As Sugar Tax Looms IFF Ramps up Work on Flavor Modulators

07 Jun 2016 --- International Flavors & Fragrances Inc. (IFF), the world’s third largest flavors supplier [turnover $3.23 billion in 2015], is looking to increase its expenditure on R&D, with innovation serving as a central platform for growth. Further partnerships and M&A activity can also be expected, following a relatively quiet period, which did feature the small acquisitions of Ottens Flavors and Lucas Meyer Cosmetics in 2015. 

“We spend some 8% of our sales on research & development, which is quite high compared to our customers. But we will need to invest even more in R&D. That’s what we want to do going forward, because we believe that the only way that we can differentiate ourselves is through innovation,” Andreas Fibig, Chairman and CEO of IFF told FoodIngredientsFirst in an exclusive interview at the company’s production facilities in Tilburg, the Netherlands. “In recent years, our R&D investment was always around 8% and it is our intention to do more. We also want to do more in terms of collaborations; whether it is other partner companies or academia.” 
 
The company already has several collaborations in place with universities, but we can expect more to come. “We have one collaboration with Duke University [Durham NC, USA] on flavor modulation since 2 years and then on encapsulation with the University of Liverpool [UK]. We want more partnerships with universities and external partners. There is more to gain in terms of having a broader network of researchers in place,” he says.
 
One of the exciting areas of innovation for IFF is flavor modulation for sweetness, as calls for mass industry sugar reduction intensify. “Sugar is the new cholesterol. High sugar, high calories, obesity, diabetes are on the agenda and governments are very concerned. You see a sugar tax in Mexico, one upcoming in the UK and South Africa is going for a sugar tax too. Here is where we can really offer solutions to help our customers to reduce sugar, without influencing the taste profile,” notes Fibig. 
 
In 2015, IFF developed two natural flavor modulators for sugar to meet the demands of varying customer requests. “We do things where you can still have real sugar, but with a modulator on top of it. It basically works as a stimulus for the taste receptors and helps you to keep the real taste profile,” he notes. The solution simply has to be labeled as a “natural flavor.” New flavor modulation solutions are being taken to the table almost every year by the company. “The next thing will be sodium modulation, which is an important one too from a health & wellness perspective,” he adds. 
 
But innovation does not necessarily need to focus on higher value products geared towards saturated western markets. IFF will increasingly focus on targeting emerging markets, as growth in developed economies winds down. “What we see now is that the flavors market is changing. It no longer has the steep growth that we have seen for many years. Instead it is now more like 2-2.5% market growth as a whole, which is less driven by volume growth in the mature markets,” he notes.
 
IFF is still enjoying good middle single-digit growth in several emerging markets, however, which is clearly driven by population growth. “You see that these natural trends are taking hold in these regions earlier than in the past, as things are more transparent and trends go more easily from one country to another,” Fibig explains. 
 
Another example of a successful IFF innovation comes in the form of a delivery system for powder, which has enjoyed a strong uptake in Latin America. “We have reported eight successive quarters of double-digit growth in Latin America. That was driven by a technology, which is particularly for cost efficient drinks like powders. That was selling very well. So even for the lower income markets, if you have the right solutions, you can do good business,” the CEO says. 
 
IFF’s turnover is fairly evenly split between flavors & fragrances, and Fibig reveals that the company will “certainly be more active than in the past in terms of M&A,” on both platforms. “We did two small acquisitions last year and we are looking for more in some other areas. We have a pretty decent pipeline and are looking at some geographies, where we need more critical mass, but also in terms of technologies,” he notes, remaining coy of specifics, however. “Deals are usually opportunistic and it depends on what is for sale,” Fibig adds.
 
The space of active cosmetics will certainly be an interesting one to follow. “We have a couple of nice naturals facilities, including Grasse [France], but we now have another in Australia called Southern Cross Botanicals [through the 2015 acquisition of Lucas Meyer Cosmetics]. I see that whenever we get our flavorists together with naturals and perfumers, it is a very productive dialogue, with creative solutions,” he says. 
 
In terms of other trends, Fibig notes high demand for clean label products and naturals. “Raw material prices for many of the naturals are up. Vanilla is very expensive right now, for example. In general naturals are at a very high price point now. This is driven by both commodity prices and demand,” he says.
 
Interestingly, he also noted a surge in small companies coming up with very innovative solutions. “You particularly see this in the US from smaller west coast companies, such as those in Silicon Valley. That is an area where if you want to scout for ideas it is a good place to look,” he concludes. 
 
Fibig was speaking at the launching of the flavor and fragrance industry’s first-ever on-site wind turbine at its Tilburg, Netherlands manufacturing facility. The turbine, which has an output of 2.4 megawatts, will produce approximately 6.5 million kWh of renewable electricity per year – the clean energy equivalent of what is needed to power 1,860 households. It is estimated to provide up to 30 percent of the site’s electricity needs, and when combined with purchased green electricity, the facility will be powered by 100 percent renewable electricity. 

“Innovation comes not just from what you make, but how you make it,” says Nicolas Mirzayantz, Group President, Fragrances, and Executive Sustainability Sponsor. “Following our launch of the largest solar array in the industry [at the company's New Jersey production facility], this turbine is another demonstration of how we always strive for what is best for our company and the planet. The turbine will serve as a pillar of inspiration and pride for IFF employees in Tilburg – and around the world.” 
 
In 2015, IFF formally reaffirmed its commitment to renewable energy with its support of RE100, a collaborative, global initiative of influential businesses committed to 100% renewable electricity. And with the launch of its 2015 sustainability report last week, IFF also celebrated year-over-year company-wide reductions in energy use, water use and greenhouse gas emission intensities. 
 
The philosophical keystone of IFF’s sustainability strategy is the concept of the circular economy. This, in contrast to a linear “take-make-dispose” economy, is one that is restorative and regenerative by design. This concept is a driver of sustainable innovation of products, business models, companies and economies. 

A full interview with Andreas Fibig which discusses IFF’s sustainability strategy will appear in the June issue of The World of Food Ingredients.

By Robin Wyers