By Adrian Atterby
The global tissue products market continued to expand in 2007,
with total revenue up by almost 5%. However, many manufacturers
experienced difficulties due to retailer strength, private label
products, rising raw material costs and a worsening economic situation,
particularly in developed regions. Growth potential still exists
in emerging markets, as greater affluence results in larger numbers
of individuals being able to afford paper products, and it is
in these areas that manufacturers must seek out new opportunities.
At a category level, toilet paper continues to outperform all other
tissue products, with total revenue growing by 6% in 2007 to reach
$28.6 billion, according to Euromonitor International. The success
of toilet paper is due to its essential nature, which has driven
penetration rates and therefore growth, particularly in emerging
markets. The global markets for tissues, kitchen towels and paper
tableware, however, continue to significantly lag behind. Of the
three, kitchen towel was the best performer in 2007, with revenue
growing by 4%. However, the size of the global kitchen towel market
is only a fraction of that for toilet paper, with total sales in
2007 amounting to only $8 billion.
US OUTLOOK LESS ROSY
The US remains the world’s largest consumer tissue market
by some considerable distance, generating almost $13 billion in
sales during 2007. However, growth has slowed in recent years as
higher costs have forced brands to raise prices, which in turn
has forced more cost-conscious consumers to trade down to cheaper
brands or even private label products. Traditionally, private label
in the US has accounted for a much smaller share of the market
than in Western Europe. Since 2002 there has been a cultural shift,
as US consumers have been increasingly prepared to look beyond
major brands, and as a result private label has seen its total
share of tissue grow by 3.5 percentage points. Growth in the category
has accelerated in the past year, with revenue up by 12% compared
to total toilet paper’s growth of 3%.
These changing dynamics have forced manufacturers to reconsider
their product portfolios. P&G, for example, launched a new,
low price one-ply toilet paper under its Charmin brand in order
to compete better at the lower end of the market, while also reorganising
the promotion of its more upmarket products, including Charmin
Ultra Soft and Charmin Ultra Strong.
NO RELIEF IN WESTERN
EUROPE
Western Europe suffered from even weaker value growth of 2% in
2007, with markets constricted by high levels of product penetration
in the toilet paper sector, which accounts for the greatest proportion
of sales. In markets where penetration levels are high, manufacturers
rely on population growth in order to boost volume sales and this
is another area where Western Europe suffers in comparison to the
US. Euromonitor International’s latest research shows that
while a higher birth rate and immigration helped to push up the
population size in the US by a full 1%, in Western Europe the figure
was only half of that in the past 12 months. Brands operating in
Western Europe have also suffered in recent years from the emergence
of discount retailers which offer larger pack sizes, a trend driven
by a consumer quest for better value, both of which have had a
detrimental effect on unit prices. In Germany, for instance, toilet
paper values have grown at an average annual rate of only 1% since
2002, while the share of revenue taken by discounters has increased
by seven percentage points to 50% over the same time period.
The trend for discount shopping is spreading, with its popularity
growing across Europe and into countries such as Poland, where
retailers such as Germany’s Aldi look to expand into new
markets. Even in the US, discount shopping is becoming increasingly
popular, particularly as consumers look to cut spending on everyday
items as a result of a deteriorating economy.
P&G’s decision to abandon the Western European tissue
market in order to concentrate its efforts on higher-growth opportunities
in Latin America and Asia highlights the difficulties facing even
major manufacturers. SCA, however, believes that increased scale
will enable it to be more competitive; its market share expanded
from 6% to 11% thanks to the takeover. Control of a larger share
of the market will also place the company in a stronger position
when negotiating with retailers, ensuring they stock a larger number
of SCA brands, as well as leading to products being merchandised
in more advantageous positions. Additionally, SCA believes that
it will be better placed to combat the gradual erosion in value
of the market due to the continual price decreases that have resulted
from fierce competition. With fewer players fighting over share,
it is less likely that companies will resort to deep price cuts.
Moreover, although the penetration of toilet paper in Western Europe
is almost 100%, it should be possible for brands to drive per capita
volume usage even higher, particularly in the toilet paper and
kitchen towel categories, where North American usage is 40% and
200% higher respectively, according to Euromonitor statistics.
