The State of Fragrance: Unpacking the growth of the $48 billion industry, recent M&A, and trends defining its future

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May’s deep dive essay was written by Gabriella Pedro, a creative producer who advises emerging fashion brands in NYC.

Over the past decade, billions have been invested into the fragrance industry. Notable transactions include Estee Lauder’s acquisition of Le Labo in 2014 which signaled investor interest in niche fragrance and Kering’s full cash buyout of Creed for $3.83 billion last June, which was the largest transfer to date and underscored bullish sentiment for the industry. Perfume has been around for nearly 4,000 years, and used by the masses since the industrial revolution. What is it about macroeconomic and cultural conditions today that have led to the institutionalization of the fragrance business?

The short answer is a combination of the “lipstick effect”, attractive profit margins, and opportunity in China considering that only 5-7% of the population use fragrance daily there. That’s just scratching the surface - this deep dive essay is a comprehensive overview of the fragrance industry and where it’s headed. 

Table of Contents

• Market Overview

  • Fragrance landscape

  • Fast growing categories

  • Product inelasticity: lipstick effect

  • A shift in consumer behavior 

  • Gen Z driving demand

• Niche Fragrance: A Compelling Investment 

  • Recent transactions

  • Economics of fragrance 

  • Untapped opportunity in China

• Fashion to Fragrance: The Strategic Expansion

  • Solutions to mitigate brand dilution 

  • Expansion analysis

  • In-house vs. license dilemma 

• The future of the fragrance industry 

  • The Noses, AI, & neuroscience 

Market Overview

The fragrance market has been growing healthily over the past 5 years at 3% annually, and in 2024, the market is expected to hit $59.27 billion in global revenue and predicted to reach $67.4 billion by 2028. Currently the United States ($8.8 billion), Brazil ($5.5 billion), and France ($2.5 billion) are the largest markets, however, more recent investment activity is positioned to leverage future opportunity in China as the fragrance market is forecasted to grow at a 13.4% CAGR between 2023-2027. 

Fragrance brands can be generally categorized into one of four categories: niche, mass market, prestige, or high-end. Price point, distribution strategy, and brand value determines a fragrances' place within the market. 

• Quadrant 1: aspirational luxury products known as ‘prestige fragrance’, lower price point, distributed at retailers like Sephora, typically made by institutional fashion brands such as Dior or Chanel.

• Quadrant 2: true luxury products known as ‘high-end fragrance’, highest price point, selective distribution to protect brand equity,  known for a craftsmanship approach to fragrance and for use of rare/exotic ingredients, such as Maison Francis Kurkdijian and Creed.

• Quadrant 3: niche fragrance brands, medium to high price point, with selective distribution to protect storytelling starting in-house through own brick & mortar retail before wholesale distribution, and known to use high quality ingredients and create unique scents like DS & Durga

• Quadrant 4: ‘mass market’ products, lowest price point, distributed online or in hypermarkets such as Target and Walmart, and focused on value-seeking consumers, such as Frenshe or Dossier.

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