Flavors

Flavors Global Market Outlook

• The global F&F market size was valued at $25.89 billion in 2021 and is expected to grow at a CAGR of 4.5–5 percent from 2022 to 2029. Growth of the F&F market is driven by the increasing demand from pharmaceutical and non-food applications in China and India.

• Higher traction for flavor use in ready to eat, processed and canned food industry drives the growth of flavors industry globally. The segment is expected to grow at CAGR of 4.3 percent from 2021 to 2027 

• Other factors, such as innovation of technologies, introduction of new flavors, and heavy inflow of investment in R&D activities, boost the market growth

• The beverages segment dominates the flavors demand and it is expected to retain its position in the forecast period. However, higher growth in savory flavors make it as top investment pocket, owing to high demand for ethnic, spicy and exotic flavors

Market Analysis of F&F Industry

The primary market trend is consumer preference and shift toward natural flavors compared to synthetic flavors. Therefore, most R&D projects are geared toward highlighting or improving the naturalness of products.

• The global F&F market has grown at a CAGR of 3.5 percent over a five-year period, with the growth in APAC, LATAM, and MENA

• Asian and LATAM opportunities are driven by the low cost of raw materials for natural ingredients and availability of cheap labor

• North American demand for flavors is driven by demand for low-fat and low-carbohydrate foods and beverages

• The Western European market is saturated, and the APAC region could exceed this region in growth

• Challenges are synthetic product concerns, high cost of transition from synthetic to natural sources, and lack of transparency in patent protection laws

Natural vs. Synthetic ꟷ Industry Shift : Flavors Market

There is an increasing shift towards natural flavors in the past decade, owing to higher awareness towards those products in the cosmetic sector. Higher use of essential oils and regulations supporting farmers are clearly a first step towards “natural flavors”.

• The natural flavors market is valued at $2.7 billion in 2019 and it is likely to grow at CAGR of 9 percent until 2024. The EU shows the largest share in use of natural ingredients (30-35 percent), followed by North America and Asia

• Strict regulations, higher affiliation of consumers, lethal effects of synthetics like asthma, migraines, hormonal disruption are promoting the use of natural flavors

• Among the natural flavor, fine flavor industry is driving the demand with more inclusion of essential oils, flower and fruit based scents preferred over musk and heavy synthetic notes

General Components of Cost to Flavor Companies

R&D expense for flavor companies accounts for about 10 percent of the total cost. It is recorded under SG&A expenses in the US, but it is shown under COGS in the EU and APAC.

Salient Features of Flavors Cost

• In the US recording system, R&D costs are separated from COGS and recorded under SG&A expenses

• In the EU and APAC, a part of R&D cost is shown in COGS, such as direct line trials, application lab, and others

• This model takes North America as the reference region for illustrating cost structure

Key Insight on R&D Contribution

• R&D-related expenses constitute to about 10 percent of the total costs for flavor companies

• As most of the flavor companies work B2C, R&D capability is crucial to respond to customer requests

• There are dedicated R&D people to work directly with the customer R&D teams