Kedar Vaze, Chief Executive Officer & Director, S H Kelkar And Company Ltd

Kedar Vaze, Chief Executive Officer & Director, S H Kelkar And Company Ltd

6:45 AM, 15th July 2017
Kedar Vaze, Chief Executive Officer & Director, S H Kelkar And Company Ltd
Kedar Vaze, Chief Executive Officer & Director, S H Kelkar And Company Ltd.

Of Scents & Tastes

In an interview, Kedar Vaze with Chemical Today Magazine opens up about the growth prospects that flavours & fragrances industry holds and how natural ingredients will rule the roost in the future.

By Debarati Das  

Global trends in the flavours industry.

The global flavours market in 2016 was valued at ~ $13.5 billion. The flavours market was ~ 55 percent of the global flavours and fragrances market valued at ~$24.5 billion in 2016 and the expected CAGR over next 5 years is 5 percent.

America and Asia Pacific account for lion’s share of the market (~35 percent) each, followed by Europe and Africa & Middle East regions. Globally, the largest end-use category for this segment is beverages, which enjoys about 30 percent market share, followed by the dairy and savoury & snacks segments.

Growth in the industry will be led by emerging markets like India, China and Indonesia while North American and West European markets being mature markets will have muted growth.

The industry has expanded in a significant manner and the key drivers of this growth can be attributed to the rising disposable incomes and increasing urbanisation, dynamic change in lifestyle preferences and the willingness to experiment, packaging revolution and the increased demand for bakery, beverages, savoury & snacks. 

Increasing consumer awareness and health consciousness too has led to the spurt in demand in the “health and wellness” segment as consumers are constantly exploring healthy substitutes both in processed foods as well as beverages.

Global trends in the fragrances industry.

The global fragrances market is valued at ~ $11 billion. The fragrances market is ~45 percent of the global flavours and fragrances market valued at ~$24.5 billion in 2016 with an expected CAGR over next 5 years is 5 percent. The growth in the industry will be led by emerging markets like India, China and Indonesia. North American and West European markets being mature markets will have muted growth. By 2022, APAC fragrance market will be larger than America.

The largest fragrance applications across the globe are soaps & detergents and cosmetics & personal care, which enjoy about 30 percent market share each.

The era of digitalisation will have an impact not only in tracking consumer insights (social media) but on the business model (revenue streams) as well.

An interesting phenomenon here is the shift in perception of fragrances from being non-essential attribute to an indispensable part of the product. A study (Givaudan Investor Presentation October 2015 - January 2016) reveals that the key driver for consumer repurchase decisions in fine fragrances is scent (78 percent) followed by overall experience (8 percent), brand (5 percent) and others.

The key drivers for growth in this segment are:

  • Private labels proliferation – this is an indication of the changing customer preferences and their willingness to experiment with new fragrances.
  • Premiumization of personal care and cosmetic products – as consumers progress from using basic soaps, lotions and fragrances to higher end & specialised cosmetic products across skin care, hair care and personal wash categories, demand for unique and premium products will increase.

The developments in the ingredients area tend to follow the emerging trends in the F&F space – thus, increase in demand for products in the health and wellness segment leads to focus on products with natural ingredients in India as well.

Sectors showcasing growth potential for flavours & fragrances in India.

The Indian F&F market is valued at ~$770 million currently split 50:50 between fragrances & flavours and is expected to grow at 10 percent - twice as fast as the global fragrance market. The India fragrances market is expected to grow at a CAGR of 9.2 percent whereas flavours market is poised to grow at 11.2 percent over the next 5 year period.

The highest growth in fragrances will be witnessed in personal care and cosmetics while in flavours, savoury, bakery and beverages will be the key areas. This growth would largely be driven by increased penetration of products in rural markets, premiumisation of personal care and cosmetic products and increased demand for bakery, beverages, savoury & snacks.

Scope of growth for natural raw materials based flavours & fragrances.

The demand for natural raw materials based flavours and fragrances is largely driven due to the strong shift in consumer preference towards natural products and Ayurveda. SHK already has an Ayurveda extraction unit that enables it to offer and develop an extensive range of natural flavours/fragrances for its customers.

Insight into company’s future growth strategy.

S H Kelkar has reported a stable financial and operating performance during the year. While we saw strong growth in first half of the year on account of new order wins, broader market challenges in the latter half of the fiscal resulted in an overall subdued performance in FY17.

On the international business side, higher pricing pressures and depreciating foreign currency resulted in sluggish international performance. Our business closely tracks the performance of the FMCG industry, which is expected to rebound in the second half of the fiscal year 2018 on the back of GST and healthy monsoons leading to healthy demand for our fragrance & flavour products.

Across our segments, we are already seeing a healthy uptick in business activities with more projects being approved by clients and new products being launched by FMCG companies.

These positive developments, we believe, will translate into higher growth for us over a longer period of time. As we look ahead, although the global macroeconomic environment is expected to remain sluggish in the near-term, the Indian consumption story should enable us to report results in-line with our business plan.

We continue to focus on establishing a higher market presence in the domestic and emerging markets of Asia, Africa and the Middle East.  

Innovations from the company.

The company’s approach towards innovation and consumer insights across both the fragrance & flavour segments remains rock-solid.

We have constantly invested in our R&D operations and have established a solid team of 20 scientists, 12 perfumers, and 6 flavourists at our creation and development centres. We have 5 creation and development centres in Mumbai, Bengaluru, The Netherlands and Indonesia. We have a product library of over 35k formulations and developed over 12 molecules. Overall, the Company has developed over 502 new fragrance & flavours compounds.  

We are the only company of Indian origin to file patents globally in the field of Fragrances and Novel Aromatic Molecules. During the year 2016-17, we successfully commercialised our patented molecule. 

We believe these investments will drive product innovation and enhance our premium product portfolio, which should enable us to deliver much higher growth rates in the future

Testing services offered by the industry.

We offer our clients a range of biotechnology research and cosmetic ingredients testing services - these facilities are housed at the V G Vaze Collge in Mumbai. These include:

  • Cosmetic Research Services: We give clients access to an all-inclusive facility for the complete development of cosmetics, from conceptual development and research to final testing of the products.
  • Cosmetic Testing Laboratories: Clients can take advantage of our specialised lab for the testing and evaluation of fragrance ingredients on skin microflora so that their anti-microbial and deodorant properties can be determined.
  • Custom synthesis services: We undertake complex and customised chemical synthesis work for our clients in the pharmaceutical and agricultural industries.
  • Biotechnology research services: We conduct continuous research for the conservation and propagation of the elite and endangered medicinal and aromatic plant species. 

Compliance with various regulatory bodies’ standards. 

Our flavours adhere to certifications issued by the FSSC, FSSAI and other regulatory bodies. Bulk of our revenues is from fragrances, which is primarily a self-regulated area, and all our fragrances are IFRA compliant. Our testing facilities consist of laboratories equipped with multiple Gas Chromatographs (GCs), density meters, automatic polarimeters, tintometers and flash-point testers. We also carry out microbial testing based on specific flavour requirements.

Challenges in the flavours & fragrances industry

Some of the challenges include:

  • Sustainable sourcing - Quality of raw materials as well as ensuring timely availability is of prime importance.
  • Growing and stringent regulation.
  • Availability of key talent - the value creation stems from the perfumes and flavourists and hence building, retaining and nurturing talent is critical in this industry.

© Chemical Today Magazine

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