Although kitchen towels enjoy a relatively high penetration rate of 70%, it is currently the frequency of use, and therefore purchase, that is constraining sales.

Paper napkin sales have benefited from the economic boom of the last few years. Higher disposable incomes have changed many Spaniards’ habits as they have begun to stop using fabric napkins to move to singleuse paper ones. Paper napkins have changed from something deemed acceptable for picnics to everyday usage in recent year. Cloth napkins, on the other hand, have gone from everyday usage to be used solely for special occasions, such as holiday meals or dinner parties. It is also interesting to note that this trend has not had any impact on paper tablecloth sales, which remain negligible and are still considered by Spaniards as too extravagant for daily home use.

As in other countries in continental Europe, pocket tissues are preferred over boxed ones by Spanish consumers. In Spain, pocket tissues account for 85% of total tissue volume sales compared to just 2% of sales in the US. They are considered a staple item by most Spanish consumers, being carried in bags along with keys, purse/wallet and mobile phones.

The current economic situation in Spain is weaker than in recent years. Levels of unemployment are increasing and even grew in July 2008, a month which has not witnessed rising rates in Spain since 1960. Added to this is rising inflation which hit a 13-year high in May. These economic factors are combining to hit consumer spending confidence, with a subsequent knock-on effect particularly on discretional expenditure.

Though toilet paper is a necessity in developed countries such as Spain, there is significant scope for product substitution in other sectors such as paper napkins, kitchen towels and boxed tissues. At a lower level even pocket tissues could be impacted as lower-income consumers look for ways to reduce spending.

Private Label - Dominant And Growing

Since 2002, private label has been steadily and firmly increasing its grip on the tissue products market in Spain, claiming 62%, or 542 million of total revenue in 2007. This number is amongst the highest in the Western European region. In the toilet paper category, for instance, 64% of value is claimed by these brands, much higher than the regional average of 47%, according to Euromonitor.


The Spanish market is highly consolidated with only the biggest of players able to survive due to the low volumes available to brands. Of these Kimberly-Clark accounted for 15% of value in 2007 whilst Georgia- Pacific Corp reached 12%. The latter suffered a setback during the year, seeing its market share decrease due to a shortage of its products caused by industrial action in its main production facility in Spain. Other companies such as Renova SA, SCA Group and Industrie Cartarie Tronchetti SpA remain minor players in the Spanish tissue market.

The enviable performance of private label is directly linked to the fortunes of the Spanish grocery discounter Mercadona and the success of its business model. According to Euromonitor International data, Mercadona became the largest grocery retailer in Spain in 2005, surpassing the French Carrefour Group. Mercadona has experienced a 50% increase in value sales since 2004 and currently accounts for more than 10% of total grocery value sales in Spain. It is expected to be operating 1200 outlets by the end of 2008.

Over the last five years other discounters such as Dia (part of the Carrefour group) and the German company Lidl have also increased their presence within the Spanish retail scene. These companies operate by offering a limited brand selection and with a focus on private label products. As these chains grow in number and importance, this business model is putting increasing pressure on brands seeking shelf space in their stores.

Tissue products, and especially toilet paper, are considered not only basic products but also commodities. Spanish consumers show very little brand loyalty, allowing high private label penetration. Manufacturers of private label understand that Spanish consumers demand quality and that they do not care who provides it. This means that retailers' own brands often lead the way in terms of innovation, rivalling the brand manufacturers. For example, when Scottex (Kimberly-Clark) and Colhogar (Georgia- Pacific) launched their extra-long toilet rolls, Carrefour followed with its "Maxi Roll" variant. High-end retailer El Corte Inglés, meanwhile, was first to offer a four-ply roll in Spain, ahead of the brand producers.

Brand producers fear that the Mercadona business model - stocking its own private label and just one or two branded products - could be followed by other big grocery retailers. This would make it very difficult for smaller or new brands to establish a presence in the market, which in turn could harm innovation. Unless these smaller manufacturers were able to secure new distribution outlets they would inevitably be driven out of the market.

The Option For Manufacturers

As a result of the gloomy scenario of unstoppable private label growth, manufacturers would seem to have only two options available to them in terms of competing. The first is to increase their innovation levels. Offering products with more advanced features than private label is likely to allow brand manufacturers to differentiate their offerings and thus keep them on supermarket shelves. This strategy is risky because it requires investment and with the time it s private labels to copy new developments shortening, it is by no means certain that innovations will pay for themselves.

A second option is for manufacturers to focus on getting contracts to manufacture tissue products for retailers. This is the strategy pursued by key company SCA, which in Spain has an almost negligible market share (1% in 2007) but holds the contract to produce Mercadona's products. Italian company Industrie Cartarie Tronchetti has also abandoned the idea of achieving wide distribution for its own products to concentrate on manufacturing products for retailer Eroski.

Unfortunately for many manufacturers, the current economic situation makes the growth of discounters and Mercadona alike more likely to happen. It is difficult to see anything but ongoing success for these retailers in the mid-term. The current rise in raw materials and oil prices is impacting production and transportation costs, so manufacturers are faced with the uncomfortable choice of absorbing these costs or raising prices. Although Spain is not expected to be hit by recession and the Spanish economy is predicted to recover in the next 12-18 months, the future certainly looks rather bleak for branded tissue products in Spain.TW

Cruz Del Barrio is an International Research Analyst with Euromonitor International.