French fragrance house MANE has built a new vision for its fine fragrance business. MANE Global Fine Fragrance President Mehdi Lisi tells BW Confidential about the company’s strategy and gives his views on the outlook for the fragrance market, China, premiumization and sustainability in the sector
You joined MANE just over one year ago. What are your key priorities for growing the company’s fine fragrance business?
We spent some time with our global teams building a new strategic vision for Fine Fragrance at MANE. We identified immediate opportunities to create new synergies among our teams. Europe and the US are our biggest and historical fine fragrance markets, but we are building good momentum in Asia, the Middle East and South America.
In China, for instance, where we expect the market to grow in the coming years, the development of our fine fragrance capability has clearly accelerated, thanks to a historically strong fragrance business unit, a world-class team of experts, and major recent corporate investments, such as the newly opened factory in Pinghu. This combination of agility, speed and long-term vision is quite unique to our family business model and enables us to impact the fine fragrance market and gain market share in a period of transformation and opportunities: new consumer expectations, green transformation, new demographics, and a new competitive landscape.
I see a lot of excitement and anticipation within the industry around our Fine Fragrance project. Our strength in naturals and ingredients is, of course, a driver of that renewed interest. We have a real edge in our ingredient portfolio, with ingredient technologies such as Jungle Essence™, many natural specialties, and arguably one of the largest biotech portfolios in the industry.
Unlike our competitors, we have not engaged in heavily marketing our capabilities, as we have historically had a more discreet, customer-centric, boutique-type approach. This model has proved very efficient in delivering high levels of creativity. Our development strategy focuses on a limited number of selected high-potential partners in the interest of building long-term business relationships and co-creation platforms. In this volatile “crisis-upon-crisis” business environment that is impacting our industry, we clearly have a unique position to build upon and the means to deliver.
Our “glo-cal” model is more relevant than ever. Local players are becoming more global, and global players are becoming more local. Our strategy of building global category networks, consumer research and marketing synergies, and cross-category capabilities (building on our strong home fragrance base, for instance) is proving very effective in strengthening our historical partnerships in France and the US, as well as opening new core lists with global giants and regional majors.
Consolidation continues among fragrance houses, including large-scale deals such as the recent DSM and Firmenich merger. Are you at risk of losing out in terms of business with large groups or in terms of sourcing opportunities due to competitors becoming even bigger?
Not at all; quite the opposite, in fact. Global clients are knocking on our door specifically because of our strategic focus, our financial independence, our commitment to our core business, and our obsession to deliver best-in-class service. Remaining an independent, family-owned business allows us to focus on organic growth and invest in new technologies, rather than saving and borrowing to buy new companies. That’s one of the big differences between MANE and some of the big public companies. We build, and then we grow – we don’t buy growth first and then look at how we can service that growth.
Traditional fragrance companies are being transformed into M&A machines, but the way we operate at the management level is slightly different. Our focus is on product quality and creativity. Big customers are looking at suppliers or partners that are more focused on driving value into products. They also see that some flavor and fragrance companies are expanding into completely new areas and experimenting with new business models. This comes at a cost, and there is a risk that historical categories may suffer from the lack of focus. As they face major industry-wide challenges, such as transforming the palette of ingredients to include more biodegradable and renewable ingredients, clients need to make sure they have suppliers that are committed in terms of technology and long-term strategic alignment.
As long as we keep growing our sales and strengthening our operational capacity, we maintain that critical mass, and I don’t see any reason why our sourcing opportunities would become compromised anytime soon. We consistently deliver best-in-class supply chain solutions that are widely recognized by our partners and customers.
Are you looking to make acquisitions?
We will always consider opportunities, but “growth by M&A” is not our main strategy. We would only look to make an acquisition if there were a technology or a specific market opportunity in play. One of the specificities of the MANE model is to be secure in our ability to grow on our own and to fund our own development.
How do you see the state of the fragrance market? Do you think the sector’s strong growth will continue?
We saw high single-digit growth compared to the first quarter of 2022, which was one of the strongest quarters we have ever seen. There were some question marks over China’s recovery at the beginning of the year, but we feel more traction now and an appetite for newness and innovation.
I don’t see enough softening when it comes to the cost of ingredients, but this is because there is a high market demand. The premiumization of the market is making naturals extremely volatile. Naturals are always a bit more volatile and less predictable than petrochemicals, but we don’t see any major issue there. However, prices remain high, as do salary inflation, production costs and energy costs.
The pipeline remains strong, and in China, there is high demand from both local and global players. So, if China really kicks in toward the end of the year as we expect it to do, MANE will be in a very good position. In addition, obviously, the premiumization of the market holds much potential. Brands have realized that the value transferred to customers is extremely well understood. Customers know when they have a good product and meaningful innovation and are ready to invest more in it. There is still a lot of room for brands to invest more in the quality of fragrance concentrate. All of this combined means we shall see another very strong year. I don’t know if the global fragrance market will see double-digit growth this year, but growth will definitely be in the high single digits.
