Givaudan on track with world's largest flavours plant

By Dominique Patton

- Last updated on GMT

Related tags Flavours China

Leading flavours house Givaudan says a new facility in Shanghai,
claimed to be the world's largest flavours plant, will allow it to
capture rising demand for quality and innovative flavours in the
Chinese food and beverage market.

The new creation, technology and production centre, first announced in 2004, is on track to be fully operational from August, and technical and commercial staff will start moving in at the end of this month.

It marks a significant expansion for the company that made a modest investment in China with its first plant in 1997.

The new site outside Shanghai has twice the surface area of the current one - about 50,000 square metres - and will employ around 120 people.

The original plant in Shanghai's Zhang Jiang Hi-Tech zone will now be entirely dedicated to fragrances, with the new production centre becoming the flavours headquarters.

The extra capacity is designed for the Chinese market primarily although exports to surrounding regions have not been ruled out.

China accounted for 3-4 per cent of Givaudan's SF2.8bn (€1.8bn) revenue in 2005 but represents a significant opportunity for future growth, according to the company.

"We have been investing in China since '95 and doubled the capacities every five years since then, which means we see China as a real potential market and not just as a lower cost manufacturing facility,"​ said a company spokeswoman.

The secretive Swiss company has not revealed how much it is investing in the new plant but it certainly comes at a time when other markets are proving tough. Flavour sales in Europe and North America were flat last year, and Givaudan has decided to close two production facilities in the US.

But in China, it consistently posts double-digit growth as the processed food and beverage market expands rapidly. And with the booming market slated to lead flavours demand across the Asia-Pacific region, investment in this market is necessary to stay ahead.

Operating in China is not without its pressures however.

"It is always expected that China has to deliver double-digit growth but it is also the most fiercely competitive market and for our customers price is very important,"​ said Vernon Chow, head of flavours in China.

But he told​ that while "we definitely need to work with our customers and understand their cost barriers, we don't want to just compete on price and we want to stay innovative and creative".

This means being able to develop localized flavours, particularly in the savoury foods segment.

"There are so many cuisines in China and for the most authentic flavours you have to have a really local offering."

Chinese beverage firms are looking for authentic tea flavours and the firm employs a specialist to develop tea and herbal flavours.

Givaudan also claims to have a superior understanding of what Chinese consumers want. While this tends to be the job of finished product manufacturers in more mature markets, research into consumer trends and sensory appeal is often less advanced in emerging markets.

This makes the Swiss firm's experience in setting up consumer testing panels a valuable service for Chinese customers.

Chow says Givaudan does a lot of the groundwork in product development in China, where technical know-how is often lacking. In a country that has more than 800 registered flavour producers, foreign competitors need to offer more for their higher costs.

But Chow claims that a rapidly evolving food market in the country will also increasingly demand more sophisticated product development and quality materials. The heightened focus on food safety in China after a series of scandals in recent years means that quality has become much more important.

"We're seeing a greater focus on food safety and enforcement of regulations, especially since recent scares like Sudan Red last year. This is a good thing for both consumers and the market players,"​ said Chow.

And although about two-thirds of Givaudan's raw materials (in volume terms) are sourced in China, it also has access to high quality material from abroad with a large number of products coming from outside Chinese borders.

This combination of international sourcing and a local service will be key to Givaudan's strength in the marketplace in China, and its position in the global flavours market as China increasingly makes up a bigger share of the overall demand.

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