With the country’s economy stuck in the doldrums, it is a difficult time for tissue products and fast-moving consumer goods generally in Portugal. Through 2012, the Eurozone crisis rumbled on and the Portuguese government ratcheted up its austerity measures. Consumers thus continued to see their purchasing power on the slide in the year.
In this gloomy environment retail tissue saw value sales fall by 4% alone in 2012, with declines reported across every category in terms of both value and volume. These dismal figures are yet another chapter in the horror story that started back in 2008 with the Lehmann shock and ensuing global financial crisis.
Over 2008-2012, retail tissue saw decline with a value CAGR of -2%. This is telling, as these years cover a time when pulp prices as well as processing and distribution costs have been at their highest. Such has been the turbulence in Portuguese tissue that even traditionally stable product categories such as toilet paper are seeing a protracted downturn.
Unemployment continued to rise, reaching 17% at the end of 2012, and disposable incomes continued to fall. Portuguese consumers thus adapted their consumption habits, making fewer purchases and looking for the best price-quality deals available. In line with these more prudent spending practices, household spend on tissue declined year on year from US$71 in 2008 to US$64 in 2012, with further declines predicted over the medium-term.
Private label pushes aside brands
No matter what the economic situation, there are always winners and losers. With price dictating demand, private label products gained most from the economic malaise. In 2008, private label accounted for 49% of Portuguese tissue value sales, roughly in line with the western European average.
However, by 2012 this share surged to 64%. This represents a monetary gain of US$33m during a time when the value of toilet paper overall declined by US$18m.
In a bid to retain share in the face of intense competition, branded manufacturers increased their price-based promotional activity. This served to bring down average unit prices by 4% over 2008-2012 for tissue as a whole. Toilet paper, as the largest category, was particularly hit hard with unit prices falling by 8%. This is indicative of consumer attitudes in Portugal, with brand loyalty being abandoned and consumers increasingly going for the cheapest option.
Renova is the country’s leading manufacturer of branded tissue and has a strong reputation as an innovator in the category. However, the company saw its value share fall by almost 10 percentage points to 18% since 2008 as a result of flagging brand loyalty. Renova is not alone of course. Kimberly-Clark is Portugal’s second-ranked player and also saw its share crash as consumers increasingly switched to discounter brands. Lidl notably performed particularly well over the same period.
The slightest glimmer of hope
With no end to the country’s economic woes in sight, the short-term outlook appears bleak for branded tissue manufacturers. However there could be a small glimmer of hope. At less than a percentage point, the gains in private label share in 2012 were the smallest since the credit crunch began in 2008.
This suggests that private label’s share may be reaching a plateau and that those consumers who are willing to trade down have done so already, leaving the product category in a new, if perhaps uneasy, equilibrium.
Encouraging consumers to pay more anytime soon is likely to be a losing battle. However, the smallest category of facial tissue managed to record value growth over 2008-2012, registering a CAGR of 2%. This is positively stellar given the wider performance of tissue.
With annual value sales of just US$19m, tissue represents just 7% of retail facial tissue value. Although the category is small, it maintained more stable value sales because it is perceived as more hygienic and practical than fabric alternatives. While household spend on tissue declined marginally in 2012, this was the only category where 2012 spend was higher than sales reported in 2008.
Although the gains made by facial tissue are small, they serve to illustrate that even in times of economic difficulty Portuguese consumers can be persuaded to pay more if health and hygiene issues are at stake. Capitalising on this factor may seem like clutching at straws. However, it still offers one strong strategy that the industry can turn to, particularly as they seek to turn things around in the better times that are hopefully to come in the longer-term.
In the short-term, however, manufacturers of branded products would appear to have little option but to batten down the hatches, keep prices low and wait for the economic storm to pass.
Ian Bell is Euromonitor International’s global head of tissue and hygiene research