MOVE BEYOND CORE
FUNCTIONS
However, in order for companies to increase value growth in mature
markets, they will need to rely on inventive product development
strategies. In facial tissues, brands should work with OTC manufacturers,
developing products containing decongestant solutions and allergy
relief. Combined, these markets are currently worth more than $1.5
billion in Western Europe and offer manufacturers a great opportunity
to provide consumers with added value. Furthermore, if they use
branded OTC ingredients, significant co-marketing and merchandising
opportunities exist, with products being placed next to each other
in order to drive consumption.
In the toilet paper category, brands should look to take advantage
of consumers’ increasing concerns about their personal health
by developing features which provide preventative benefits through
the inclusion of natural ingredients such as oak bark, marigold
and common yarrow. A great example of this type of product is Metsä Tissue’s
Hemoroll toilet tissue, which aims to alleviate discomfort from
haemorrhoids.
Companies have also tried to alter their marketing strategies in
order to add additional value to their product ranges. In a similar
fashion to Kimberly-Clark, P&G offers package personalisation
for its Puffs tissue brand, whilst in support of Bounty it used
the web, asking consumers to write in with their best stories of
cleaning up spills with one sheet for a chance to win a $30,000
prize. Kimberly-Clark has also looked to revitalise the facial
tissues market on both sides of the Atlantic through increased
investment in its ‘Let it Out campaign’, which moves
its Kleenex brand away from being simply a functional item into
something with which consumers connect emotionally.
CHINA BUCKS THE TREND
As stated above, growth opportunities do still exist, as many developing
countries are yet to
suffer the effects of
the global economic situation. According to Euromonitor International,
of all emerging markets China offers manufacturers the best opportunities.
Although the total market has seen tremendous growth in the past
few years, with total value growth of $350 million in 2007 alone,
total tissue product per capita consumption remains very low at
only 2.2 kg and there are massive differences at regional level.
For instance, in North and Northeast China consumption stands at
4.4 kg per capita annually, whilst in Northwest China it is only
1.4 kg.
Toilet paper revenue, which was up by more than 10% during 2007,
has been boosted by the increasing availability of more luxurious
products. These are often marketed as multipurpose solutions by
manufacturers in order to increase their appeal among consumers.
This has had the unwanted effect of curtailing sales of other tissue
products. However, unlike in many other developing countries, a
significant market has developed in China for facial tissues. This
sector is now worth more than $500 million and is already the third
largest in the world.
In order to develop this area, brands have targeted students and
young professionals with
pocket tissues featuring
packaging with fashionable and stylish designs. This strategy has
proved particularly successful with the sub-segment generating
more than $335 million in revenue in 2007 thanks to growth of 7%.
Euromonitor expects sales of pocket tissues in China to reach $500
million by 2012 to rank No 1 in the world, exceeding revenues from
the second and third-placed markets combined. A threat to the tissues
market is looming on the horizon, however, in the form of wipes.
Although they have a much higher unit cost than tissues, wipes
are much more flexible when it comes to innovation and the inclusion
of lotions and balms. This could make them more attractive products
for people suffering from colds in winter and for people who wish
to wipe away sweat and cool off during hot summer months, or alternatively
as a product to be used for cleaning children’s hands and
faces while away from home.
BRAZIL AT THE FOREFRONT
2007 was a good year for the Latin American region, which continued
to see high levels of growth across most tissue product categories.
As expected, toilet paper contributed the largest proportion of
the total revenue increase – $388 million out of $545 million – but
surprisingly the market also saw impressive levels of growth in
the kitchen towels category, up by 26%, and facial tissues, up
by 8%.
The majority of extra revenue generated through the sale of kitchen
towels came in only two markets, Brazil and Venezuela, increasing
by $54 million and $46 million respectively. However, the long-term
prospects for these two countries differ greatly.
