By Adrian Atterby
Exemplified by P&G’s disposal of its European
tissues business, traditional Western tissue markets
continue to stagnate due to unfavourable demographics
and competitive pressures, thus increasing the importance
of emerging regions. In 2006, for instance, sales in
Latin America grew by 7%, with total revenue of almost
US$5 billion, making it the fourth largest region globally
for tissue product sales.
Euromonitor International predicts
that this growth will continue throughout the forecast
period (2006-2011), with the total tissues market expanding
by more than US$1.1 billion at a rate, excluding inflation,
of 4.3%/yr.
Aside from these impressive growth numbers,
manufacturers will also be encouraged that many consumers
are now purchasing standard or premium products instead
of economy, meaning they are basing their purchasing
decisions on more than price alone. However, there is
still much work to do. Sales outside the main urban centres
are low and in order to exploit these untapped areas,
manufacturers will need to work hard with retailers and
distribution companies to provide relevant product offerings
and to build efficient distribution chains. At the same
time they will need to work with advertising companies
to promote their brands and increase product awareness
among rural consumers.
Brazil and Mexico Dominate
As in other regions, the Latin
American tissue products market is driven by sales of
toilet paper, which accounts for 75% of all tissue product
revenue generated in the region. However, almost 60%
of toilet paper sales are derived from the two key markets
of Brazil and Mexico. Global producers desiring success
in Latin America must appreciate the importance of these
countries as well as understand their different dynamics.
Higher-quality products are more popular in Brazil than
Mexico and this is reflected in the market shares commanded
by the standard and luxury product categories. In Mexico
these categories account for 55% of revenue whilst in
Brazil the figure is 76%. Moreover, by looking at these
numbers we can see how the relative markets have developed
during last five years. Whilst the subsector splits have
remained fairly constant in the Mexican market, Brazil
has seen dramatic growth in popularity for standard and
luxury products. In only five years volume sales of highquality
single and double-ply toilet papers have risen from 35%
of total volume sales to 68%.
Unfortunately for Brazilian manufacturers the success
of 2005, with high levels of value and volume growth,
would be difficult to match in 2006. In order to maintain
this volume growth, brands offered larger pack sizes.
These sizes proved popular with consumers due to the
increased convenience factor and lower costs, though
having a detrimental effect on value growth. The 8-roll
pack proved so popular that it was responsible for 40%
of all volume sales in 2006 in Brazil. Kimberly-Clark
Brazil took this trend to the extreme by introducing
a 16-roll pack for its Neve brand, which has also been
relatively successful. This pack size accounted for approximately
5% of Neve’s sales at super/hypermarkets
and discounters during 2006. A number of manufacturers
also began to offer 50 and 60 metre rolls which allowed
for less frequent replacements, again boosting convenience.
Tableware Matches North
The paper tableware market in Latin America is very dynamic
with revenues totalling US$507 million in 2006 thanks
to growth of 11% compared to 2005. What is remarkable
about this market, aside from the fact virtually all
the revenue comes from the sale of napkins, is that it
is only slightly less than the North American market.
Euromonitor International predicts that by the end of
2011 Latin America will have overtaken North America
as the world’s second largest paper tableware
market.
Growth in the sector is driven by the Mexican
market, which contributed 36% of regional revenue during
2006. Product penetration in Mexico has been helped by
the tradition of using paper napkins for wrapping food
as well as drying kitchen tools or surfaces in much the
same way that North American consumers use kitchen towels.
Because of this, the strength of napkins when wet is
of great importance to Mexican consumers, meaning that
manufacturers which are able to invest in the latest
production technologies are best placed to exploit this
market. Therefore, it is of little surprise to see three
global businesses, Kimberly-Clark, SCA Group and Procter & Gamble,
claiming an 88% value share of the Mexican market.
The Colombian market generates the second highest level
of revenue from paper tableware in Latin America, with
growth of 11% in 2006 pushing overall revenue up to US$69
million. As with the Mexican market, all of this revenue
comes from the paper napkins subsegment and to put this
into context, the UK market for paper napkins generated
the same revenue in 2006.
As a high proportion of sales
in the Colombian market are generated by
occasion-specific products, leading manufacturers such
as Familia Sancela del Pacífico and Colombiana
Kimberly-Colpapel have created specific advertising campaigns
for each occasion, giving examples of when to use coloured,
standard, or premium napkins. This has helped to boost
sales growth in the market whilst at the same time minimising
the effects of cannibalisation.
Tissues Suffer
Tissues, whether boxed or pocket, are still considered
a luxury item by most consumers in Latin America. A situation
not helped by the availability of a large number of cheaper
substitute products. As such, total regional sales are
low only generating US$291 million in 2006, meaning that
the market size is smaller than that found in Africa/Middle
East where sales totalled US$435 million in 2006.
