Focus on Ukraine
Local Ukrainian tissue brands gain market share: a TW report
Plus, TW visits Lutsk-based VGP, a tissue manufacturer keen to invest for the future
DEMOGRAPHICS AND MARKET ADVANCEMENTS
Growth in Ukrainian tissue consumption is instigated by various consumer habits similar to most European countries – largely a growing income, hygiene concerns, and a desire for a better quality of life. This is quite different when compared with developing markets in Asia, Africa and Latin America, where population growth is one of the main stimuli. Ukraine has witnessed a decreasing population over the last 15 years from 48.7m in 2001 to 45.8m in 2010. Euromonitor International predicts that this will drop further to 44.6m by 2015.
However, Ukraine is regarded as one of the most attractive tissue markets in east Europe and the CIS region, perhaps only yielding to the substantial Russian market. Interesting opportunities are created by the fact that only 20% of bath tissue sold is virgin fibre, according to research by rating agency AC Nielsen. The rest is coarse gray recycled single rolls – a legacy of the country’s Soviet past. Even more surprising is that both segments are growing simultaneously, whilst in Russia virgin fibre is mainly growing through migration of gray paper users to the white product.
In 2011 GDP growth in the Ukraine is expected to increase 4% compared to 2010. Despite the growing inflation and rising prices of fuel, food and commodities, positive growth was achieved due to consumer demand for products that ease life and help promote improved hygiene (see charts). The world economic crisis like everywhere else in Europe prevented the majority of consumers from buying premium tissue products and meant they kept with lower cost economy goods. Upper-income consumers, however, are increasingly purchasing higher quality products such as virgin fibre toilet rolls and boxed facial tissues. While the sales of kitchen towels are growing, its volume remains a small fraction of the total retail sales. According to Euromonitor International, the average sales increase in retail tissue for the last four years was 18.3% even with restricted volume growth due to the economic slowdown.
VIRGIN OR RECYCLED?
As the tissue market surpasses the $100m mark in Ukraine, local manufacturers continue to discover new ways to encourage consumers to buy higher quality products. Despite the absence of clear data (Ukrainian government agencies do not separate figures for virgin and secondary fibre products), the tissue market dynamics based on local expert studies show increased sales share of virgin fibre consumer products.
TW’s previous report on the Ukrainian tissue market was published six years ago when local suppliers had just started to compete with the dominating multinational brands in the higher quality tissue product segment. Experts estimate that the current volume share of “white” or virgin fibre tissue imports in the Ukraine is between 30% to 50%. Almost all principal international brands like Kleenex, Lotus, Veltie, Velvet Classic and Zewa are manufactured in the proximity of Ukraine (Russia, Poland and Turkey) and have presence in retail trade. According to market analysts from the Ukrainian magazine Paper and Life, imports to the Ukraine began dwindling in 2003. Statistics declared 644 tonnes of “white” napkins were imported to the country in 2003, while in 2005 it was 325 tonnes.
According to Ukrainian business publication Status Magazine, the country produces 30,000 tonnes of low quality “gray” bath tissue from secondary fibre and 12,000 tonnes of “white” or virgin fibre tissue products. Jumbo roll manufacturing in the Ukraine is limited to Kyivsky KBK in Obukhiv and Lvivkartonplast in Lviv. Both companies use recycled stock and rely heavily on imports due to the absence of a reliable waste paper collection system. The most significant tissue converters, VGP (Ruta brand) in Lutsk, FSGI (Nizhniy Dotik brand) in Kyiv, Chistaya Planeta (Fantasy brand) and Albatros in Dnipropetrivsk, have freedom to procure their stock from the world’s spot market or directly from dependable tissue mills.
Private label products maintain a significant share in bath tissue and napkin products and still have room for growth especially for multinational and local supermarket chains.
In the last five years local converters have offered competitive products under their own established brand names, and they are of equal or better quality while offering a lower price (15-20%). A lower shipping fee and cost of labour in the Ukraine creates an advantage for local players. The other critical aspect today is that the market leaders like VGP (in virgin tissue) or Kyivsky KBK (in secondary fibre) operate modern state-of-theart high productivity converting machinery, the kind that previously only multinationals could afford.
VGP: Teamwork, state-of-the-art equipment, and low production costs
VGP employs 300 staff at a spacious site in the industrial town of Lutsk, 250 miles west of the Ukrainian capital Kyiv. While the original holding company VolinHolovPostach (VGP) was founded in 1963, tissue production began in 1999 when the company sold cases of napkins under the trade name Ruta, which became the company’s main brand. Marketing director Vladislav Miretsky says that Ukraine has potentially the lowest level of tissue consumption in Europe: around 2kg per year. He adds that quality white tissue products made on world class equipment and supported with a well-developed distribution system gives the company a competitive advantage with imports.
The company produces around 8,000 tonnes of 100% virgin 1, 2 and 3-ply tissue products with grades from 15 to 21 g/m2 . VGP exports nearly 40% of total output to Russia, Belarus, Kazakhstan, Moldova, Hungary and the Baltics. However, recent sales volumes were not available, and the latest sales turnover according to Euromonitor International reached $18.2m in 2009.
The company’s vision for growth in the tissue sector was set on providing virgin fibre consumer goods for the medium and upper medium part of the market, as well as having freedom to select and procure a proper stock of parent rolls from reliable suppliers. This strategy along with the ability to regularly upgrade production equipment and conduct assertive marketing allowed VGP to take a leading spot among market players. The recent acquisition of the company’s major stake by the private equity fund EVF will support VGP’s planned pathway to integrated tissue manufacturing.
Current production of napkins, hankies and bath tissue under the brand names Ruta (retail) and Fesko (AfH market) as well as private labels have been run on equipment from Perini, PCMC, Omet and Winkler+Dünnebier, using three colour flexo-printing, a fragrance enhanced station and pin-to-pin embossing lamination for two ply products.
VGP is very active in supporting its branded tissue products, paying attention to export potential. The chosen strategy for future developments is to maintain its position in tissue products for the Ukrainian market, while developing retail and private label segment.
VGP deputy director Valeriy Kutovy showed TW around the plant and talked about how the company operation is driven by continuous modernisation and logistical improvements.“Our advantage in the extremely competitive retail and AfH tissue market could be attributed to teamwork, state-of-the-art equipment and low production cost,” he said. “Potential customers are looking for value product at affordable prices. We are prepared for volume increases and have already converting capacity expansions in the pipeline.”
VGP’s future plans are extensive. A new converting line and a tissue machine will make the company a fully integrated tissue supplier.
And the optimism expressed by the VGP management team is reflected by positive changes in Ukraine’s infrastructure. New modern highways now link up the country’s major cities. Travelling to VGP, the highway connects Ukraine’s capital city with the western border and is part of an extensive renovation programme committed to next year’s UEFA European Football Championship.
Museum of Toilets
Kyiv, the capital of Ukraine, is a city of museums. A small privately owned museum of toilets stands out among several dozen.
This museum was opened in 2007 and is located in the old 19th century former military citadel, that was neglected during Soviet times. In 1995 local businessman Nikolay Bohdanenko revived a decaying structure by opening the city’s largest plumbing supply store in one of the citadel’s towers.
He began collecting artifacts related to public toilets, and there are now over 300 toilet bowls from the Victorian era.
What makes the Kyiv museum unique is a mixture of history, science and humour. There is a real size mannequin sitting on a prison privy in the cage allegedly depicting human suffering in old Russia. In addition to pictures of a medieval castle wardrobe toilet, Greek and Roman latrines or Russian village outhouses, visitors can also observe hundreds of funny figurines of people on the toilet.