International Flavors & Fragrances Inc. - Company Profile, Information, Business Description, History, Background Information on International Flavors & Fragrances Inc.

521 West 57th Street
New York, New York 10019

Company Perspectives:

At IFF, our goal is to be our customers' most valued resource for creative, consumer-preferred and technologically superior flavors and fragrances.

History of International Flavors & Fragrances Inc.

International Flavors & Fragrances Inc. (IFF) 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 to deodorants to scents used in laundry detergents. Although fragrances traditionally have been the backbone of IFF's bottom line, flavorings operations have grown to comprise about 41 percent of sales. IFF's flavors are used in processed foods, beverages, confectionery products, baked goods, pharmaceuticals, oral care products, and other areas. A globally active firm, International Flavors & Fragrances has operations in more than 35 countries and generates nearly 70 percent of its revenues outside the United States--39 percent from Europe, Africa, and the Middle East; 16 percent in Latin America; and 13 in the Asia-Pacific region. The company claims to operate the world's largest research and development effort devoted to fragrances and flavors, spending more than $100 million each year to create new flavors and fragrances at 32 laboratories in 24 countries.

Early Years

International Flavors & 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. Van Ameringen's job security, however, 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 to prevent competitors from copying original ideas. As a private concern, Van Ameringen also was 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 Estée 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 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, Arnold Louis Van Ameringen merged the company with a European manufacturer primarily concerned with flavors, offering broad access to the American fragrance market in return. Founded in The Netherlands in 1889 and called N.V. Polak & Schwarz's Essencefabricken, Van Ameringen's new partner was a company he knew well--the same one that had fired him in 1917.

Expanding in the Late 1950s and 1960s

The new venture, named International Flavors & 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, 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, which he often referred to as the 'sex and hunger trade.' Nevertheless, 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 warmer 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 aftershaves 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.

Cutting Costs in the 1970s

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 annual turnover of $3 million 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. The calm, however, 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 that had slowed, both domestically and overseas, from 16 percent to eight 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. Their loyalty, however, was no guarantee of sales growth; these same clients usually invited several fragrance suppliers to submit samples for any new fragrance.

Developing the Flavor Business in the 1980s

Whereas 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 one 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 being used increasingly 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 toward 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 much earlier 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 that 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 in part toward such "bread-and-butter" projects as the development of exactly the right beef-fat flavor for McDonald's low-cholesterol fries and in part toward innovative research into covering bad odors. By the end of 1992 IFF sales figures had reached $1.13 billion, up from $962.8 million in 1990, despite the recurrent recession that brought thousands of layoffs and forced consumers to compromise on important purchases. Sales and earnings growth continued through 1995, when revenues reached $1.44 billion and net income hit $248.8 million. The latter figure was more than triple that of 1985, when Grisanti had taken over. During the same period, IFF's stock quadrupled in price.

Stagnating Results in the Late 1990s

Revenues and earnings stagnated in the late 1990s, however, because of stiffening competition, pricing pressure from increasingly cost-conscious customers, and the effects of the Asian financial crisis and economic difficulties elsewhere. The latter hit particularly hard because of IFF's strong international base--about 70 percent of revenues were generated outside the United States. The company began restructuring, closing a plant in Union Beach, New Jersey, in 1997, then launching a global restructuring in mid-1999 that aimed to increase earnings by $15 million a year starting in 2000. An aroma manufacturing plant in Haverhill, England, was slated for closure along with additional operations in Brazil and the Philippines. About 200 employees, or five percent of the workforce, lost their jobs. In 1999, IFF took a pretax charge of $40.9 million in connection with the restructuring, resulting in net income for the year of $162 million, a significant drop from the $248.8 million figure of 1995. Research and development expenditures, meantime, reached an all-time high in 1999, $104 million--the largest in the industry. Near the end of 1999, Grisanti, under some pressure from the company board stemming from the company's continued lackluster performance, retired from the company. Board member Richard M. Furland, former president of pharmaceutical company Bristol-Myers Squibb Company, was named interim chairman and CEO.

As restructuring activities continued in 2000, IFF began participating in a consolidation drive that was sweeping the fragrance and flavors industry and was being propelled by the industry's slower growth and production overcapacity. In April the company acquired Laboratoire Monique Rémy, a firm based in France that was a leader in the production of natural raw materials for flavors and fragrances. In June, Richard A. Goldstein took over as chairman and CEO of IFF. Goldstein was a 25-year veteran of Unilever, reaching the position of president and CEO of Unilever United States, Inc. Goldstein had pursued some significant acquisitions in his position as head of Unilever's U.S. unit and, after just a few months at the helm of IFF, announced the company's first major acquisition in decades. In September IFF agreed to acquire Bush Boake Allen Inc. (BBA) for about $965 million, a deal that closed in November. The addition of BBA, which had 1999 sales of $499 million, vaulted IFF into the number one position worldwide in the flavors sector while bolstering its already top position in fragrances. Both BBA and IFF had strong global positions, with BBA giving IFF a significant presence in India for the first time. Meanwhile, in October, IFF announced another major reorganization in which the company adopted a new global structure. In place of the separation of fragrances and flavors into their own divisions, the company adopted a structure centering on the broad global units of business development and operations; the structure also included a matrix element in that there would also be a single regional manager for five geographic clusters: North America; Europe; Latin America; the Asia-Pacific region; and Central Asia, Africa, and the Middle East. Through this restructuring, IFF hoped to achieve annual cost savings of $25--$30 million by 2003; these savings were in addition to the $70 million in savings expected to accrue from the acquisition of BBA. Under bold new leadership, International Flavors & Fragrances appeared poised to return to the solid growth that had characterized the company from 1985 to 1995.