Mexico is the most important market for tissue products
in Latin America. However, even here demand is fairly
weak, with volume sales declining in 2006 on the back
of only moderate price rises. Even the addition of antiviral
properties and the development of cylindrical packaging
to aid dispensing have not helped to boost sales.
In
some Latin American countries tissues are considered
an everyday item by consumers, Uruguay being one such
example. The growing popularity of tissues can be explained
by declining prices and promotions which make them affordable
to anyone. Although women represent the base of consumers,
this tends to widen as colds and flu are being seen throughout
the year, resulting in greater usage by men and children.
Tissues are presented in a wide range of sizes and in
creatively designed packages, especially in boxed facial
tissues. However, innovation is not only seen in the
packaging but also in the materials used to manufacture
the tissues. Companies are investing in adding value
to the category by incorporating fragrances such as aloe
vera and tutti frutti. The latest trend is to add aromatherapy
benefits, introduced by Kleenex in Uruguay and Argentina,
with its green tea fragranced products for energy and
camomile to stimulate relaxation.
Argentinean consumers
are also starting to opt for more premium tissues, particularly
products with silk fibres, such as Kleenex con Estracto
de Seda (Kleenex with Silk Extract).
High Costs Prevent Growth
The kitchen towels market in Latin America suffers from
a number of similar problems to those encountered by
tissues, with the availability of substitute products
and marketers being unable to justify the relatively
high cost being the main obstacles to higher sales.
Total regional sales of kitchen towels generated slightly
less than US$400 million in 2006. This was actually a
decline of 4% on 2005, demonstrating the volatility of
demand. This is particularly evident when we consider
that in 2005 the regional market for kitchen towels saw
growth of 9%. Much of the decline can be attributed to
the spectacular fall in the Brazilian market where value
sales declined by a massive 29% in 2006 compared to 2005.
Indeed, while the total market size in Brazil for kitchen
towels was US$161 million in 2003, by 2006 this had declined
to only US$90 million. One reason for this fall has been
a number of successive price increases which have resulted
in kitchen towels costing 40% more in 2006 than they
did in 2001.
There are also a number of cultural reasons for declining
demand. Many better off Brazilian consumers frequently
do not clean their own households, but tend to hire someone
for that task, thereby limiting demand to reusable household
cleaning materials. Changing food culture is also affecting
demand. As more consumers favour healthier living and
reduce the amount of fried food they consume the need
for kitchen towels is diminishing.
It Is Not All Bad News
Some individual markets did
see impressive rates of growth in 2006, in particular
Argentina, in which kitchen towel value sales rose by
17%. Demand has been boosted by consumers substituting
kitchen towels for napkins. The main reason for this
is that kitchen towels are perceived as less expensive
than napkins and are more conveniently located. Kitchen
towels usually occupy a place on the dining table or
in the kitchen, while napkins are usually stored in a
cupboard. It is, therefore, often more convenient to
pick up a kitchen towel than a napkin. Napkin use is
now more limited to special occasions, when there is
a formal gathering or a birthday.
The most important product launched during 2006 was Papelera
del Plata’s Sussex Megarollo. Targeting larger
families, it has 80 sheets per roll, reversing a trend
which began in 2002 to reduce the number of rolls per
pack in order to make them affordable to more consumers.
While significant growth opportunities exist throughout
Latin America, the fragile economies of many of the largest
countries means sales performance can swing wildly from
growth to declines. This makes it difficult for brands
to develop plans over multi year periods with any confidence.
Despite this uncertainty, Euromonitor International believes
that the toilet paper segment will continue to expand
over the forecast period (2006-11) as higher disposable
income levels continue to drive demand.
Overall regional
growth in the sector is predicted to add US$900 million
in sales as consumers in markets such as Brazil and Argentina
continue to purchase higher-quality products. In Mexico,
increased product penetration will also result in high
levels of growth.
While the remaining product categories are dwarfed in
size by toilet paper, exciting opportunities to secure
extra revenue can still be found. The Colombian market
for tissues, for example, will see growth of 38% over
the forecast period, resulting in an additional US$17
million in revenue. This will be due to a growing demand
for innovative products with health attributes and aesthetic
appeal. However, manufacturers need to differentiate
tissue from toilet paper, which is considered a cheaper
substitute product. If they do not, the forecast growth
will be difficult to achieve.
Other opportunities that manufacturers should be aware
of exist in the Chilean kitchen towels market and also
the Mexican napkins market, both of which are expected
to see their market size increase by more than 23% between
2006 and 2011. TW
Adrian Atterby is Industry
Analyst, Disposable Paper Products, with Euromonitor,
based in London, UK: email adrian.atterby@euromonitor.com
