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Flavours to drive oleoresin growth

19-Jun-2003

The innovative world of flavours is experiencing more rapid growth than the overall food industry, giving fresh momentum to the essential oils and oleoresins market, affirms Frost & Sullivan.

According to a new study from the market analysts, the rise in consumer demand for natural food products, coupled with the associated need for flavouring compounds from natural sources, are providing a major boost to the essential oils and oleoresins market.

The study values sales in the total European and US essential oils and oleoresins market at $653 million (€558m) in 2002, set to climb to $796 million by 2009. The figures equate to shipment volume growth from 74,700 tonnes to 105,800 tonnes during the same timeframe.

The report identifies functional food applications and dietary supplements as the key development areas for essential oils and oleoresins.

These sectors represent an emerging source of growth, providing manufacturers with considerable potential for grabbing a larger slice of the overall market, writes Frost & Sullivan. But, it warns, the adoption of an early positioning strategy is crucial to bolster performance in these sectors.

Before making a major investment of time and resources, participants in theessential oils and oleoresins market seeking to develop the functional properties of their product are advised to evaluate the potential of new products and new markets. New technologies, distribution channel or pricing strategy, form the foundation of a product's successful market entry, continues the report.

One of the biggest challenges facing the European market is the enforcement of increasingly stringent European legislation, resulting in the more vigorous control of these ingredients in the food industry, as well as the introduction of tighter labelling rules.

According to the study, the introduction of legislative controls is likely to reduce the number of competitors able to meet safety, efficacy and quality criteria. It emphasises the importance of aligning corporate strategies with legislative changes impacting the overall marketplace.

Meanwhile, manufacturers of essential oils and oleoresins in the US are plagued by intensifying competition from Asian companies, which continues to send market prices plunging. These price decreases count among the most prominent restraints to growth across the region.

The report highlights the fact that essential oils and oleoresins sold within the European market remain expensive compared to synthetic alternatives and Asiatic supply. In order to justify these higher prices, manufacturers are urged to offer value-added packages, often developed through branding strategies.

In order to sustainthe development of the essential oils and oleoresins market and within the context of increasing competition among suppliers, the report emphasised that manufacturers will haveto introduce product differentiation policies that will allow them to gain and maintain competitive advantage.

'Demand for essential oils or oleoresins is very specific. Although some oils - such as orange and lemon - readily substitute each other, each category faces its own specific customer groups, applications and pricing issues.

This flavour uniqueness provides a robust stabilising factor for the growth of the market,' commented Anna Ibbotson, programme manager at Frost& Sullivan.

Topping the league table of essential oils and oleoresins is thefragrance industry with a market share of 50 per cent. But thefragrance industry supplies mainly the soap, detergent, cosmetic and toiletries markets, segments characterised by low growth rates, usually under 5 per cent.

"Companies purchasing essential oils and oleoresins are able to exert somepressure on their suppliers, particularly the large multinational food,personal and household care companies.

The barriers to entry are relatively low, although expected to increase with introduction of new legislation, and the US in particular has seen many new entrants, particularly from China and India," continued Ibbotson. Adding that, as a result, domestic manufacturers are being forced to identify areas where economies of scale can be capitalised on, and to develop abroader value-added service offering.

As a result of consolidation within the ingredients markets and the flavours and fragrance industry, the number of suppliers is declining and major food and beverage manufacturers are looking for suppliers who are able to provide customised products suitable for their production lines.

'As a consequence, natural essential oils and oleoresins manufacturers must get involved with the product development of their customers, as well as remain attentive to the needs of their customers, and ensure that all requirements are met,' concludes Ibbotson.

Although achieving such a privileged relationship with a food and beverage manufacturer is an ongoing challenge, meeting the specific requirements of customers will help developcustomer loyalty and ensure good positioning within a declining customerbase, concludes the report.

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