International Flavors & Fragrances Inc.

views updated

International Flavors & Fragrances Inc.

521 West 57th Street
New York, NY 10019-2960
U.S.A.
(212) 765-5500
Fax: (212) 708-7147

Public Company
Incorporated: 1909 as Morana, Inc.
Employees: 4,242
Sales: $1.13 billion
Stock Exchanges: New York
SICs: 2869 Industrial Organic Chemicals Nee

International Flavors & Fragrances Inc. has been a leader in the fiercely competitive flavor and fragrance industry since 1958, when it debuted under its present name. A strictly business-to-business operation, IFF routinely provides individually tailored fragrances for a host of products ranging from fine perfumes like Calvin Klein’s Eternity to scents used in laundry detergents. More unusual IFF fragrances in the closely guarded vault housing about 80,000 formulas include the fresh aroma of new-mown grass (used on a paper strip inside a golf magazine) and the garbage- and urine-tinged odor in a Smithsonian Institution exhibit intended to resemble a slum. Though fragrances have traditionally been the backbone of IFF’s bottom line, their flavorings divisions were healthy enough to have reached $378 million by early 1991. Among the company’s clients in this area of business are Kraft General Foods, which employs IFF artistry in many of its products, and McDonald’s, whose salad dressings receive their flavors from IFF laboratories.

International Flavors and Fragrances traces its origins back to the 1909 incorporation of Morana, Inc. in New York City. In 1920 Morana was taken over by a young man who would build the business into one of the foremost companies in the industry. Arnold Louis Van Ameringen arrived in the United States from Holland in 1917 on his way to represent a Dutch fragrance manufacturer known as Polak-Schwarz. However, Van Ameringen’s job security did not stand the test of distance. Before a year had passed he was fired for suggesting a now-common American practice—a profit-sharing plan for employees. Undaunted, Van Ameringen opened his own fragrance and flavor supply business the following year. After merging this firm into Morana, Van Ameringen decided in the mid-1920s to boost sales by persuading manufacturers of bar soaps and detergents to add fragrances to their products. Several adopted this suggestion, and found that the new ingredient caused their sales to soar. Van Ameringen’s business prospered along with theirs, growing large enough by 1929 to warrant merging the company with the operations of William T. Haebler, in whose honor he renamed the company Van Ameringen-Haebler, Inc.

American workers quickly recognized the new company as a good place to be employed. At Van Ameringen-Haebler, the boss had an open-door policy, and bonuses, always promptly paid, ranged between six and nine percent of annual salaries. Employees, especially the highly trained and hard-to-come-by perfumers, were encouraged to settle into the company for the long term. In return, Van Ameringen asked that absolute secrecy about formulas be maintained at all times in order to prevent competitors from copying original ideas. As a private concern, Van Ameringen was also able to keep the company’s financial details under wraps.

Despite Van Ameringen’s best efforts, however, secrecy was not always easy to maintain. In the unauthorized biography Estee Lauder: Beyond the Magic, author Lee Israel maintained that Van Ameringen was romantically involved with Lauder and that he was responsible for the “Youth Dew” fragrance that brought her such fame after its 1953 introduction. Israel also noted that Van Ameringen gave Lauder extended credit—a favor that culminated in a corporate friendship that has spanned several decades.

Van Ameringen-Haebler’s sales in 1958 were $28.4 million, of which a scant ten percent came from the company’s flavor formulas. In an effort to expand both manufacturing and marketing in this segment of the business, Van Ameringen merged the company with a European manufacturer primarily concerned with flavors, offering broad access to the American fragrance market in return. Called Polak & Schwarz Essencefa-bricken of the Netherlands, Van Ameringen’s new partner was a company he knew well—the same one that fired him in 1917.

The new venture, named International Flavors and Fragrances Inc., proved an instant success, and immediately found such broad markets in the European food industry that new facilities in Holland, Switzerland, France, and Brazil were added to augment the company’s older American factories. Within two years foreign manufacturers of cake mixes, pharmaceutical products, gelatin desserts, candies, and soft drinks were using IFF flavorings at a rate that brought the division’s sales figures to 35 percent of the $34.2 million total in 1960.