Principal Subsidiaries: International Flavors & Fragrances I.F.F. (Nederland) B.V. (Netherlands); Aromatics Holdings Limited (Ireland); IFF-Benicarlo, S.A. (Spain); International Flavours & Fragrances (China) Ltd.; Irish Flavours and Fragrances Limited (Ireland); International Flavours & Fragrances I.F.F. (Great Britain) Ltd. (U.K.); International Flavors & Fragrances I.F.F. (Italia) S.r.l. (Italy); International Flavors & Fragrances I.F.F. (Deutschland) G.m.b.H. (Germany); International Flavors & Fragrances I.F.F. (Switzerland) A.G.; International Flavors & Fragrances I.F.F. (France) S.a.r.l.; International Flavors & Fragrances (Hong Kong) Ltd.; International Flavors & Fragrances (Japan) Ltd.; International Flavors & Fragrances S.A.C.I. (Argentina); I.F.F. Essencias e Fragrancias Ltda. (Brazil); International Flavours & Fragrances (Australia) Pty. Ltd.; P.T. Essence Indonesia; International Flavors & Fragrances (Mexico) S.A. de C.V.; International Flavors & Fragrances I.F.F. (España) S.A. (Spain); ALVA Insurance Limited (Bermuda).

Principal Competitors: BASF Aktiegesellschaft; Bayer AG; Dragoco Gerberding and Co. AG; Firmenich S.A.; Givauden S.A.; Haarmann and Reimer GmbH; Heller Seasonings & Ingredients, Inc.; Kerry Group plc; McCormick & Company, Incorporated; Millennium Chemicals Inc.; Northwestern Flavors, Inc.; Quest International; Sensient Technologies Corporation; Takasago Perfumery Co.; T. Hasegawa Co. Ltd.


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Further Reference

"A.L. van Ameringen Dies at 74; A Crusader for Mental Health," New York Times, January 5, 1966, p. 31.Bary, Andrew, "Take a Whiff: Why International Flavors & Fragrances Looks Tempting Right Now," Barron's, July 20, 1998, pp. 20, 22.Commercial and Financial Chronicle, October 30, 1961, p. 1843."A Cook's Tour of IFF Operations with Marketer Hinrichs," Industrial Marketing, September 1970, p. 55.Curan, Catherine, "Perfume Company Banks on CEO's Nose for Business: International Flavors Hopes to Pace Flagging Industry," Crain's New York Business, June 26, 2000, p. 4.Floreno, Anthony, "F & F Financial Results Show There's Growth in Industry," Chemical Market Reporter, January 26, 1998, p. 17."IFF Shaking Inventory Blues," Commercial and Financial Chronicle, July 26, 1976, p. 2."IFF: The Sweet Smell of Success," Forbes, October 15, 1973, p. 34."International Flavors Elects Walter," New York Times, December 12, 1962, p. 13."International Flavors: Funding Far-Out Ideas for Future Growth," Business Week, November 12, 1984, p. 129."International Flavors Joins Big Board Today," New York Times, March 2, 1964, p. 41.Israel, Lee, Estée Launder: Beyond the Magic, New York: MacMillan, 1985.Jacobs, Karen, "International Flavors to Acquire Bush Boake Allen," Wall Street Journal, September 26, 2000, p. B12.Karp, Richard, "The Big `If' at IFF," Dun's Review, March 1974, p. 52.Lublin, Joann S., "International Flavors Is Set to Name Unilever's Goldstein Chairman and CEO," Wall Street Journal, April 26, 2000, p. B2.Margetts, Susan, "Sex, Hunger--and IFF," Dun's Review, November 1969, p. 95.McCoy, Frank, "International Flavors Smells Like Money Again," Business Week, April 18, 1988, p. 70.Mendelson, Alan Mark, "Dollars from Scents," Barron's, March 31, 1980, p. 39.Nemy, Enid, "In the World of Fragrance, Reputations Rest on the Nose ...," New York Times, February 11, 1993, p. C2.Ouellette, Jennifer, "New IFF CEO Begins Path Back to Growth," Chemical Market Reporter, June 26, 2000, p. 24.Roman, Monica, "Beef-Fat Flavor May Not Sound Glamorous, But ...," Business Week, March 11, 1991, p. 70.Smith, Lee, "Adventures in the Sex and Hunger Trade," Fortune, August 9, 1982, p. 47."A Sweet Little Business," Forbes, October 1, 1963, p. 41."The Sweet Smell of Success," Magazine of Wall Street, August 3, 1968, p. 18."U.S. Charges 7 Firms Over $29 Million Cost to Clean Waste Site," Wall Street Journal, July 17, 1992, p. A6.

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