By Adrian Atterby
The Africa/Middle East region generated over $1.6 billion in tissue products revenue during 2006, having seen an average annual growth of 6% since 2001. However, much of this revenue is concentrated in a small number of countries and is mainly generated through the sale of toilet paper or facial tissues. Furthermore, consumer attitudes towards products and purchasing patterns vary immensely, meaning that manufacturers must treat each market on its own merit if they wish to be successful.
Therefore, if manufacturers hope to develop their businesses across the region, one of the first questions they must answer relates to the type and quality of products they wish to sell. Although it is tempting to view most African and Middle Eastern markets as being driven by low-quality products, competing solely on price, this is not always the case.
SAUDI TISSUES SHOW POTENTIAL
The Saudi Arabian tissues market certainly debunks this myth as the majority of products sold are considered premium. Because of this the Saudi market enjoys one of the highest per capita spending rates in the world, with average expenditure of $6.10 per person annually; the majority of which is attributable to boxed facial tissues. Furthermore, spending is actually increasing, whilst in other major markets such as the UK and the US rates have fallen from $7.40 and $5.90 per person in 2001 to $5.90 and $5.70 in 2006 respectively. This rise in spending has resulted in the overall value of the Saudi market growing from $127 million in 2001 to $152 million in 2006, according to Euromonitor International.
One of the reasons why expenditure has increased so quickly is that manufacturers have launched a number of new premium products, such as Fine Touch with Steri-Pro technology which ensures every tissue is sterilised before packing, all of which have been supported by extensive marketing campaigns. This has resulted in a market dominated by premium brands, with the top four, Fine, Select, Kleenex and Lotus, responsible for more than 66% of revenue in 2006.
Facial tissues are also perceived as multi-functional items in Saudi, frequently being used to wipe perspiration off the face, cleaning and drying hands after meals as well as cleaning up spillages. The versatile nature of the product has resulted in increased usage, helping to drive up volume sales.
ISRAELI MARKET ALSO SEES BENEFITS IN LUXURY
Although a considerable proportion of Israelis live below the poverty line, there is a significant number of consumers who wish to purchase premium products and therefore manufacturers are much more prepared to launch luxury versions here than in other parts of the region.
Hogla-Kimberly, for instance, recently launched an Aloe Vera impregnated toilet paper under its Lilly brand as well as a number of fragranced papers such as vanilla and lavender. These actions are part of a continuous effort to define the premium price band in the sector. This has also helped to create mid-priced brands, such as Molett from Hogla- Kimberly, which are also enjoying relatively strong growth as less affluent consumers trade up from basic products.
These product development activities have resulted in per capita spending increasing from $12.90 in 2001 to $15.70 in 2006, making it one of the world’s most dynamic markets.
Both the Saudi facial tissues and Israeli toilet paper markets contrast with others across the region because of the large groups of consumers who are willing to experiment with premium products, prompting manufacturers to invest in innovation. According to Euromonitor International, other markets such as Nigerian and Moroccan toilet paper produce significant revenue streams, $107 million and $80 million respectively in 2006. However, as purchasing decisions are made solely on price, because of low disposable incomes and a lack of awareness regarding the benefits of premium products, little or no innovation has occurred.
DISTRIBUTION ISSUES DETERMINE COST
The way in which tissue products are distributed varies greatly throughout the region. In South Africa nearly 75% of all revenue is generated through sales in the supermarket/hypermarket channel, compared with less than 50% across the entire region. This makes it much easier for South African manufacturers to control their products’ brand images whilst keeping distribution costs to a minimum.
A developed supermarket/hypermarket channel can cause problems for brands, however, as it can result in a high proportion of sales being generated by private label products. This is certainly true in South Africa where 40% of toilet paper sales come from own label brands. By contrast, private label sales in Israel stand at a much lower 7%, despite the supermarket channel being considerably more developed than that in South Africa. Supermarket outlets also face more intense competition in Israel, particularly from chemist/drugstores, and because of this they only account for 50% of tissue product sales by value.
