the overall financial impact of this type of crisis for a company? Are the risk mitigation strategies implemented in terms of ingredient sourcing efficient? What about the duty to inform and transparency when it comes to the ingredients contained in the fragrance formulas?

As for natural ingredients, the issue is much different: in this case, we are dealing with harvested products which are not manufactured in plants… but which impact farming trades. The result on product availability is quite similar, but for – partly – different reasons…