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This Moat Passes the Sniff Test

We see strong switching costs at International Flavors & Fragrances.


We now believe that  International Flavors & Fragrances (IFF) deserves a wide economic moat rating. This is consistent with peers Givaudan and Symrise, to which we also ascribe wide economic moats. Together, along with privately owned Firmenich, these Big Four flavor and fragrance companies command roughly 70% of a $20 billion industry.

We’ve always argued that strong switching costs are at play, as customers are typically unwilling to switch away from IFF’s customized, proprietary formulations on the basis of cost alone. Doing so risks jeopardizing the customer experience, when flavor and fragrance solutions usually account for less than 2% of the cost of production for a given consumer-facing product.

Andrew Lane does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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