It was clearly time to go public. Offered over the counter, the first shares went on sale in October 1961. At about the same time, Arnold Van Ameringen decided to step down as president so that he could devote himself to raising funds for mental health causes, although he continued to serve as chairman of the board until his death in 1966. Van Ameringen chose as his successor Henry Walter, the man who had been his trusted legal counsel for years.

A rather eccentric man, Henry Walter was daring enough to brave Manhattan’s rush-hour traffic on a bicycle and, even as the head of a fragrance company, to wear red suspenders brandishing hand-embroidered skunks. Although Walter could boast a law degree from Columbia University plus almost 30 years of legal practice, he had little knowledge of the fragrance and flavor business, to which he often referred as the “sex and hunger trade.” However, Walter firmly took the IFF helm and made sure to imprint his own corporate style on his staff without delay. Just as Van Ameringen had done, Walter also made secrecy his top requirement. In one 1963 action, he chose to emphasize this mandate by suing the Cott Beverage Corporation—which had just employed a former IFF employee as their new director of research and information—maintaining that IFF’s formulas for ginger ale and several other soda flavors had been usurped. The outcome of the case was never publicized, but the action itself was enough to convince employees that Walter meant business.

Other changes made the company more visible as an international concern. Walter made it a rule to use local workers in every foreign facility, allowing him to mention in the company’s 1966 annual report that only four Americans were currently working in IFF’s overseas plants. Being in closer touch with non-Americans also brought the company reliable information about local tastes in fragrances. The company learned that women in wamer climates preferred to use perfumes with a higher fragrance content (though not necessarily a stronger type) than their counterparts in cooler climates, and European men preferred after-shaves that were more highly scented than those used by American men. By the end of 1965 the close attention to cultural differences had paid off handsomely—fully 51 percent of sales came from overseas markets.

Walter allocated generous amounts of corporate income ($5.8 million in 1967) to flavor and fragrance research, and he himself made sure that few innovations in other companies escaped his notice. Especially interesting to him was a process of inking by microencapsulation invented by National Cash Register to replace messy carbons. A man quick to note the far-reaching potential of any industrial novelty, Walter soon licensed the process, and it was not long before IFF was producing scent strips for children’s “scratch-’n-sniff” books and perfume samples for magazines. By mid-1966 these new products had stimulated demand enough to send a daily average of $60,000 worth of fragrance compounds flowing from the company’s Manhattan headquarters. In addition, at the end of 1970 the fragrance markets for both toiletries and detergents had brought sales figures to $102.7 million, and such customers as Revlon, Procter & Gamble, and General Mills were relying heavily on IFF. Characteristically, Walter celebrated by allocating $8.4 million for the research that was keeping the company out in front of the competition.

If Henry Walter’s big push during the 1960s had been expansion, his equally great ambition in the 1970s revolved around cost-cutting. The advertising budget, potentially very large in a company concerned with fragrances, could be kept to skeletal levels because IFF was a business-to-business concern, rather than a retail marketer. A few trade-journal ads usually sufficed and were used for direct mail together with the company’s annual report, the cost of which was pared to $1 per copy.

In 1970 S. J. Spitz, a veteran of the chemical industry, joined Walter’s staff as chief operating officer. Spitz was well known for cost-cutting, and together he and Walter managed their 2,671-strong staff with economy and precision.

By 1973 the company’s 50 salesmen (20 in the United States and 30 in Europe) were handling both flavors and fragrances, and producing an average turnover of $3 million per annum each. Even the perfumers came under new scrutiny. In most companies, perfumers were precious and carefully handled assets, but at IFF bonuses were cut to the bone, and there was now a new rule that employees leaving the company were barred from their share of profits, even if the money had been earned during their tenure. Complaints about the new regime left Walter unmoved. “When a company gets beyond a certain point,” he told Dun’s Review in 1974, “you cannot run it in the old paternalistic way.”

In the early 1970s IFF was secure in a fragrance division that was still producing 75 percent of the bottom line, and Walter was elated about the new popularity of men’s toiletries as well as the growing profitability of air freshener products. However, the calm was interrupted in 1973 by the oil embargo, which quadrupled prices of all oil-based ingredients and encouraged other suppliers to raise theirs to match.

