Consumers’ craving for natural and chemical-free products has been growing in recent years; everything from organic milk to organic cosmetics is becoming more widespread, according to industry trade group the Organic Trade Association, which estimates that the US market for organic products alone, both food and non-food items, is just shy of $39 billion — an 11 percent increase from last year.
Based on the article written by Alice Menichelli, published on NoCamels.
Israeli food flavoring giant Frutarom is cashing in on the opportunity, using its deep pockets to acquire organic and natural food flavoring companies, which its CEO hopes will bring the company a ‘unicorn,’ $1 billion valuation.
Founded in 1933, Frutarom is one of Israel’s oldest enterprises and considered to be one of the 10 largest companies globally in the field of flavors and specialty fine ingredients. Everything from low-fat peach yogurt to jalapeno tortilla chips use flavors and extracts supplied by Frutarom, which operates production centers in six contents, selling over 43,000 products to more than 20,000 customers in 150 countries.
To ensure market leadership, Frutarom has recently pivoted towards the organic foods market. Natural products already make up 75 percent of the company’s activity, which Frutarom’s management wants to expand: “The key is to manufacture unique ingredients at an affordable price,” CEO Ori Yehudai says. “To do so, we need to collaborate with the most innovative and technologically advanced enterprises.”
Growing through acquisitions
Working to expand its research and development, Frutarom has turned its attention to Israeli algae producer Algalo. Based on Kibbutz Ein HaMifratz near Haifa, Algalo has developed a method for the cultivation, harvesting and processing of a variety of algae that yield active ingredients for use in the food and cosmetics industries. Frutarom invested $ 2.6 million in Algalo in order to develop a broader range of cosmetic products (yes, your hand moisturizer contains algae).
“The investment in Algalo is part of a broad strategic move to boost our presence in the organic market, while offering the healthiest and most natural solutions to our clients”, Yehudai explains.
The Belgian Connection
Algalo is but one of Frutarom’s 15 investments in the past 12 months. Back in 2015, Frutarom acquired 100% of the share capital of the Belgian flavors company Taiga International NV in exchange for payment of approximately US$ 2.9 million. Established in 1992, Taiga engages in the development, production and marketing of flavors for the food, beverages and tobacco industries, including to leading chocolate manufacturers, the beverages and tobacco industries of chocolates. The company has 14 employees and serves a broad customer base extending from Europe to North America from its site in Belgium which is home to all its production, research and development, and marketing activities. In 2014 Taiga sales turnover amounted to US $4.9 million.
Ori Yehudai, President and CEO of Frutarom Group remarked: “This was an acquisition of activity in the field of flavors, Frutarom’s core activity, which boasts high profitability margins. We see significant synergies between Taiga’s activity and Frutarom’s flavors activity in Europe and intend to leverage the cross-selling opportunities generated by this acquisition both by broadening the product portfolio and expanding the customer base.”
“We are continuing to implement our rapid and profitable growth strategy which combines internal growth and strategic acquisitions. The acquisition of Taiga is the third acquisition we are performing this year, and follows the three acquisitions in 2014. Meanwhile, we are continuing to work towards identifying and carrying out further acquisitions of companies and operations in our fields of activity, placing particular focus on markets exhibiting high rates of growth.”
These multinational deals are part of the company’s rapid growth strategy to achieve what Yehudai hopes to be $2 billion in sales by 2020. “Frutarom has doubled its size every 4 -5 years, every year is a new record for us,” Yehudai says. “It is really a fascinating journey.”
Given that more households are buying organic — 51 percent more, according to the OTA —Frutarom flavors are now more likely to end up on the dinner table of families that consume organic foods.