Do you think the premiumization trend is here to stay or will it reach a plateau?
In terms of brand spend – as opposed to consumer spend – we capture a relatively small portion of the end value. It’s a matter of deciding what is key for the consumer. For example, we know that in China, creativity, lastingness and perceived quality are important – probably more important than a clever press campaign or a good story. Chinese consumers are more sophisticated and sensitive to meaningful innovation and genuine creativity. Perfumers must challenge themselves to understand local aesthetics to build truly original products. So that makes it an easy decision for the brand to continue to increase investment in the actual product. I don’t see a plateau on our end; there might be a plateau as far as brands are concerned, but we are far from that plateau.
How do you see the recovery of China, which has been slower than expected, and also the rise of local brands in the market?
Yes, [recovery was slow at the beginning of the year] because travel is still not back, but we are waiting to see what happens when the Chinese begin traveling again. There has been a softening due to Covid policies and a cautious post-Covid recovery, but I expect this will improve as long as brands demonstrate willingness to innovate.
In terms of local Chinese brands, entrepreneurs in China now want to build the category with a sense of pride and even export Chinese sophistication to the rest of the world. They are ambitious, bold and fast. The new ventures we see are less opportunistic than in the past, when it was more about creating a brand to quickly sell to a big Western group. Of course, the maturity of retail will be the key to unlocking China. There is a lot of innovation from platforms and marketplaces in China, but we’re expecting even more in that space. It won’t be a sudden boom in the market; we’ll see steady growth of local players and steady growth of penetration in the category.
At this point, the perception of Chinese brands is to beat global brands in terms of value transfer to the consumer – in other words, creative value, storytelling value, and product performance and quality. That’s where we see those players going. There is a new aspect of looking for technological or marketing innovation that will make those brands stand out versus global brands.
Given the geopolitical situation and continued talk of de-risking when it comes to China, does the business model for this market need to change?
The strength of the MANE model is that we are fully autonomous. We have made major investments in China to cater to the growth of the market. We’re not doing this because of those risks, but because it has always been the MANE model to be a local leader wherever we operate. It’s also to make sure we have good partnerships with local players, so that we can be there for them when they see a surge in their business.
I don’t see a need for a shift in strategy at fragrance houses or with our customers. We’re not seeing any signals from our customers or any major concerns there. On the contrary, we have seen them being extremely bold in how they project the category, because they want to make sure that we’ll be able to supply them. It’s about gaining critical mass to support major markets in 5 to 10 years.
How do you see the fragrance industry’s efforts to become more sustainable?
Some categories are more advanced than others. The first thing we did was create tools to measure sustainability and give our perfumers the tools to create sustainably. The biggest challenge is not changing the palette of ingredients, but helping our perfumers to work with new ingredients and preparing the portfolio to make things easier for perfumers. We launched our capability for guiding perfumers more than 10 years ago, with our Green Motion™ tool. In terms of creation, it’s about the pipeline of renewables, naturals, biotechnology, but also the integration of ESG criteria into our purchasing practices and promoting sustainability along our value chain.
It’s common today to work on major briefs with constraints such as 100% biodegradable or very high levels of renewables. However, the magnitude of the change is not as striking as I would have expected – you can still make things that smell good. The good news is that invention and innovation can operate despite these new constraints. Then it becomes a question of accelerating innovation in the renewables, biodegradables and naturals space.
One of our specificities in naturals is that our perfumers drive innovation, so our Jungle Essence™ and our E-Pure Jungle Essence™ platforms – reinventing enfleurage – are directly led by our perfumers. We will formalize this to make sure that the pipeline of innovation is even stronger and we have an integrated approach to perfume-making. We also have untapped opportunities in our biotech portfolio.
Do you think the cost issue is hindering the development of sustainable fragrances?
Cost is a huge aspect. The way we design fragrances today is different. It’s not just about responding to a brief with an anticipated price; it’s also about value and naturalness – and sustainability, which is one of the big value drivers and should be discussed in combination with quality and lastingness. That’s the discussion we need to have with our clients, in the spirit of transparency, trust and collaboration.
In line with our CSR engagements, we have devoted considerable resources to building a safe and sustainable supply chain to make sure we continue to deliver quality, and to building inventory to spare our clients the sourcing issues they’ve experienced with other supply chains. It’s about the value that lies beyond just meeting the brief. In essence, what’s creating this incredible momentum in the fine fragrance market and what everybody is focused on is the value equation, and that’s great news.