According to a GrandView Research report, the global essential oils market demand was estimated at 247.08 kilotons in 2020 and is expected to grow at a compound annual growth rate (CAGR) of 7.5% from 2020 to 2027. The market is expected to be driven by increasing demand from major end-use industries, such as food and beverage, personal care and cosmetics, and aromatherapy.
Several health benefits related to essential oils are projected to drive their demand in pharmaceutical and medical applications. Unlike most of the conventional medicines and drugs, essential oils have no major side effects. Such traits of essential oils are projected to be the major factor for market growth. In addition, rising prevalence of health problems, such as cardiovascular problems, Alzheimer’s, and bronchitis, is creating more demand for beneficial essential oils in aromatherapy applications.
Rising demand for organic products is another factor influencing consumer trends. Further implementation of regulations favouring the use of environmentally friendly ingredients in cosmetics and the food and beverage industry has awakened people’s interest to seek products made from natural ingredients. The industry has witnessed a sharp increase in demand for 100% plant-based oils that are devoid of synthetic fragrances and animal-derived components. As a result, the majority of population is turning to organic products to gain health benefits.
A majority of consumers demand essential oils for various purposes such as for enhancing air freshness at home by adding drops of essential oils in aroma pots or aroma diffusers, which diffuse oil in the form of atomised particles, and in aroma bath by adding oils to the water, etc. Young women use essential oils for making homemade cosmetics owing to their natural content and medicinal benefits.
Essential oils are produced from organic plant matter and they must conform to various regulations and standards for companies to conduct trade globally. Most companies producing essential oils are multinational corporations that initiate various Corporate Social Responsibility (CSR) activities in order to remain beneficial and withhold high reputation among their stakeholders. These large organisations often neglect the actual detrimental effects of their operations on the environment.
Production guidelines
International organisations such as the United Nations (UN) and the European Union (EU) have laid down specific regulations and guidelines for the production, harvesting, and processing of flowers and aromatic crops. The United Nations Industrial Development Organization (UNIDO) and the Food and Agriculture Organization of the United Nations are entities assigned to regulate and control the overall post-harvest processing operations in developing nations, mainly for herbs, spices, and essential oils. The European Federation of Essential Oils (EFEO) has also been initiated by the EU to represent, protect, and promote the interests of trade and production of essential oils as well as related products across Europe.
Product Insights
The orange oil emerged as the prominent product segment in 2019 with a volume share of approximately 23.0%. Major end-use industries such as cosmetics are progressively using orange essential oil for developing sensory appeal and improving the product value. This oil is believed to promote elasticity and firm and tone up the skin. It is also known to treat stretch marks, dermatitis, and acne. The oil also helps in enhancing the quality of skin, nails, and hair, thus boosting their popularity among young women. Growing working women population, along with their rising disposable income, is expected to boost the segment growth.
Peppermint oil is also considered one of the most versatile essential oils as it can be used internally, topically, and aromatically. The major ingredients present in this oil are menthone and menthol. Healthcare applications of peppermint oil include the treatment of headaches, cold, sinus, and muscle pain. Companies in the peppermint oil market can be divided into international and local buyers. Local/domestic buyers include small-scale pharmaceutical, chemical, flavoring, and food companies. International buyers can be categorized into personal healthcare, cosmetics, flavor and fragrance, and aromatherapy industries with a global presence, thus triggering the demand for these oils.
Application Insights
Spa and relaxation held the largest volume share of more than 39.0% in 2019 and is projected to witness significant growth over the forecast period. The growth of this segment has been primarily attributed to the changing lifestyle of consumers around the world. Busy and hectic lifestyle has created a significant requirement for stress-relieving therapies, which is driving the demand for aromatherapy.
