By Adrian Atterby, Disposable Paper Products Analyst, Euromonitor International
As tissue products’ growth stalls in the developed world, manufacturers are increasingly turning to emerging markets to provide expansion. P&G’s recent decision to dispose of its Western European tissue assets is an indication of just how bad things have got for manufacturers in many developed markets. With wafer-thin margins, intense private label competition and limited shelf space available in major retail outlets, average annual growth for tissue products in Western Europe since 2004 has been only 0.1%. Whilst the situation is better in the US market, with average growth since 2004 of 5.5%, according to Euromonitor International, the future outlook is less impressive.
Although tissue products are considered to be a staple consumer item in the Western world, in developing countries where the general population has traditionally had limited access to disposable income, the use of substitute products is widespread. However as these countries become integrated in the global economy disposable income levels are rising, resulting in an increased customer base for tissue.
BRAZIL LEADS WAY
Euromonitor International’s research shows that Brazil is the country which has produced the most spectacular growth since 2004, seeing revenues increase by an average of 21% annually. This growth has been spurred by a number of factors including the elimination of the 5% industrialized products (IPI) tax imposed on toilet paper products in 2005, and enhanced levels of disposable income, up 13% since 2004. Even more than in developed countries, emerging countries rely on toilet paper revenue to drive growth in the tissue products industry. Since 2004 Brazil has seen revenue generated through the sale of these products increase by 25%. This has been mainly due to a 23% rise in volume sales, but also as a result of consumers trading up from economy to standard products. This was prompted by a 13% fall in unit prices as a result of new players entering an already crowded market and made trading up far less expensive.
Due to a large number of new product launches in 2005, such as Santher’s Personal Unique, development in 2006 focused on new packaging design and format extensions. Almost all manufacturers now offer an eight-roll pack and this size represents over 40% of sales. Kimberly Clark also introduced a 16-roll package of its Neve product which has been relatively successful, making up about 5% of the Neve brand sales at large retail stores and discounters. Other innovations also caught on, such as the 50-60-meter roll, which allows for less frequent changes, as well as decorative packaging and fragrances. However, a number of products such as Empresas’ Dualette Premium were launched to service the growing market for luxury papers.
In Indonesia toilet paper revenues are up by 16%
and volume sales by 14% since 2004. Value growth
performed even better, with revenue up
by 34% over the same period
Kimberly Clark also introduced a travelpack version of its Scott product with loose dry sheets for consumers who do not like to travel with a roll. This format could also be used to prepare the market for the return of moistened toilet paper, which was discontinued in 2004 due to lack of consumer interest.
Indonesia has also seen impressive growth in its toilet paper market since 2004 with revenues up by 16%, according to Euromonitor International. Volume sales increased by 14% during the period thanks to higher disposable incomes, whilst greater access to retail outlets outside the major metropolitan areas encouraged people to move away from traditional cleaning methods. Value growth performed even better, with revenue up by 34% over the same period. This was the result of two main factors. Firstly, a number of consumers traded up to more advanced products and, secondly, unit costs went up with the price of a four-roll pack of Graha Kerindo’s Tessa brand increasing by 5% between 2005 and 2006.
As penetration for toilet paper continues to rise, it is unlikely that these high levels of growth will be maintained. Euromonitor International predicts that in the period 2006-2011 revenues in the Brazilian market will go up by 4.7% market A spotlight In Indonesia toilet paper revenues are up by 16% and volume sales by 14% since 2004. Value growth performed even better, with revenue up by 34% over the same period annually. Overcapacity, leading to lower unit costs will be partly responsible for this, as will the increase in the availability of larger, more cost effective pack sizes. So far, only Kimberly- Clark offers a 16-roll pack. However, its success is likely to encourage other manufacturers and retailers to follow suit, again leading to a reduction in unit costs and affecting growth rates as a result.
GROWTH ≠ LARGE REVENUE INCREASES
Outside the developed markets the highest level of growth in the facial and pocket tissues category has been in Venezuela. While the market has increased by 76% since 2004, in value terms this translates into only a US$17 million rise. Boxed facial tissues have proved to be far more popular than pocket alternatives, with revenue generated by the larger packs accounting for 64% of the total. Manufacturers sought to add dynamism to the market through new packaging, as in Kleenex’s decorative boxes that seek to fit in with the ambience of specific rooms of the house. Launches of tissues impregnated with fragrances, as well as aloe vera or lotions were pioneered by Kleenex and will probably be imitated by local enterprises in the near future.
This strong value performance of facial and pocket tissues in Venezuela is the result of the price controls on personal care products imposed by the government. Manufacturers are not able to recoup the costs of manufacturing by producing the types of tissues covered by price controls. Instead, companies have been manufacturing value-added products in order to raise prices.