By the end of the decade, despite a client list that included Lever Bros, and Colgate-Palmolive, it was impossible to ignore a fragrance market growth rate which had slowed, both domestically and overseas, from 16 percent to 8 percent. In addition, tough competition was another cause for concern. By the late 1970s most top couturiers and cosmetics houses were at least assumed to be regular IFF customers. However, their loyalty was no guarantee of sales growth; these same clients usually invited several fragrance suppliers to submit samples for any new fragrance.

While all fragrance contracts were lucrative, a deal on a potentially expensive perfume could command a very high level of profit. Unwilling to compromise IFF’s claims in this area, Walter gladly paid his chief perfumer, Bernard Chant, a 1982 basic salary of $230,000 plus bonus for supervising 40 staff members and dreaming up new ideas. But Chant’s considerable creativity could not stem the ominous downward spiral. By 1980 sales figures reached $448.3 million, rising just 1 percent in 1981 to reach $451.1 million. The following year net sales sank to $447.9 million as a result of both a recession and a strong dollar overseas that affected the company’s foreign markets.

Always a man who tied his company’s developments to events in the outside world, Walter turned his attention to the growing world population and its burgeoning need for food. He noted that the agricultural industry was rising to the challenge with improved fertilizing techniques and freezing methods, and in other food-service areas, the microwave oven was also being increasingly used to bring food to the world’s tables in record time. Walter also observed that such advances were not without their downside. The new fertilizers and freezers often came with high price-tags, and the broadening spectrum of foods being produced frequently lacked flavor.

Once he had decided to concentrate on developing his share of the flavor market, Walter gave his experienced research team the green light. Thanks to the generous research budget ($30.6 million in 1980, rising to almost $35 million by 1985) IFF now reaped handsome dividends. The company made full use of the worldwide trend towards healthier eating and drinking by developing beverages that contained little or no caffeine, breads and pizzas with sharply reduced salt, and flavorful cheese products containing little or no fat. At the same time, new consumer interest in ethnic foods brought a need for complex flavoring blends, and a taste for more sophisticated and lower-fat desserts broadened the flavor market further. The flavor segment of IFF’s business contributed a healthy 38 percent of total sales by the end of 1984.

Fragrance research also received close attention during these years. Henry Walter had long held the view that fragrances might carry the psychological benefit of mood elevation. As a first attempt to find answers, he had long ago sponsored a study by leading sex experts Masters & Johnson, who were trying to determine the effect of fragrance on sexual behavior; he encouraged his scientists to find scents which might discourage overeating, relieve stress, or bolster sexual excitement.

In mid-1985 both CEO S. J. Spitz and Chairman Henry Walter decided to retire. Into the top spot stepped former senior vice-president Eugene P. Grisanti, a Harvard-trained lawyer with 24 years of experience with IFF. Grisanti got off to a brisk start. His first act was to streamline management by eliminating the position of CEO and giving the vice-presidents of the flavors and fragrance divisions more decision-making responsibility. Next, he instituted a teamwork concept among his New York-and Paris-based product development units, who were now encouraged to cut costs and effort by working closely together. Grisanti also carried on the Walter tradition of a generous research budget, which by 1990 had reached $54 million. Grisanti directed this money partly toward such “bread-and-butter” projects as the development of exactly the right beef-fat flavor for McDonald’s low-cholesterol fries and partly toward innovative research into covering bad odors. By the end of 1992 IFF sales figures had reached $1.10 billion, up from $962.90 million in 1990, despite the recurrent recession that brought thousands of layoffs and forced consumers to compromise on important purchases.

Principal Subsidiaries

International Flavors & Fragrances Inc. (The Netherlands); International Flavors & Fragrances G.m.b.H. (Germany); International Flavours & Fragrances Ltd. (England); International Flavors & Fragrances A.G. (Switzerland); International Flavors and Fragrances, Inc. (France); Aromatic Holdings Limited (Ireland); Destilerías Adrian & Klein (Spain); International Flavors & Fragrances (Hong Kong); Auro Tech, Inc.