Country Report

JAPANESE tissue sales take a battering as 2011 proves a year to forget

Ian Bell, Euromonitor International’s global head of tissue and hygiene research

2011 has proved Japan’s ‘year to forget’. However, the events of 2011 have, although representing a dark turn of fate, followed a long line of social, political and economic problems, which have blighted the country for some time.

In 2008, for example, Japan entered its third period of recession since the end of the bubble era in 1991, a recession so severe that the Japanese economy shrank by double digits in the month of January 2009 as exports to China simply evaporated due to the global financial crisis. Japan has also been facing a crisis in terms of its demographic structure, with its baby boomers fast moving into retirement without being replaced as a consequence of their stubbornly low birth rate and the government’s refusal to open the country up to immigration. Japan’s demographic structure has been compounded by its fragile economic state, leaving a huge hole in its health and social care budget, which is set to spiral ever upwards without drastic cuts. Add to this situation a 2011 which brought an earthquake, a tsunami, the worst nuclear ‘accident’ since Chernobyl, as well as rolling power cuts and a huge reconstruction bill, the Japan that enters 2012 still faces significant dangers. This is reflected in its FMCG markets, of which tissue has traditionally been a particularly resilient one.

TISSUE SALES IN JAPAN, A RECENT HISTORY

Until the latest recession hit in 2008, the Japanese retail tissue market had witnessed reasonable growth, seeing a 1% volume CAGR increase over 2005-2008, which was reasonable considering the lack of population movement. Indeed low single digit tissue growth has been typical of the developed market growth as a whole even in better economic times as manufacturers have generally struggled against the rising prominence of private label and market saturation in key categories such as toilet paper.

“Private label has made more progress since the recession especially in commodity areas where Japanese consumers have allowed the grip brands once held across all categories to falter in favour of a bargain.”

Key to tissue sales growth in Japan as in any other market has been the interaction between supply and pricing on one side and demand, consumers, homes and wealth (incomes) on the other. Significantly, 2008- 2009 saw the national population decrease for the first time since the Second World War and the onset of recession drain much consumer confidence, a pattern which would live on throughout 2009-2010 and into the events of 2011. As a result sales of retail tissue products saw declines in 2009, 2010 and again in 2011, as disruption in the retail market, supply chain as well as for the 5.6m inhabitants directly affected by the tsunami all took their toll.

The downturn might have been worse had it not been for the general rise in single person occupancy, which has been a developing phenomenon in Japan but not as a direct result of natural disasters in 2011. The rise of single occupancy has been seen for a variety of reasons: the disintegration of the nuclear family; children moving away from home in order to find work (the result of Japan becoming increasingly centralised around the Tokyo area). Add to this older people increasingly living independent lives; and, more recently, the popularity of divorce amongst the 65-year-old age group, which after decades of working long hours found that ‘home was not where the heart is’. Certainly, it will be single occupiers that manufacturers will have to court if they are to reverse the value declines they have suffered across an embattled Japanese market for tissue products.

DASH FOR VALUE

Predictable in the case of other markets perhaps, the Japanese reaction to recession and further hardship was to move towards cheaper products, driving a spike in private label sales. For Japanese consumers who typically favour brands, the movement towards cheaper private label products and discount retailers was a rapid response to the recession at the end of 2008. To this end, premium as well as standard toilet paper has been abandoned in favour of economy offerings, with private label capturing a particularly high 17% value share in 2010. It is interesting to note that private label has made more progress since the recession especially in commodity areas where Japanese consumers have allowed the grip brands once held across all categories to falter in favour of a bargain.

Bargain hunting has become something of a badge of pride for many consumers and this has also helped underpin the rise for private labels, although the 20% or so of value sales reported as private label in 2011 was markedly up on the 15% reported in 2006. This figure was dwarfed by the 75% reported in Germany, generally regarded globally as the ‘home of private label’. Japanese retailers have been pushing private label more consistently over the past few years as the influence of international retailers such as Walmart has seen the procurement of private label products. Typically imports grow rapidly with the current high value of the yen, something which has helped developed new international supply chains and kept prices down in stores even against the background of raw material and fuel inflation.

Away from the relative success of private label areas to suffer include boxed facial tissues, although the low penetration of kitchen roll continued to see consumer buying in the category on the back of a particular Japanese penchant for hygiene around the home. Home hygiene had certainly been heightened by the H1N1 outbreak which had also seen a resurgence of paper handkerchiefs, antibacterial hand wash as well as viral defense surgical masks which were obligatory wear across Osaka and Tokyo though 2009.

AWAY-FROM-HOME (AfH) SALES

Whilst retail sales of tissue were ‘directly’ affected by the events of 2011, the AfH category was not far worse. The recession had already seen businesses scurry to cut back on expenses, resulting in entertainment, accommodation and food service all taking a knock, on top of the very high price of the yen, which had already caused leisure and business visits to take a downturn. The introduction of more austere times, doubt over the quality (contamination risk) of water and food, as well as rolling blackouts negatively affected the embattled AfH category, which had, like the retail category, been performing well up until the post-Lehmann recession arrived at the end of 2008. Estimated volume declines for 2011 are in the region of 6% for AfH sales, with napkins, hand towels and toilet roll all likely to see 5-8% volume declines, although the relief effort in northern Japan is likely to mask even heavier falls.

“The health of the Chinese is vital to Japan over the medium term as hopes of any recovery are pinned on vital exports which are the lifeblood of an economy experiencing continued declines in domestic consumption.”

FUTURE OUTLOOK

The health of the Chinese is vital to Japan over the medium term as hopes of any recovery are pinned on vital exports which are the lifeblood of an economy experiencing continued declines in domestic consumption. Even if the general economic outlook improved, it would appear that any rebound for the domestic consumer economy could be many years if not a decade away as Japanese consumers are notoriously difficult to win back once their confidence has been rocked, preferring to sit in and save rather than spend their way out of recession.

In the case of retail sales of tissue, the medium term could well see sales of key toilet roll products return to low growth. This will, however, be tempered by a slight population decline. Value sales are unlikely to recover as Japan’s current penchant for discount brands is unlikely to subside, with key retailers such as Seiyu (Walmart) intent on expanding their private label lines, which have been hitherto underdeveloped in the country compared to the 50% and higher value share often taken by private label through western Europe. Other categories are likely to suffer similar private label competition with boxed facial tissues looking likely to suffer further value erosion.

AfH also appears to be set for further contraction, for at least another two or three years, before there is significant distance between Japan, the recession and the events of 2011.