Food and beverage emerged as one of the major application segments in 2019 with a volume share of 38.6% and is expected to expand at the fastest CAGR from 2020 to 2027. Ascending demand for natural, safe, and minimally processed food products across the globe emerged as the major factor expanding the application scope of essential oils in food and beverage applications. Antimicrobial properties of these oils help preserve food and beverage products for a longer duration. Growing focus of food and beverage manufacturers on increasing product shelf life without compromising quality is another major factor boosting the growth of this application segment.
Personal care emerged as another important segment within spa and relaxation in the global market. Essential oils are majorly used in cosmetics, toiletries, and fragrances. In personal care, they are used in various applications, including beautifying the hair and skin, makeup, and colour cosmetics.
Furthermore, these oils are used for cleaning the teeth, gums, and mouth, and in soaps, shampoos, and baby products. General hygiene is another major application of essential oil in the personal care segment. Rising awareness about using natural and organic products is boosting the growth of the natural ingredient segment among personal care products, which is positively impacting the essential oil industry growth. They are also widely used in perfumes, body sprays, and air fresheners.
Sales Channel Insights
Direct selling emerged as the key sales channel in 2019 with a volume share of over 70.0%. Increasing awareness among people regarding essential oil has given rise to more retail sales, especially through convenience stores. However, top players such as doTerra and Young Living Essential Oils have adopted multi-level marketing strategies to expand their business and improve their sales. Furthermore, most of the importers and wholesalers have launched websites for online sales, along with their existing over-the-counter sales. Distribution channels for selling the products are likely to become complex as some sellers focus purely on online sales to increase their geographic reach.
In line with this, they attract and recruit several consumers as independent distributors by offering compensation plans and providing attractive discounts as well as gifts. In recent years, doTerra alone has managed to achieve 5 million global customers of which 70% are wholesale customers. These platforms help increase the reach of their products, spread awareness and eventually boost sales.
Regional Insights
Europe dominated the market with a share of 43.65% in 2019 in terms of volume. Presence of organizations such as the European Federation of Essential Oils (EFEO) has benefitted the industry growth in Europe. EFEO was formed to promote and safeguard the interests of stakeholders across the market value chain. The organization is in discussions with the European Commission, along with the EU Parliament, to amend or introduce legislation concerning essential oils. Such trends have benefitted the market growth in the region. Easy feedstock availability and the presence of various industry players are the major factors behind the robust market growth in Europe. Early developed economy, along with a higher standard of living, is contributing to the growth of key end-use industries. 
Asia Pacific is projected to witness the fastest growth over the forecast period. The growth in this region is primarily attributed to the presence of a large population, along with various untapped markets, which are likely to attract key players’ attention to expand and establish their operation and distribution facilities in this region.
The outbreak of coronavirus in China in December 2019 and further spread to Italy have led to a lockdown in the country to prevent the spread of contagion. Due to the increasing number of patients and rising death count in the country, the Government has taken some preventive measures such a shutting down of industrial and commercial firms, such as manufacturing units, plants, shops, and factories, thus hampering production as well as import-export. These factors are estimated to result in huge economic losses in the region, which is further estimated to hamper the market growth in the short term.
Key Companies & Market Share Insights
The market is highly fragmented due to the presence of a significant number of industry participants. Higher integration of key market players for raw material sourcing and distribution is expected to increase market competition. Colossal price competitiveness and technological advancement are some of the important factors affecting the demand for essential oils. The market is also characterized by balanced production capacities and different market size, which is projected to lower internal and higher profit margins rivalry among existing players. Some of the prominent players in the essential oils market include:
- Sydney Essential Oil Co. (SEOC)
- Biolandes SAS
- India Essential Oils
- Reynaud & Fils (HRF)
- Young Living Essential Oils
- DoTerra
- Essential Oils of New Zealand
- Farotti S. R. L.
- Flavex Naturextrakte GmbH
- West India Spices Inc.
- Falcon
- Ungerer Limited
- The Lebermuth Company
- Rocky Mountain Essential Oils
- Moksha Lifestyle Products
