Country Report: Mexico
By Magdalena Kondej
The global economic crisis has hit the Mexican economy hard, with GDP growth
falling to lower than 1%, the lowest since 2001, rising inflation and falling
consumer confidence, all of which has had a knock-on effect on the country’s
tissue market. Tissue products in Mexico reached Mx$17 billion ($1.5 billion)
in 2008, and, although value growth remained positive at 3%, when this is compared
to the review period CAGR of 6%, the downturn becomes evident.
Kimberly-Clark dominates the Mexican tissue market with 62% of sales, and
recently reported increased profit of more than 10%. SCA sits in second position
with a 17% share, followed by Procter & Gamble with 6%. Georgia-Pacific
and local manufacturer Fábricas de Papel Potosí SA de CV have a smaller presence
in the country. Despite Kimberly-Clark’s impressive results, all of the major
tissue manufacturers lost share in 2008 as economic concerns prompted consumers
to trade down. Private label made the biggest gains and saw its share increase
to 6% from 5% the previous year.
Private label has long been present in tissue products in Mexico, but development
has been particularly notable in recent years, with private label doubling its
share of the tissue products market from 3% in 2001, with the trend further
consolidated by the economic downturn. Mexico’s four largest nationwide retailers,
Wal-Mart, Soriana, Chedraui and Controladora Comercial Mexicana, have all developed
private label products and, as an indicator of the growing strength of private
label, in toilet paper all four retailers now offer premium products alongside
standard versions, while Wal-Mart also offers both premium and standard napkins.
Toilet paper is by far the largest tissue product category, standing at $1
billion. Despite the economic crisis, the category registered value and volume
growth of almost 4% and 5%, respectively, in 2008. However, as a result of the
economic crisis, it was economy toilet paper that emerged as the winner of 2008
in terms of volume growth, at 6%, as consumers became more budget conscious
and traded down, compared to 2% for luxury paper. However, as the volume increase
was partly due to economy brand manufacturers lowering prices by 5%, in terms
of value growth economy toilet paper fell behind both standard and luxury brands,
which largely maintained their higher price points.
In light of consumers trading down, private label made the biggest gains in
2008 to reach a 6% sector share, and the trend is likely to continue. This continued
potential has provoked a number of recent private label launches, including
Maxima and Cisne toilet papers, and it is likely that more will emerge. Despite
this competition, Kimberly-Clark dominates the Mexican toilet paper sector with
60% of sales off the back of its Pétalo, Kleenex and Suavel brands, the three
most popular brands in Mexico respectively. Kimberly-Clark has managed to successfully
retain its share, largely through offering brands across the price spectrum.
Local manufacturers are, however, looking to Kimberly-Clark as an example and
are aiming to grow their consumer base in much the same way. Fábricas de Papel
Potosí SA de CV, for example, a much smaller local company with 1% of the toilet
paper sector, now markets up to seven brands of both toilet paper and napkins.
Although local manufacturers are unlikely to rival major players in the near
future, this tactic may well see them gain further share.
Although toilet paper is regarded as a necessity and as such will be partially
shielded from the effects of the economic downturn, with a CAGR of 5% predicted
for the sector as a whole to 2013, consumers will continue to trade down while
the economy remains in difficulty. As a result, economy brands are predicted
to register the strongest growth of the forecast period in both value and volume
terms (6% value CAGR).
Tissues remains an underdeveloped sector in Mexico and currently stands at
US$89 million. The sector registered 2% growth in 2008, the slowest of any tissue
product category. Again, the sector felt the impact of the economic crisis,
particularly as many consumers regard the product as non-essential. Kimberly-Clark
and SCA dominate the sector with a combined share of 98%, although Kimberly-Clark
is way out in front with an 86% share, with its Kleenex brand synonymous with
the category. Kimberly- Clark also showed the only significant innovation of
the year with a new brand launch, Suavel, and a green tea variant of its Kleenex
brand.
In light of the economic crisis, competition focused mainly on price promotions.
Because of the products’ low penetration and Kimberly-Clark’s continued dominance,
the sector has failed to attract much interest from private label, and remains
the only tissue category with a negligible private label presence. Tissues is
predicted to see slow, albeit steady, growth over the forecast period, with
the sector remaining more of a longterm prospect for well after the economy
fully recovers.
Like tissues, kitchen towels have yet to find widespread favour with Mexican
consumers. The sector is the smallest tissue category, standing at US$54 million
and registering 3% growth in 2008, again stifled by the difficult economic conditions
as lowerincome consumers opted for reusable cloths as an alternative solution
to spills.
Again Kimberly-Clark is the leading player with 65% of sales, based on its
Pétalo, Lys, Kleenex and Vogue brands. Unlike in other sectors, the focus is
not on price and manufacturers have the opportunity to implement price increases
because the products are targeted at, and largely only interest, high-end consumers.
Despite this consumer base, only private label managed to increase its share
in 2008, reaching 10% following a year of increased activity, which was matched
by little activity other than price promotions from the branded manufacturers.
The performance of kitchen towels is strongly linked to that of the overall
economy, as is the case in tissues, and although growth is likely to be slow
and steady, any real opportunities to improve penetration levels will be few
and far between until the economic crisis is over. As a result, brands may do
well to hold back on launching new products as uptake is likely to be slow.
Mexico’s tissue market is unusual in that paper tableware is the second largest
sector, standing at $198 million. Napkins account for almost all of the sector
and their use is well established. Table cloths, however, remain underdeveloped.
Because of the sector’s high acceptance levels, it is expected to fare better
than both tissues and kitchen towels during the economic crisis. Growth in 2008
was the highest of all tissue products, registering 4%. Due to its more promising
prospects, the category has also seen more activity in comparison to other sectors.
SCA, which commands 14% of sales, launched Regio de Luxe in the premium segment
in October 2008 to compete directly with Kimberly-Clark’s Class and Kleenex
Elegante, while Kimberly-Clark launched Pétalo Abre-Fácil, which has a seal
that can be opened and closed without breaking the plastic packaging. However,
in the short term, these innovations are likely to have little impact as price
will remain the key driver in purchase decisions. A CAGR of 4% is predicted
to 2013.
It is difficult to predict how long the economic crisis in Mexico will last
and for the short term branded tissue manufacturers are likely to focus on price
promotions rather than any real innovation, aiming to offer the best value for
money to retain volume share from budget-conscious consumers. Private label
products are, however, also likely to step up competition on price grounds and
become an even stronger force as a result, running the very real risk that Mexican
consumers will not return to branded products even after the economic crisis
has subsided.