A number of retailers have been investing significant resources in developing their own tissue product ranges, however, which are likely to have an impact on the future retail environment. The country’s largest supermarket, Super-Sol, recently launched a toilet paper product under its store label. The retailer’s ambition is to account for 30% of all shelf space in those sectors in which it is present. Although it is not likely to achieve such a significant result, especially in the short term, it is a definite threat to all manufacturers, especially those with mid-priced and economy brands.
In other markets across the region a large proportion of sales occur through independent food stores and other channels, such as kiosks and street sellers. Unfortunately, servicing these outlets has the negative effect of adding cost, making products which are already out of reach of the majority of customers even more so. Another challenge for manufacturers is controlling the quality of products, as well as their brands’ images, which has a further negative impact on sales.
COUNTRY FOCUS: SOUTH AFRICA
According to Euromonitor International, the largest market in the region is South Africa, which accounted for more than 25% of all tissue products’ revenue in 2006 and contributing 35% of the region’s value growth since 2001. The most important product category is toilet paper, generating $356 million during 2006. This is despite only 54% of homes having access to flushable toilets, a figure far lower than in many other countries in the region such as Egypt, where more than 90% of homes come complete with one.
The market does face problems, however, the main one being the wide availability of toilet paper products manufactured by small local converters as well as cheap imports, which do not meet regulatory standards. These products are gaining an increasing share at the bottom end of the market, particularly through the informal trade, and hindering value growth as a result. Whilst volume sales increased by 13% in 2006, values rose by a marginal 0.5%, with a number of new economy brands being launched recently.
To try and combat this problem the South African Tissue Manufacturers Association (SATMA) is attempting to raise consumer awareness of substandard products and curb illegal operations and cheap imports. It reached an agreement with supermarket chains in February 2007 whereby they will only stock products featuring a “Thumbs Up” logo, showing they have the SATMA symbol of approval.
Innovation is therefore restricted to the small segment of the market reserved for premium products, such as the recently launched two-ply Dinu Décor toilet paper collection by Universal Paper and Plastics.
Growth in the premium category is likely to remain sluggish, due to price increases implemented by manufacturers throughout 2007. They have been forced to do this because of increased production costs, including the costs of raw materials. This has resulted in product prices rising by an average of 15%, pushing premium toilet paper out of reach for all but the most affluent consumers.
As with the majority of other markets in the region, sales of facial tissues, kitchen towels and paper tableware generate much lower levels of sales. This is due to low levels of income, combined with the fact that toilet paper is perceived as an affordable substitute product. Although manufacturers could make more effort to differentiate between the various product categories in order to try and drive sales growth, it is unlikely that these markets will develop significantly until disposable income levels have increased.
CONCLUSIONS
Between 2006 and 2011 value growth is likely to remain fragile, constricted by consumers’ low-income levels. Sales are likely to be largely restricted to the economy sectors. Even areas which have seen higher levels of volume sales, or been subject to premiumisation such as in Israel, are likely to witness reduced levels of growth.
The one market likely to increase significantly will be Nigerian toilet paper, which Euromonitor International predicts will expand by 10% annually between 2006 and 2011, adding $63 million to overall revenue. The majority of sales will occur in urban areas as rural dwellers continue to view toilet paper with suspicion, dismissing it as an "extravagance". The Nigerian market is also highly fragmented, with more than 55% of value being claimed by companies each with less than a 0.1% market share; again, indicating that price and not brand equity is at the top of consumers’ minds when contemplating purchasing decisions.
The only other market which is forecast to grow considerably by 2011 is Israeli toilet paper, which is expected to expand at an annual rate of 4%. The launches from 2006 will help to shape the structure of the sector in the near future. As part of a strategic programme that began two years ago, Hogla-Kimberly has finally managed to create clear price bands and relevant brand positioning. Lilly will continue to innovate with new seasonal and limited editions (Valentine’s Day, winter/spring and others) in the premium segment, while Molett will persist in offering the best value for money in the mid-price segment. Shmurat Teva will have to compete with economy brands, especially Super-Sol’s range of toilet paper. Other brands will follow Hogla-Kimberly’s footsteps and try to offer similar products. TW
