Dew pearls on iris leaves, glistening in the pale light of the early morning sun. White blossoms infuse the air with their characteristic scent of jasmine. The landscape blooms with centifolia roses and fragrant lavender, flamboyant against the clear blue sky. Most of these flowers will be hand-picked as buds, their essence distilled into little glass bottles and sold to one of four companies that commodify their scent. Welcome to the fragrance industry: a classic oligopoly.
Together, International Flavors & Fragrances, DSM-Firmenich, Symrise, and Givaudan control almost two-thirds of the fragrance market. They distribute their products worldwide, supplying a range of industries from luxury perfumes and home goods to nutrition and biosciences. In 2023, EU antitrust authorities accused the Big Four of anticompetitive business practices, filing an antitrust lawsuit alleging that they conspired to fix prices and limit the production of fragrance compounds. The penalty for such transgressions can be as high as 10 percent of the companies’ global turnover, and with a combined annual revenue of over $35 billion, the Big Four are facing astronomical fines. But these penalties would not cripple their market power. The Big Four’s compounds are so thoroughly embedded in our everyday consumer goods that their reach is inescapable. Thanks to our pervasive demand for their products, they will likely recover from the most punitive damages EU regulators could inflict. And, as detrimental as the Big Four’s concentration of power is to sectors that supply necessities, an oligopoly in the perfume industry might not be as harmful as conventional wisdom suggests.
As hygiene practices developed in 19th century Europe, perfumes changed from a necessity to combat strong odors prescribed to the rich to a fashion accessory for the masses. Fragrance consumption boomed, and because synthetic compounds could be manufactured at a lower cost than natural fragrances, perfume companies gravitated toward artificial scents to meet the sudden increase in demand. In recent years, however, consumers have once again begun to demand fragrances made from natural ingredients, forcing the Big Four to reinvest in the ecological and cultural preservation of terroirs—the complete natural environments, including soil, topography, and climate, in which flowers are grown. Each terroir imparts its flowers with a distinctive scent, and, by tending to the very soil that sustains their production, the Big Four ensure the consistency of their fragrances from year to year.
Grasse, a region in southern France known as the “home of perfume,” benefits firsthand from this venture. The town’s perfumery expertise was immortalized in 2018 when UNESCO recognized its intangible cultural heritage. Since then, the Big Four’s commitment to sourcing natural raw materials has bolstered the region’s artisanal perfumeries, protecting its unique intergenerational know-how and manufacturing processes steeped in tradition. In doing so, the companies have inadvertently highlighted an upside of the perfume oligopoly: Controlling such a large proportion of the market means that the Big Four do not have to be concerned about their survival, and can invest excess profit into developing sustainable manufacturing practices.
It is simply not a feasible manufacturing model for smaller suppliers. The Big Four operate in the upstream market of the fragrance industry, supplying luxury perfume brands with the ingredients needed to create their signature scents. Many of these brands have exclusivity clauses with specialty flower domains in the south of France, preventing smaller suppliers from sourcing the same ingredients. Private estates prefer to sell their flowers to large companies that will continue to purchase the same quantities year after year. Because the Big Four are the only companies capable of investing millions of euros in research and development, the oligopolistic structure of the fragrance industry ultimately benefits producers. In return, the Big Four have invested in acquiring or rehabilitating terroirs, providing direct economic support for local growers and craftsmen and revitalizing Grasse’s economy. These efforts are both costly and laborious, and are unlikely to be profitable unless the company’s production reaches an economy of scale. It’s a win-win situation: The Big Four profit from the luxurious allure of natural, eco-conscious scents, while Grasse benefits from their considerable investment in its local economy, culture, and ecosystem.
Although major fragrance companies have emphasized sustainable agricultural practices that use less water and rely on natural cultivation techniques, the Big Four’s pivot toward sustainability does not suddenly efface the industry’s ecological drawbacks. Ethical sourcing and eco-conscious production are not uniform across all industry players. Climate change remains a principal concern, forcing manufacturers to irrigate more often and invest in heat lamps to preserve the quality and quantity of their flower crop during cold winters. Synthetic chemical alternatives, while cheaper and less labor-intensive than traditional production methods, may pose greater environmental challenges than they solve. The volatile organic compounds that comprise synthetic fragrances can negatively affect human health, while phosphates used can cause algae blooms in freshwater that deplete the ecosystem’s oxygen. Still, as a result of the Big Four’s eco-conscious manufacturing practices, two-thirds of the fragrance industry is one step closer to sustainability. If the barrier to entry for fragrance suppliers were lower, the oligopoly would surely revert to producing more cost-competitive synthetic fragrances to defend its hegemony. So, although some manufacturers may be priced out of the current market, the benefits of global advances toward sustainability outweigh the costs of a more exclusive industry.
In the meantime, consumers perceive fragrances as a luxury good and a means of self-expression, and are therefore relatively unbothered by a higher price tag on unique scents. Consumers would be less likely to be able to use perfume as an expression of individuality in a freer market, where fragrance companies would have an incentive to develop less complex and unique scents to cater to a wider range of consumers and more quickly bring a perfume or cologne to market. To test whether a scent will be profitable, brands will typically run focus groups during the development process to ensure consumers are satisfied with the fragrance. However, the Big Four are not chasing marginal increases in revenue to remain competitive in their market, meaning they care little whether each one of their scents appeals to as broad a consumer base as possible. Rather, the Big Four rely on nez—master perfumers that craft luxury fragrances from base to head notes—to create unique fragrances that emotionally resonate with customers. If the Big Four were not confident that they would pull in profits regardless of how niche these specialty products become, they would not have so much freedom to detach their fragrance production from bland consumer preferences. Subject to free-market forces, the oligopoly would have to resort to selling commodified perfumes that offer neither a complex scent nor a compelling narrative. Our desire for individuality thereby bolsters premium brands that develop niche fragrances and often require natural flower extracts sourced from the Big Four. The oligopoly continues to rake in profits, which it reinvests in sustainable manufacturing and the preservation of terroirs.
There are arguments to be made about the inherently problematic structure of oligopolies, which EU regulators have used in their lawsuit against the Big Four. But tying up the industry’s four biggest players in litigation is unlikely to open and protect the fragrance market in the long run. Rather, EU regulators might consider collaborating with local governments to subsidize parts of their perfume economy, allowing smaller suppliers to source raw materials from the same flower estates as the Big Four to foster greater competition among fragrance manufacturers. Designating domains as sites of cultural heritage might prevent large-scale construction projects and could incentivize more companies to invest in ecological preservation. Strengthening the enforcement of eco-conscious production methods and mandating energy-efficient infrastructure could reduce the environmental impact of fragrance production and drive the industry toward long-term sustainability. These measures might provide long-term benefits to the fragrance industry as a whole, but will require a concerted effort by EU regulators and local governments. Until such structural changes are possible, however, it would be short-sighted to blindly pursue an antitrust lawsuit that might ultimately sacrifice cultural preservation and sustainability in the name of free-market capitalism.