The Tariff Dilemma

By Alex Wiltscko, Founder and CEO of Osmo

Fragrance is everywhere. In fact, 90% of people wear or use scented products daily, even if they don’t wear perfume according to a 2023 report from Mintel. In many ways, the modern fragrance industry is a microcosm of global trade. Most fragrances include hundreds of ingredients sourced from all over the world, blended together to create the smells we’ve all grown to expect from our everyday products. 

Rapidly rising tariffs on imported goods threaten to disrupt the delicate balance of trade. Many speculate whether their favorite products will be impacted by price hikes, shortages or reformulations. The good news is that artificial intelligence can help, or in this case olfactory intelligence. OI is the next evolution of AI. It analyzes fragrance ingredients at a molecular level to optimize formulations and predict scent composition with precision.  

OI, the Next Evolution of AI

Rather than react to supply chain crises, companies relying on fragrances can turn to OI to proactively reformulate products, optimize ingredient sourcing and maintain product quality.  

Few supply chains are as complex as the fragrance industry. Natural ingredients used in fragrances are sourced from over 50 countries. Some, like jasmine, are only found in India and Egypt. Others, like sandalwood, are exclusive to Australia and Sri Lanka. A single perfume could contain 50 to 100 ingredients, sourced from different regions around the world. Even minor disruptions in the supply chain can have cascading effects. Climate change has impacted crop yields of certain ingredients such as patchouli oil. Lilial was banned across the EU and UK. A production plant explosion and subsequent force majeure of citral led to price volatility.  

Today, the industry relies on static ingredient palettes that can contain upwards of 1,000 to 4,000 raw materials. If even a few of the ingredients are unavailable due to tariffs or regulations, they impact formulations across entire portfolios. If ingredients must be replaced, perfumers must manually reformulate fragrances, which is both costly and time-consuming. Reformulating a single fragrance can take months and require multiple substitutions to achieve scent parity. 

The High Cost of Tariffs

With the looming tariffs from the US and retaliatory tariffs from other countries, hundreds of imported fragrance ingredients will likely be impacted by cost increases that they will either have to absorb or pass on to their consumers. For example, common fragrance ingredients like geranium, eucalyptus and peppermint oils are often sourced from China, where tariffs were recently raised an additional 10%. It’s estimated that the rise in ingredient costs could lead to a 5 to 15% price increase in final products. Those that choose not to raise costs may struggle to maintain the quality of their products. With fragrance playing such a powerful role in consumers’ lives, it’s almost certain there will be backlash for reformulations that don’t meet the mark and rising costs felt in customers’ wallets.

In 2022, Glossier reformulated its You fragrance due to regulatory changes around some of its ingredients. The changes in the fragrance, which had developed somewhat of a cult following, were immediately noticed and protested by consumers.  

All of these problems are things that OI can help address. One of the most immediate benefits to using OI for fragrance development is the ability to instantly reformulate fragrances. The technology is enabled by a map of all volatile molecules used to create fragrance. When a key ingredient is lost due to tariffs or supply chain disruptions, OI can pinpoint other ingredients to produce the exact same result.  

OI Helps Perfumers Optimize

When it comes to the size of ingredient palettes, OI can help optimize, ensuring brands are only using as many ingredients as necessary, while maintaining the fragrance’s integrity. This can reduce the reliance on thousands of ingredients from all over the world, lowering the chance of impacts from supply chain challenges.  

In the long term, OI will be instrumental in developing alternative ingredients that are more cost-effective, sustainable and widely available. This work is already being done, but as OI adoption takes off, the scale of new ingredients developed with its help is sure to take off.  

For hundreds of years, companies have relied on the traditional fragrance development and sourcing models. While the art of perfumery remains crucial to fragrance, it alone cannot ensure a prosperous future for scent development.  

For brands facing ingredient shortages, pricing pressure and reformulation chaos, OI can provide tangible competitive edge, helping manage operation volatility, maintain product quality and price stability, and streamline business operations. Those that adopt OI now won’t just remain resilient in the face of changing trade policies, they’ll take market share while others scramble to catch up. The future of fragrance is AI-powered and it’s already here.  

About the Author

Alex Wiltschko is Founder and CEO of Osmo, the first company to digitize scent, and Generation by Osmo, the pioneering fragrance house leveraging its proprietary OI technology, chemistry, and artistry to create bespoke fragrances. He is a repeat entrepreneur and has spent much of his career exploring new frontiers and building businesses at the intersection of AI and biology. Previously, he was a research leader at Google DeepMind, has founded and exited two AI companies (Syllable, sold to Neumora; Whetlab, sold to Twitter), and was named to the Top 100 people in AI by Business Insider. Alex holds a PhD in Olfactory Neuroscience from Harvard University.