Investigators sniff out the hidden fragrance industry

Aside from being scented liquids, Gucci’s Flora Gorgeous Gardenia Eau de Parfum and Unilever’s Dove Go Fresh Pomegranate & Lemon Verbena Scent shower gel don’t have much in common. One is 100 times more expensive than the other by volume and is sold by a fashion label, not a packaged goods company.

But both were created by the same company, Swiss fragrance group Firmenich. You may never have heard of it, but the smells it concocts permeate thousands of products, from perfumes, toothpastes and deodorants to laundry liquids. Unseen and unannounced, it is an ambient presence in homes.

These are good times for luxury fragrances. Sales of scented candles and perfumes from brands and celebrities like singer Ariana Grande have risen as people indulge. Firmenich, which silently makes many of them (including Grande’s RE M), took a hit: sales of fine fragrances rose 33 percent last year.

The journey was cut short last week when Firmenich and its three main competitors were searched by cartel investigators from Switzerland, the EU, the US and Great Britain. They are suspected of colluding to raise prices, prevent competitors from supplying their customers and limit the production of some fragrances.

Firmenich, Switzerland’s Givaudan, Germany’s Symrise and US group International Flavors & Fragrances have not admitted wrongdoing: they say they are cooperating in the investigation, which may not lead to charges. It includes not just fragrances, but “fragrance ingredients” that go into food to make it smell good.

We don’t know which products regulators have their eyes on, but I can make an observation regarding price differences between luxury fragrances and body wash. You don’t have to fight too hard when customers are happy to pay for a label and a small perfume bottle. The production of staple foods is a struggle that inspires the temptation to collusion.

The presence of Firmenich and co. is the hidden factor behind the luxury industry’s “fragrance boom”. Labels realized there was money to be made by adding perfumes to their clothing lines, but few of them had the Chanel ability to make the fragrances themselves. They needed partners and the fragrance groups were willing to help.

The surge in luxury fragrance sales began during the pandemic and continues. Sue Nabi, CEO of US beauty company Coty, which makes perfumes for brands like Burberry, Chloé and Tiffany, noted last year that shoppers are “buying more and more . . . expensive items” for yourself, not just as a gift.

Although luxury fragrances are growing fast, they only make up a small part of the industry. Most of it is less glamorous and more mundane: flavoring air fresheners, deodorants, soaps, gels, washing powders, floor cleaners and all sorts of other products.

The Geneva-based International Fragrance Association is part of the antitrust investigation and told me it conducts all meetings “under strict competition policy guidelines.” It is estimated that fine fragrances accounted for 9 percent of fragrance product sales in 2017; Almost 70 percent concerned personal care items such as shampoo.

Life in the latter business is tougher: growth is far weaker and fragrance makers are facing price hikes from their 3,000 raw material suppliers, including lavender and patchouli farmers. They also have to deal with the world’s largest manufacturers of packaging goods to sell their fragrances, including Unilever and Procter & Gamble.

The industry produces a huge range of smells and fragrances: Givaudan alone produces 176 “fragrance molecules” ranging from benzyl salicylate (“floral, balsamic, sweet”) to alicate (“fruity, rhubarb, aromatic, lilac”). But no matter how sweet they smell, selling chemicals to multinationals is a drudgery.

The fact that people choose perfumes carefully but care little about the origin of the pine scent in floor cleaners dictates trading conditions. When Gucci wanted a fragrance with “ultra-dry woody notes,” it consulted one of Firmenich’s master perfumers, who mixed the formula. When a multinational company manufactures a supermarket product, they have many suppliers to choose from.

Fragrance companies may have banded together to narrow this choice: we’ll know when the investigation ends. Meanwhile, the raids tell a story about making money from scents or other products. Get as close as possible to price-insensitive buyers and stay away from industrial supply chains.

I have another observation: A legal way to limit competition is to merge. When managers within a company agree on prices, this is called strategy, not collusion. Like others, the industry is also consolidating: Firmenich is merging with Dutch life sciences group DSM: the €41 billion deal was cleared by EU competition authorities last month.

Expect more mergers after that. And the next time you spray on perfume or wash your hair, check the small print on the back and the labels on the front. The smell could have blown all the way from Switzerland.

john.gapper@ft.com