Microbes (and their genes) that can be used as ingredients, therapeutics, and health biomarkers across a wide range of industries.

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This innovation area has the potential to unlock a new layer of personalization across food, personal care products, medicine, and more if science is able to define "optimal" microbiome profiles for each use case.

What's New

Lux Research analysts and the Lux Intelligence Engine have added the following recent microbiome developments.

New Lux Content

Integrated BioChem: Develops managed ecosystem fermentation to convert organic waste streams to industrial feed-stocks

Flavors and fragrances: Lux Competitive Benchmark for midsized companies and key industry trends: The flavors and fragrances industry includes divisions of large corporations, but is heavily composed of midsized companies, with the top 10 ranging from $438 million to $5.06 billion in revenue. It is a dynamic space, at the intersection of consumer packaged goods (CPG) and the chemical industry, and is impacted by a myriad of trends in adjacent industries. This insight explores these trends and positions a number of the midsized companies in this area on the Lux Competitive Benchmark, which compares firms on their Innovation Effort vs. Business Execution. Innovation Effort reflects the effort these firms devote toward innovation based on publicly available data sets, including patents, R&D spending, and M&A activity; Business Execution measures key financial metrics like revenue growth, liquidity, and solvencyThe Lux Competitive Benchmark shows a general positive correction between increased innovation effort and business performance, and that most companies have a fairly robust level of innovation effort (above the midpoint on our scale). These patterns are not surprising given that companies in this space need to continuously have new products on offer to help their CPG customers keep up with consumer trends and to enable these customers' own new product launches. Beyond the general need for innovation effort, however, there are specific industry trends to contend with as well.   ConsolidationThe trend toward consolidation in CPG continues to extend into the flavors and fragrances market. On the CPG side, major players like Tyson Foods, Campbell Soup, and McCormick & Company each acquired companies worth over $4 billion in 2017, while at the same time, Amazon's introduction to the market through its acquisition of Whole Foods created additional pressure in the industry (see the insight Consolidation in CPG: Amazon's role and ramifications for the chemicals industry). On the flavors and fragrances side, the recent acquisitions of Naturex by Givaudan and Frutarom by IFF are resulting in a similarly more concentrated space. When IFF describes in its current annual report the risk factors that it faces, it states that "The market for flavors and fragrances is highly competitive. We face vigorous competition from companies throughout the world, including multi-national and specialized flavor, fragrance and cosmetic ingredients companies, as well as consumer product companies who may develop their own flavors, fragrances or cosmetic ingredients." Furthermore, it notes, "Consolidation of our competitors may exacerbate these risks." One way of protecting itself from such increased competition is to consolidate itself, and IFF apparently rated this option highly, as evidenced by the $7.1 billion it spent on Frutarom – a rather high price, equaling around 20 times Frutarom's annual earnings. Nonetheless, the acquisition turned IFF into the second-largest player in the market, as shown in the chat below, and the addition of Frutarom's products to IFF's portfolio strengthens its reach in the highly growing natural ingredients area. Furthermore, as seen in the Lux Competitive Benchmark, the acquisition joins two of the more innovative and financially sound companies in the space. Clients with an interest in innovations affecting the flavors and fragrances market should keep close tabs on the new company as a prospective partner. However, they should also expect additional consolidation activity in this market – and think seriously about the opportunities to get ahead of the curve and execute a roll-up strategy that could build an imposing position in a segment that will be key for many consumer product innovations. Health-Related TrendsThe increasing demand for healthier products affects many interrelated areas within the flavors and fragrances industry. Two of those areas stand out the most and are described below.Natural products and clean-labeling. Consumer are increasingly clamoring for health-conscious and natural products, and few products epitomize this trend more than stevia, an alternative sweetener that can reduce calories from sugar while boasting natural origins (see the report The State of Innovation in Sugar Reduction: 2018 Edition). Companies like PureCircle and Tate & Lyle are innovating around stevia, but there are other promising natural sweeteners on the market, and companies will need a broad portfolio of options to deploy to fulfill consumer expectations for taste and performance.However, stevia is only one of many natural products in the industry that has seen growth. Natural preservatives are another example, with Danish company Chr. Hansen a forerunner in the space. The company's microbial preservatives are used in products like cheese and yogurts, and appeal not only to the trend toward natural products, but also to the closely related trend of clean-label products (those that have no "chemical" terms on the ingredients list). The company's recent annual report states that "Increased consumer awareness of food ingredients and increased transparency [is] driving demand…" Nevertheless, validation, performance, and scale of naturally derived products will remain challenges and require companies to continue to innovate.Microbiome and probiotics. With constant news about the health benefits of probiotics, ranging from improvements to the immune system to improvements in brain health, the space is on an upward trajectory and thus a focus area for many companies' adjacent to flavors and fragrances (see the report How Will the Microbiome Impact Your Industry?). Chr. Hansen states that "Probiotics are one of the fastest growing ingredients, and ever more people are becoming aware of these natural cultures." Focus areas in probiotics and the human microbiome are mainly the discovery of microbial strains, but innovations in delivery and packaging will also be needed to ensure the performance and benefits of these products. Clients monitoring the microbiome space for opportunities should also look to the role that midsized companies in flavors and fragrances can play by deploying their expertise in delivering additives for food and other consumer products.As a key enabler of advances in consumer products, these flavor and fragrance companies will continue to be players to watch in innovation, from both the perspective of the chemical companies that can be their suppliers, partners, and potentially acquirers and that of their downstream CPG customers.  

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