PARIS - Perfume-buying lovers are making more than just retailers smile this Valentine's Day season. Successful scents will also reap profit for the chemical companies that make their ingredients.
Behind Christian Dior SA's increasingly popular J'adore is Quest International, a unit of Imperial Chemical Industries Plc.
Givaudan SA, the centuryold chemical-maker spun off from Roche Holding AG , makes the ingredients for Yves Saint Laurent's Opium.
Perfume-making is only a fraction of the $11 billion market for flavor and fragrance chemicals. Yet the profit margins can be double that of standard aromas, such as those found in deodorants or detergents, and success attracts customers for other products.
"When you are good in fine fragrances, you can do anything," said Josep Marti Ruffo, head of Quest's French unit. A successful perfume often helps bring in contracts for a wide variety of more mundane scents, such as for soap, he said.
With luxury-goods-makers introducing hundreds of perfumes each year, Quest, Givaudan and their rivals vie for a piece of that new business in hopes of creating a long-selling classic. It may take about two years just to recoup a scent's development costs, which can exceed $4 million, industry executives said.
A hit fragrance can garner operating margins - operating profit as a percentage of sales -of as much as 25 percent, analysts estimate. By contrast, detergent ingredients such as the surfactants that separate soil from laundry often have margins of less than 10 percent.
"That's the real beauty of this market," said Rolf Frey, an analyst at Rued Blass & Cie. "These are super margins."
In Paris, Opium and Nina Ricci's L'Air du Temps have sold well in the days before Valentine's Day, said Karim Laloumi, who runs the perfume department at one of Paris's Sephora stores, a cosmetics chain owned by the world's largest luxury-goods-maker, LVMH Moet Hennessy Louis Vuitton SA.
The two scents, created by Givaudan more than 30 years ago, helped the Swiss company boost nine-month sales 7 percent to 1.79 billion Swiss francs ($1.1 billion). In the first half of 2000, Givaudan boasted margins of 17.4 percent, up a percentage point from the yearearlier period's 16.4 percent.
Across the Channel, sales of J'adore are up over the past week in London's Selfridges Plc store on Oxford Street, said sales assistant Fatma Klirc. Dior introduced Quest's floral scent with fruity and woody notes in 1999.
J'adore was a hit last year, posting sales of more than 130 million euros ($121 million). That not only helped LVMH boost fragrance and cosmetics revenue by 22 percent, it created inroads for Quest, a relatively new competitor in a market long dominated by Givaudan, U.S.-based International Flavors & Fragrances Inc. and closely held Firmenich (International) SA of Switzerland.
Quest has "certainly become a lot more competitive," said Peter Wullschleger, a spokesman for Givaudan, who said more companies are inviting the United Kingdom rival to bid for their business. "This makes them stronger and stronger."
Quest's 1997 takeover by ICI has allowed the Ashford, England, company to win orders from personal-care product makers that would not do business with previous owner Unilever, such as Dior and L'Oreal SA.
Already, the unit makes France's best-selling cologne, jean-Paul Gaultier's Le Male, and two of France's top-five selling feminine perfumes, J'adore and Thierry Mugler's Angel. III the United States, Quest has scored with Tommy Girl by Tommy Hilfiger Corp.
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