| Key emerging markets |
|
Retail value million US$ |
| |
Toilet paper |
2004
|
2005
|
2006
|
| |
Indonesia |
16
|
19
|
21
|
| |
Poland |
132
|
141
|
149
|
| |
Romania |
60
|
72
|
83
|
| |
Brazil |
754
|
1,159
|
1,187
|
| |
Venezuela |
191
|
262
|
288
|
| |
Saudi Arabia |
32
|
33
|
34
|
| |
Tissues |
|
|
|
| |
Indonesia |
12
|
13
|
14
|
| |
Poland |
67
|
72
|
75
|
| |
Romania |
4
|
5
|
7
|
| |
Brazil |
16
|
19
|
201
|
| |
Venezuela |
22
|
27
|
38
|
| |
Saudi Arabia |
141
|
146
|
152
|
| |
Kitchen towels |
|
|
|
| |
Indonesia |
0.4
|
0.4
|
0.4
|
| |
Poland |
35
|
43.5
|
51
|
| |
Romania |
3.1
|
4.4
|
6.1
|
| |
Brazil |
117
|
126
|
90
|
| |
Venezuela |
46
|
49
|
52
|
| |
Saudi Arabia |
2.2
|
2.3
|
2.5
|
| * Fixed 2006 exchange rates |
|
|
|
| |
|
|
|
|
While toilet paper is quickly becoming accepted as an indispensable consumer item in many emerging markets, facial tissues are considered expensive and it is only amongst the most affluent consumer groups that their use is widespread. Among social segments C, D and E, toilet paper is an almost perfect substitute for tissues and offers greater uses and a better ratio between price and length of use.
SAUDI OFFERS THE BEST POTENTIAL
Discounting China and the USA, in the period between 2006 and 2011 Euromonitor forecasts that Saudi Arabia is expected to offer facial tissue manufacturers the highest levels of actual growth. Sales are predicted to rise by US$35 million thanks to average annual market growth of 4%, meaning that by 2011 the Saudi market will be worth US$187 million. Saudi enjoys one of the highest per capita consumption levels of tissues in the world as they are used for many purposes. In the hot climate, tissues are frequently used to wipe perspiration off the face, as well as being a product for cleaning and drying hands after meals, and for cleaning up spills.
Although the market is characterised by low prices, as a result of intense competition between a small number of players, product development is a key tool for manufacturers to stimulate sales.
In the period until 2011 manufacturers are expected to seek further launches of added-value features, such as lotions and balms, in order to achieve higher gains in value terms. Packing will also be another important area where manufacturers are likely to focus in order to drive growth. Increased spending on advertising and promotion was also very evident in 2006 following the launch of Fine’s advertising campaign in many local and regional TV stations. Other competitors are likely to respond soon and to show similar, if not more intense campaigns supporting brands such as Kleenex, Select and Lotus.
KITCHEN TOWEL’S LIMITED APPEAL
Sales of kitchen towels are generally limited to the most developed of markets and the most affluent of consumers. Therefore the emerging countries which have produced the best levels of growth since 2004 have been markets which have already developed considerably.
Top of the list is Romania, which has seen sales of kitchen towels almost double in the past two years, although this resulted in only US$3 million of extra revenue.
More interesting is Poland, where the market for kitchen towels was worth US$51 million in 2006, an increase of 45% over 2004, making Poland the 19th largest market for kitchen towels globally. Polish consumers are becoming increasingly convinced of the universal applications of kitchen towels. They appreciate them for the high level of absorption and convenience of usage. However, the number of Poles who use textile cloths instead is still significant.
Producers of kitchen towels try to attract consumers in several ways. They aim at raising consumer awareness by underlining the numerous ways to use them. Additionally, they work on introducing new designs and colours in order to make them suit different home decors. Two major groups of customers drive the sector’s growth. Quality-sensitive consumers are eager to pay more for well-known brands offering additional features such as colourful printing or embossing. The second group, comprising economy buyers, choose private labels which are considerably cheaper and are widely distributed in large scale outlets and discounters.
Increased roll size was also a key marketing tactic in 2006, as manufacturers attempted to boost revenue growth. Deli Tissue introduced its Regina Najdluzsza Rolka, which claimed to have 50% more sheets than a standard roll, while Kimberly-Clark launched an extra large version of its Velvet.
Unit prices experienced a slight increase in 2006 as premium brands such as Lambi or Foxy become more popular. Manufacturers also focused on introducing regular innovations, which were priced a bit higher than standard portfolio of products.
Euromonitor International forecasts that the Polish market will continue to develop in the period between 2006 and 2011 as penetration increases and those consumers already using kitchen towels trade up to more upmarket products. The market will undergo gradual modifications in order to satisfy rising demand amongst consumers as a wider selection of colour versions and prints will appear, as will a wider range of pack sizes.
Currently two-roll packs are the most common and we should expect that four-roll packs will gain share in the coming years. As bigger packaging means lower unit price, Poles should be willing to take advantage of such an offer. Euromonitor International predicts that sales will see an additional increase of 11% annually, resulting in a market worth US$85 million by 2011.
CONCLUSION
Growth markets amongst emerging countries for tissue products are widely spread geographically once we start to look beyond the obvious leader, China.
Brazil is the market which will experience
the highest levels of growth, supported by an expanding economy and consumers
who are eager to adopt a more westernised lifestyle
Brazil is the market which, Euromonitor International predicts, will experience the highest levels of growth, supported by an expanding economy and consumers who are eager to adopt a more westernised lifestyle. The vast majority of this growth, however, will occur within the toilet paper segment and producers should concentrate most of their efforts here. In such a large country it is also clear that a broad range of consumers exist, requiring manufacturers to produce a variety of product choices. Manufacturers do need to be aware of local nuances, however, as many of these markers are more tightly controlled than those in operation in western markets, a fine example being Venezuela.
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