By IAN BELL, Euromonitor International’s global head of tissue and hygiene research
Mexico is an interesting market for tissue products; on the one hand, it is a market which has a respectable household penetration rate when it comes to the key toilet paper category. Indeed, Euromonitor International’s Mexican researchers regard tissue as quite a mature category within Mexican fmcg, but a look across the border into the US reveals what a really mature tissue market looks like. While it appears unlikely that any market will ever scale the heights of US tissue consumption, or even come close to the US’s per capita tissue consumption of 13.6kg (2013), the US still stands as something of an optimistic guide to market potential. With Mexico’s per capita tissue consumption rate standing at 4.5kg (2013), Mexico still represents a market full of potential, especially given the close proximity and influence of its northern neighbour, although this needs to be tempered, with Mexican consumers displaying somewhat lukewarm affinity with tissue products in general.
If US comparisons are ‘pie in the sky’, a more realistic benchmark would be the Brazilian market, and the good news is that Mexicans consume more tissue than Brazilians on a per capita basis, even though their income profiles are quite similar. This suggests that close proximity to the US market may well have its advantages. That said, per capita tissue consumption in Mexico has only shown slight growth, up by just 5%, over the past five years (2008-2013), whereas in Brazil, tissue per capita consumption has proved far more buoyant, showing 12% growth over the same period to reach 4.1kg.
THE ROLE OF ECONOMIC DEVELOPMENT
While economic development and income levels are not the ‘be all and end all’ when it comes to tissue drivers, there does exist an interesting correlation in Latin America between economic performances and growth in disposable income levels keenly matching expansion of the tissue market. While the value of thisobservation is limited, what is clear in both cases (Mexico and Brazil), and arguably across Latin America as a whole, is that per capita tissue consumption of up to 4kg has beenrapidly and fairly easily attained. But Mexico exemplifies a group of countries that have found themselves in the ‘doldrums’ where tissue sales are concerned, with brand owners struggling to maintain consumer interest in spending more on tissue products in the same way hygiene manufacturers have been able to do.
‘An understanding of the attitudes, preferences, buying behaviours and motivations of middle-class consumers is essential’
This has proved significant in terms of the Mexican market, and in others, where consumers, for the most part, once their basic tissue needs and requirements have been met, have shown only limited interest in premiumisation or broadening theirportfolio of products. In general, brand owners have failed to engage or at least convince the growing middle classes of tissues’ relevance beyondbasic hygiene requirements; convincing them of this is important in terms of sales now, but also in terms of changing attitudes in the future. Within
the tissue category, an understanding of the attitudes, preferences, buying behaviours and motivations of middleclass consumers is essential for any company hoping to attract this segment of the Mexican population.
MIDDLE-CLASS CONSUMERS AND TISSUE ADOPTION
According to the latest available information from INEGI (Instituto Nacional de Estadística, Geografía e Informática – National Institute of Statistic, Geography and Informatics), the percentage of middle-class households in Mexico grew by four percentage points between 2000 and 2010, to account for 42.4% of all households, and middle-class households will continue to be the driving force behind much of the 2% retail volume CAGR forecast for the tissue category through to 2020. This growth is however roughly in line with the population growth of 1% per annum and the household growth of 2% per annum expected over the same period. While value is likely to perform a little better, with a CAGR of 3% in constant terms likely, this is evidence of a lack of premiumisation and tissue format expansion, which assumes middle-class homes are not likely to expand their consumption with the same gusto they have shown to date.
Today’s Mexican middle-class consumers can broadly be considered to be educated, and the head of the family is typically employed full-time, with enough income to spend on necessities and more left over to spend on indulgences. This group likes what it already has in terms of indulgences and wants to maintain or, better yet, enhance them. The groundwork for the future of Mexico’s tissue market will most likely be laid down by the consumption trends adopted by this key demographic.
The AMAI (Asociación Mexicana de Agencias de Inteligencia de Mercado y Opinión – Mexican Association of Market Intelligence and Opinion Agencies) classifies the middle classes into three sublevels: C-; C; and C+. The C and C+ groupings tend to be more economically established and demonstrate far more interest in everyday luxury products which are more visible socially, so their discretionary expenditure is expressed through the likes of Starbucks coffee consumed on the go, personal electronics such as iPhones and international apparel brands. Personal goods rather than home goods remain paramount amongst these groupings, and this will count against tissue while these trends continue. The C- consumers, who should arguably be some of the most enthusiastic consumers of more premium tissue products, exhibit less interest than might be expected. What is similar amongst these consumers is a broad acceptance that tissue products have a quality threshold and if this is met, then cutting expenditure in this area to fund expenditure in other areas is the stock and trade of the Mexican middle classes.
TISSUE ON A BUDGET
Purchasing budget tissue has been particularly evident in the Mexican market and has even reached the point where private label products, large pack sizes and discount stores have been strong performers amongst the Mexican middle classes who should be ordinarily pushing sales of mid-priced and even premiumpriced products. In 2013, private label continued to develop in the Mexican tissue market, taking a 6% share of value sales. Indeed, Wal-Mart’s Great Value brand was reported as the eighth bestselling brand on the Mexican market during the year. Although there has been evidence of increasing price stratification within private label, economy brands still dominate and this has helped the economy toilet tissue category remain buoyant, even in the face of some strong product innovation (quality improvements) made by standard and luxury formats.
A further trend which has somewhat undermined the true potential of Mexican marketing in terms of revenue has been the popularity of ‘jumbo’ pack sizes, with consumers quite happy to purchase in large volumesin order to secure low unit prices. To this end, Mexican consumers exhibit quite similar purchasing patterns to consumers north of the border, a trend
which has been popularised by the growing modernisation found within Mexican grocery retailing. Jumbo packs used to only be available through warehouse clubs and hypermarkets, but they have now spread though to more modestly sized retail outlets.
OPPORTUNITIES FOR GROWTH
While the popularity of private label products in Mexico is perhaps concerning, as chained retailers such as Wal-Mart are certainly appealing more directly to Mexico’s growing middle classes, this does not have to be a negative in all cases. In Poland, for example, private label has been seen as a force for good, rather than stripping value from the market; retailers’ private label products have been instrumental in developing the kitchen towel category, which was almost non-existent back in 2000, into one that sees household consumption levels that rival German household consumption levels in 2013. Opportunities in the Mexican market could be positive in a similar way if the middle classes can be convinced of the usefulness of the broader range of tissue products including kitchen towel; wipes, for example, took off in the wake of H1N1 as consumers understood the ‘hygiene’ advantages offered by these products, even at high prices compared to traditional alternatives.
A further positive for the tissue industry will likely come from consumer interest in convenience, which is clear in other industries such as personal care. A combination of urbanisation, a growing female labour force and social change, which is promoting growth in the number of DINK households, is a positive. Average commuting times in Mexican urban centres can range from 2-4 hours per day for example, and this erosion of time spent in the home bodes well for broader tissue usage, with portable packs and a shift from reusable kitchen cloths to paper towel options a real possibility. That said, given C class spending priorities, budget brands and private label offerings will be the key drivers as the tissue industry tries to make sense of a great latent opportunity and diverging middle-class consumption tendencies.
[box type=”info”] TISSUE IN MEXICO IN 2013
1% Population growth per annum
6% Private label market share of value sales
42.4% Middle-class households
4.5kg Per capita tissue consumption rate[/box]