Germany officially entered recession in December 2008. The country is heavily reliant on exports and a decline in global demand is at the root of Germany's economic difficulties. The country saw GDP decline by more than 3% during the first quarter of 2009. In a bid to stabilize the economy, German officials unveiled a €31 billion fiscal stimulus package in November 2008, with another €50 billion package approved in January 2009. The latest package includes financial assistance for families and tax breaks for people in lower-income brackets

PRUDENT CONSUMERS

Despite the country's economic problems, consumers in Germany seem disinclined to modify their spending habits and during 2008 and the early part of 2009 retail spending remained stable. Consumers are well aware of the country's economic woes but are cushioned by a high savings rate, declining food and energy prices and pay rises implemented during 2007. As a result of consumers' ability to maintain spending and the essential nature of tissue products, the market, sales of which currently stand at €1.6 billion, registered growth of over 2% in 2008, according to Euromonitor International figures.

While the prudence of the German consumer has served to provide a cushion for the growth of tissue products, it also shapes the competitive landscape of the market, accounting for the high share of private label. German consumers are typically well informed and aware that the difference between branded and private label products is often minimal, since they are also aware that the same manufacturer often produces both. As a result, consumers no longer stand by the school of thought that quality costs more and private label products lead every tissue category, accounting for almost 67% of the overall tissue products market, driving price competition and stifling value growth.

TOILET LUXURY

Toilet paper, the largest tissue sector in Germany, grew by 2% in 2008 to reach €878 million. Perhaps surprisingly, given the economic climate, luxury toilet paper was the most successful category, growing by 7% in value terms and 4% in volume terms, in contrast to negative growth in every other category. While this value growth is partly a result of higher unit prices, it was largely driven by German consumers' willingness to trial products with new fragrances and lotions, a trend that has continued from innovations seen during 2007. The success of luxury toilet paper despite the economic climate would suggest that, although Germans are costconscious, they are also willing to spend more on a product if they perceive it as having real benefits which will enhance their daily lives. As with all of the other tissue sectors in Germany, toilet paper is dominated by private label, which held almost a 70% sector share in 2008, making a small gain on the previous year. Behind private label is SCA with a 16% share, followed by Kimberly-Clark with 13%, with both manufacturers maintaining their share from the previous year.

Despite the positive growth seen in 2008, toilet paper sales are expected to stagnate over the forecast period. However, this will be more due to demographics than the effects of the economic downturn, as luxury toilet paper is expected to continue to show growth, with a CAGR of 3% predicted to 2013. With toilet paper sales in Germany saturated and a stagnant population, adding value remains the only way to drive growth. In light of this and German consumers' propensity to spend more on products that they perceive to offer a real benefit, wet toilet paper offers real potential, with Kimberly-Clark's Hakle and SCA's Charmin currently the leading brands and in a position to capitalise.

SALES IN THE BOX

Tissues were the strongest performer of all tissue product sectors in 2008, registering 3% growth to reach €302 million. Boxed facial tissues achieved the strongest growth, registering 5% and driving the sector's relatively strong performance, although pocket handkerchiefs remains the dominant category.

Within boxed facial tissues, innovation concentrated on packaging designs, focusing on tying in with home décor and different usage occasions. Product innovation was, however, seen in pocket handkerchiefs, where SCA launched Tempo Sanft und Frei, which translates as "soft and free". The handkerchief includes a soothing balm and decongestant oils. As a result, the brand, which leads the category in terms of branded products, gained a percentage point in share and now accounts for 22% of sales. Again, private label dominates, with a 57% share, which rose in 2008 as a result of more products becoming available.

Tissue sales in Germany are predicted to see marginal growth over the forecast period, with a CAGR of 1% to 2013, coming from both boxed facial tissues and pocket handkerchiefs. Growth will be driven by launches that add healthcare properties and packaging innovation, placing the products above private label lines in terms of performance and appearance.

STRONG TOWELS

Kitchen towels also registered above-market growth of almost 3% in 2008, taking the value of the sector to €339 million, which made it the second largest after toilet paper. Rather than any major launches, this growth was driven by innovations offering different formats, sizes, designs and absorbency, which all stimulated continued consumer interest. Again, private label products hold the largest share of the sector by far, at 72%. SCA, meanwhile, has the first and second-placed brands in Zewa and Bounty. Private label and Zewa both gained share in 2008 at the expense of Kimberly-Clark's Kleenex and SCA's Danke brands. Kitchen towels are expected to register the highest CAGR of all tissue products in Germany to 2013, with almost 2% growth expected. The high private label penetration means price competition will continue, but manufacturers are expected to drive consumption by pushing usage occasions outside of the kitchen.

PAIN FOR TABLEWARE

Paper tableware achieved the slowest growth of all tissue products in 2008, registering just short of a 1% increase, which took the sector to €86 million. Tablecloths registered marginally higher growth than napkins, largely because the category is not yet saturated.

Following innovations to create a more cloth-like texture in 2007, the sector-leading brand Duni focused on driving impulse sales in 2008. Retail displays organised in terms of colour were changed to displays organised by occasion, making products easier to locate. However, it has yet to be seen how much this change will influence sales.

Manufacturers are likely to continue to offer more tableware themed to celebratory occasions and improve the sustainability of their products. However, the sector is predicted to show negative growth throughout the forecast period, due largely to the products not being considered necessities and the existence of more environmentally-friendly viable alternatives.

ADDED FUNCTIONALITY

While German consumers continue to spend despite their country's economic downturn, and are willing to spend more on products they see as offering real benefits, their cost-conscious nature will limit the scope for growth of tissue products because of their likelihood to opt for private label products. The key to future success for major players will be in offering new products with added functionality - something the savvy German consumer will be quick to buy into, even at a higher price point. TW

Magdalena Kondej is Head of Research for Household Care, Euromonitor International.