Country Report

Western USA: From recession to recovery

Although the US economy was badly hit by the post-Lehmann recession, an upturn in economic activity (although somewhat uneven) as well as population expansion saw the tissue industry return to growth in 2011 as consumer confidence appeared to recover in at least some quarters. The large urban centres along the east and west coasts were reported as the most economically active in what has been described as a ‘tentative’ recovery. With unemployment falling and bellwether activities such as eating out and domestic vacations also on the rise, 2011 looks like proving something of a watershed from recent economic difficulties.

It should be pointed out, however, that even at the depth of the recession the retail tissue market was not particularly badly affected in volume terms, with only slight declines evident in key categories such as toilet paper and boxed facial tissues. The Western US continued to fare better than the wider country as California, its largest territory, continued to register stronger economic growth than the national average over the last decade, along with higher incomes and an increasing population. Certainly, this underlying population growth and long history of high volume domestic usage saw retail tissue perform well, although there was something of a shift in emphasis as consumers looked to private label as an alternative to more expensive branded products.

‘The Western US continued to fare better than the wider country as California, its largest territory, continued to register stronger economic growth than the national average over the last decade, along with higher incomes and an increasing population.’

PRIVATE LABEL

While private label growth has been rapid, the US market is far from saturated. Private label penetration is way behind the 75% reported in Germany or the 50% reported in the UK, but, interestingly, while penetration was maintained or expanded across most of Western Europe in 2011 particularly in the PIGS (Portugal, Italy, Greece and Spain), the US actually saw a reversal in the fortunes of private label. Private label’s share of value sales in the US fell to 21% in 2011 as some consumers moved back to brands. This goes some way to illustrating how uncertainty in the EuroZone continues to govern consumer behaviour while relatively better prospects in the US have gone some way to undercutting what some commentators had predicted as being the beginning of an inexorable march to private label dominance.

AWAY FROM HOME (AfH)

Other signs that the US economy had been experiencing something of a turnaround in fortunes came from the improvement of key AfH destinations for tissue products. In 2011, 37% of tissue volume sales were destined for the AfH channel, some five percentage points higher than the Western European average.

In the US, AfH usage is far more pronounced in the horeca channel. Foodservice is also in general seen as indicative of the health of the wider economy and 2011 duly saw value sales and transactions up across the industry, which also saw demand for AfH tissue products on the rise. Tissue sales again confirmed reports of an upturn in economic activity in the wider economy. This was most notable in the major cities found up and down the east and west coasts of the US, with New York and Los Angeles said to have seen the greatest upturn in activity.

WHAT IS THE DIFFERENCE?

With the highly developed nature of US manufacturing and the ubiquity of brands and national retail chains, there are only subtle differences in tissue consumption patterns between consumers on the east and west coasts and in the midwest. That said, the western US continues to be an area where green consumer activity is most evident. With recycled formats accounting for only 1.6% of toilet paper value sales in 2011, the US generally ranks poorly compared to other developed markets where penetration rates are much higher, for example 45% in Japan. While US consumers are generally becoming much more environmentally-aware, it’s the west that continues to be a leader in terms of green trends not just domestically but internationally. Sales of recycled toilet paper are said to be 25% higher among west coast consumers compared to the national average and double that of the midwest, according to industry sources.

US IN THE WORLD MARKET

The US is the largest single market in the global tissue industry and is still some way ahead of the rapidly developing Chinese market, with US manufacturers enjoying an unparalleled global presence. In terms of company position, the US is home to three of the top five companies globally, with Kimberly-Clark, Procter & Gamble and Georgia-Pacific together commanding a retail value share of 33% in 2011. This figure was down from the 40% reported in 2005 and illustrates the pace at which the emerging markets, most notably Asia Pacific and Latin America, have begun to drive sales. The expansion of tissue sales in international markets has provided companies such as Kimberly-Clark with the opportunity to look away from the somewhat overly competitive, private label-focused core markets and seek growth in these new more fertile territories. That said, these leading companies have still had to maintain their position at home and look after the core sales regions for their eponymous brands, such as Kleenex, Scott, Bounty and Charmin.

INTERNATIONALISATION OF BRANDS

Kleenex, which is the world’s largest tissue brand with a 7.5% share of total value, is a case in point. The brand has expanded as Kimberly-Clark has increased its presence overseas, but with 45% of sales emanating from its home market the need to maintain and support the brand has remained paramount. Kleenex has fallen on hard times in the US as consumers since the recession have looked for greater value. This has seen private label jump two percentage points since 2007 to a 17% value share of boxed facial tissues, which, although some way behind the 35% penetration rate seen across Western Europe on average, is a worrying sign for brands. The emergence of private label has been a problem for Kleenex, in particular, because of its ubiquity and the fact that it was for many US consumers the only boxed facial tissue brand they would regularly purchase.

THINKING OF THE FUTURE

Over the medium term the US tissue market appears set for a moderate increase on the back of population and income growth which again will favour the west coast as a key driver of sales. Although this is good news for domestic manufacturers, for profit-hungry shareholders a moderate upswing in domestic demand, although welcome, is unlikely to lessen the migration of US manufacturers into emerging markets. Inevitably, strong growth regions in Latin America and Asia Pacific have proved very tempting and lucrative for US companies, allowing them to maintain growth in what have been otherwise very unhelpful economic conditions.

While all companies have continued to invest in their domestic brands and have had some success in pushing back private label, the decision by SCA to invest heavily in purchasing Georgia-Pacific’s European tissue business stands in stark contrast to its rivals’ strategy of focusing on emerging markets. Through its proposed takeover, SCA will become more rather than less embroiled in developed markets and the embattled EuroZone in particular. TW