In Venezuela sales of tissue products have been helped by rapidly
growing levels of disposable income, which since 2002 have risen
by more than 200%. The market was also helped by rising demand
from consumers, manufacturers’ extended portfolios of products
with more brands available, new brands and more added-value products
to avoid price control regulations. Many of these factors helped
to push growth upwards in other tissue product categories as well,
but the benefits will probably be felt only in the short term as
the country is suffering from the effects of high inflation, rising
manufacturing costs and deteriorating conditions for investment
to increase production capacities in the country.
In Venezuela sales of tissue products have been helped by rapidly
growing levels of disposable income, which since 2002 have risen
by more than 200%. The market was also helped by rising demand
from consumers, manufacturers’ extended portfolios of products
with more brands available, new brands and more added-value products
to avoid price control regulations. Many of these factors helped
to push growth upwards in other tissue product categories as well,
but the benefits will probably be felt only in the short term as
the country is suffering from the effects of high inflation, rising
manufacturing costs and deteriorating conditions for investment
to increase production capacities in the country.
MIDDLE EAST INNOVATION
Although markets in the Middle East compare extremely unfavourably
to more developed countries in terms of total revenue generated,
significant niche markets have developed, particularly in facial
tissues, due to the high levels of disposable income available.
UAE and Saudi Arabia, in particular, have been riding an economic
boom on the back of oil and gas revenues, which has resulted in
ever larger numbers of super-rich consumers. In 2006 alone, 9,000
more people were classified as ‘super-rich’ in UAE
alone, placing it among the world’s top five countries in
terms of growth of their super-rich populations.
As a result, UAE has a per capita volume consumption rate for tissues
that is comparable with the most developed markets. This is not
only because of the hot weather, but also due to a long-established
practice of having tissues, especially facial tissues, in every
house, office and car.
Constant product innovation by companies in the market, where scented,
decorated and generally value-added tissues are increasingly being
launched, has also pushed sales of these products. Many families
in UAE associate the design and brand of facial tissues with status,
where the more premium the brand the more affluent and sophisticated
the family is. This trend is pushing more and more families to
buy these products and to opt for more premium varieties. The result
is high levels of growth over a sustained period. In fact, since
2004, the value of the market has risen by almost 39%.
It is a similar situation in Saudi Arabia, where the facial tissues
market generates $170 million and consistently posts annual growth
in the region of 4-5%, despite Saudi Arabia enjoying the highest
per capita consumption rates in both value and volume terms globally.
Although the hot climate is a significant reason for the high level
of usage among Saudi consumers, other factors are also prevalent,
but particularly the relatively low unit prices of most products
present in the market thanks to local manufacturing.
According to Euromonitor International, unlike boxed facial tissues,
which accounted for 91% of tissue sales in 2007, sales of pocket
handkerchiefs were relatively low throughout the review period
at $16 million in 2007, up steadily by less than 4% in value terms
on 2006. Pocket handkerchiefs are relatively expensive and boxed
tissues are common substitutes. Because of the climate, Saudis
always ensure that a plentiful supply of tissues is on hand, whether
in the car, the office or at home. Moreover, the nature of traditional
Saudi Arabian attire, bereft of pockets, does not encourage pocket
handkerchiefs.
PICK YOUR MARKETS CAREFULLY
It is likely that tough trading conditions will continue in many
developed markets for the foreseeable future as consumers try to
make savings across the board in order to pay mortgages and other
house-associated loans. Therefore, in markets such as the US and
Western Europe brands need to concentrate on developing products
capable of competing with private label, and this certainly means
lower-cost alternatives.
Although markets will continue to exist for higher value items,
it will become increasing difficult to justify higher prices based
simply on extra softness and strength. Instead, manufacturers should
concentrate new product development strategies on the development
of new features, particularly in combination with OTC medicine
brands as innovation of this kind will add real value.
Outside these main regions, opportunities for growth will exist,
particularly in markets
such as China and, to a lesser extent, Brazil and Russia, where
standards of living for a significant proportion of the population
are rapidly increasing. Manufacturers should beware, however, of
markets such as Venezuela and Ukraine, where growth is much more
fragile and the underlying dynamics which have driven growth over
the past few years are weaker and less sustainable. TW
Adrian Atterby is Industry Analyst at Euromonitor International,
based in London, UK. Email: adrian.atterby@euromonitor.com
