Operations Report

Consumers want it both ways … national brand equivalent quality in economy products. TW went to one manufacturer that has taken that market strategy into the heart of brand territory. And where better to be a pioneer than out West?

A Tissue World report

Cascades’ Kingman, Arizona, USA-based tissue converting facility

The approach to Cascades’ Kingman tissue converting site in Arizona in the west of the USA is nothing if not dramatic. Located on the iconic Route 66, the plant is somewhat incongruously set at an elevation of 3,300 feet, in an arid climate on the edge of the Mojave Desert – a landscape that can receive as little as 250mm (10 inches) of precipitation per year.

Home to some of America’s most dramatic scenery including the Grand Canyon, Kingman itself is a gateway to the gambling destination of Las Vegas as well as California’s Colorado River, Lake Mead national recreation area, Lake Mohave and Lake Havasu. Cities in this area make up most of the Cascades site’s demand, with the nearby Hoover Dam providing much of the area’s water needs.

The company has operated at the site since 2003, a time when it had 10 converting lines compared to its current leaner operation of five, making up one Away-from-Home (AfH) line with the other four servicing the retail and private label sector. The purchase was made in order to expand the company’s geographical reach whilst also serving existing and new customers in western USA. Since start up almost 10 years ago, Cascades has now firmly found its niche, according to Bob Decker, general manager. “By offering a full spectrum of economy through to highend quality, private label products, the demand from retailers for our products is constantly increasing,” he says.

While the company is meeting retailers’ needs for premium grades of bath, towel, facial tissue and napkins, it is currently seeing the most growth in demand in value and economy grades of product. The impact of the recession on the American tissue sector has meant that more consumers are migrating towards private label brands as an alternative to more expensive branded products. Decker says that due to the recession more consumers have tried private label tissue products in order to stretch their incomes. “As a result of our products being national brand equivalent quality, when consumers do try our products their needs are fully met and they come back to the retailer for repurchases,” he says. In response to the increase in demand, the Kingman site is preparing for the addition of a bath line and a napkin line in the future.

“We are here for the long haul and we are going to keep growing and satisfying our growing retailer and consumer base,” he adds. And while further growth in the south west is likely to be organic, he says that Cascades “has a successful history of joint ventures and acquisitions where they make sense, so all options are probably on the table for us.”

USA AND PRIVATE LABEL

The private label tissue share in the USA has continued to increase slowly for the last several years, especially for value quality products. As TW’s Euromonitor article on Western USA makes clear, this is largely a result of the recession – which has seen a shift in emphasis as consumers looked to private label as an alternative to more expensive branded products. Private label penetration is “way behind” the 75% reported in Germany or the 50% reported in the UK. While penetration was maintained or expanded across most of western Europe in 2011, the US actually saw a reversal in the fortunes of private label.

In an additional interview, Brian Carlson, director of marketing at Cascades, told TW that the company’s retail tissue paper product share data suggests that private label share has continued to slowly climb in the US for the last several years, but this is not especially the case in the ultra quality tier. He told TW that the company sees the climb being greater in value quality private label products. “We attribute that to the recession, and people being more value-conscious,” he says. America seems to be seeing a “slow recovery” to the recession. He says: “We haven’t seen anything that tells us that the retail tissue industry has been significantly changed by the recovery. We still see a fairly balanced supply of products to retailers and fairly typical amounts of dollars being supplied to retailers from national brands for promotional activities. So we’re in a pretty tolerable situation for most tissue manufacturers.”

So what about over-supply, or saturation, in the American tissue market? Does there need to be industry consolidation in the western USA tissue market? Carlson says no, there is no need, or any significant driving force for consolidation in America right now, but it expects slow consolidation as opportunities happen. “Tissue producers in America are not in a precarious situation where something really needs to happen for the health of tissue producers. Having said that, in 2013 there will be a large addition of retail tissue capacity that will likely lead to margin compression for manufacturers if industry players don’t act responsibly. That might be a more interesting and challenging time for tissue folks.”

The tissue market in the west region of the United States faces unique challenges, especially with the presence of imports and large independent converters which has impacted on integrated domestic producers. Carlson says there are certainly more imports of tissue paper coming into America from China than in prior years. He says this is leading to a short-term impact on supply, demand and pricing, but believes that in the longer term, off-shore wages, general costs, and logistical challenges will become more challenging to off-shore exporters. “We tend to believe that there will not be cause for huge concern by domestic tissue producers,” he adds.

Fuel prices also continue to be an issue for the tissue market, along with water consumption, which Decker says goes handin- hand with energy costs. “Water consumption is monitored very, very carefully, not only by Cascades but also by the Arizona state. This has created a very strong culture of conserving water.”

The site typically gets its bath tissue and napkin parent rolls from the company’s Saint Helens, Oregon facility. For toweling, the parent rolls typically come from the company’s Memphis, Tennessee facility. Cascades entered into the structured tissue arena years ago and in 2010 installed the first North American and second world-wide commercial installation of Voith’s Atmos technology. “The ability to meet increasing quality requirements of US consumers, and the ability of the technology to have the lowest impact on the environment according to our internal analysis prompted the investment at our Candiac, Quebec facility”, Carlson says. “Sustainability has been a part of the company’s genome since its inception in 1964, when waste paper was collected and then transformed to make new products from the waste of others. Besides affecting the technology, we invest in sustainability focus leads to produce new products that are lower impact to the environment.”

Case-in-point is the recent launch of its Cascades Moka 100% recycled bathroom tissue by Cascades Tissue Group. Said to be the first-of-its-kind product, it is available to the AfH and retail market and is beige in appearance. With the launch, Cascades has done something unusual: launched a beige toilet paper with the tag line “beige is the new green”.

As for the Kingman site, it “has grown pretty fast”, according to Decker. “Private label and our control brands are going to continue to be the opportunities in our future at Kingman,” he says. “Our workforce here have been providing solutions and opportunities to retailers with private label products since day one, and we want to keep doing what we do well. We will continue to grow in the west by providing consumers and retailers the national brand quality that is in demand, with the service and price they need.”