Recent trends in tissue consumption and manufacturing within the newly independent states of the former Yugoslavia
After the collapse of the Austria-Hungary Empire at the end of WW1, the victorious European majors shaped Yugoslavia, a new country composed of more than twenty neighbouring ethnic groups. The country that began as a kingdom in 1929 became a socialist federation of six states after the end of the WW2: Bosnia-Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia. The communist country developed its own brand of “socialism with a human face” which helped bring about an economic boom in the 1960s and 1970s and kept trade and diplomatic relationship with western European governments positive.
During the times of Yugoslavia, the country’s paper industry employed 200,000 and operated over 70 pulp and paper mills with total capacity of 1.5m tonnes of fibre based production. However, its domestic tissue manufacturing share was low at 7-8%. Gradual inclusion of the newly independent countries into the European market economy encouraged merger and acquisition activity from multinationals including SCA and Procter & Gamble.
Manufacturing in the region
While present-day tissue manufacturing is marked by the absence of major multinationals, the local industry retains strong brand recognition by consumers. Production facilities are located in Slovenia, Croatia, Bosnia-Herzegovina and Serbia and range from fully integrated tissue mills like Paloma (Slovenia) and SHP Celex (Bosnia-Herzegovina) to small family owned converting shops.
Paloma produces consumer and AfH tissue products and currently manufactures toilet paper, kitchen towels, napkins and tissues, and also jumbo rolls, moisted wipes and tissue paper dispensers. The 755 staffed company makes private label products for retailers and third parties, with its private label sales share around 28% of its output. Sales revenue has remained flat over the last three years at $112m, but Paloma’s 70,000tpy tissue capacity is the highest in the region.
SHP Celex employs 350 staff and is one of eight companies scattered across six countries in central and eastern Europe that make up SHP Group. It manufactures 33,000tpy of jumbo rolls and makes 15,000 tonnes of finished products in its factory in Banja Luka. Sales were declining 1%-2% during the post-crisis years reaching $47m in 2010. In 2002, a new tissue machine was installed and put into operation which led to jumbo roll production becoming one of its most important income generators. SHP Celex is also looking into new options such as hygiene products, sanitary protection and nappies/diapers and it exports to countries including Croatia, Italy, Spain, Portugal, France and the UK.
Three companies from Croatia should also be cited: SHP Intim- Papir in Baderna belongs to SHP Group and is a manufacturer and distributor of the AfH brand Harmony Professional brand. Kemo-Papir in Ogulin is a small private tissue converter, owned by Boris Bojcic, which manufactures jumbo kitchen towel rolls under brand name Kingsoft. Deltapapir in Zagreb is a contract manufacturer for Croatian trade group Ultra Gros with over 900 retail outlets in the country.
Violeta is a private company owned by Petar Corluka and had sales revenue of $115m in 2011. It produces disposable paper products and also operates a national distribution network for its own products and major foreign food, dairy and confectionary brands, with branches in all major cities in Bosnia-Herzegovina. The company employs 630 and converts 20,000 tonnes of tissue products at two plants. The original factory is based in Grude, Bosnia-Herzegovina and in 2011 Violeta opened a new factory in Sveti Ivan Zelina, Croatia. The company has postponed plans to start a greenfield tissue making facility in Livno, Bosnia-Herzegovina, for economic reasons.
Violeta made several successful new product launches in 2011: Teta Violeta kitchen towels and Violeta Premium toilet paper and tissues. The company also produces private labels for all categories. According to rating agency AC Nielsen, the company’s marketing campaign for Teta Violeta kitchen towel in Croatia and Bosnia-Herzegovina resulted in 4% growth of its total market segment. Converting only virgin fibre stock, Violeta uses recycled raw materials for packaging and has an environmental protection policy for its operation. The Violeta brand is a leader in local markets in Bosnia-Herzegovina (53%) and Croatia (21%), and it also exports to Slovenia, Serbia, Montenegro and Macedonia as well as to several EU countries, Iran and Jordan.
Drenik ND is located in Belgrade, Serbia, and is a privately owned business administered by Nebojsa Djordjevic and Igor Peric. It employs nearly 400 staff and has a reported sales revenue of $59m in 2010; nearly 70% of the Serbian retail tissue market. With the two well-positioned brands Perfex and Boni and, to a lesser extent its Regina brand, the company is present in most tissue and incontinence categories. With its annual production capacity of 30,000 tonnes, the company markets a wide portfolio of tissue products in Serbia, Bulgaria, Croatia, Bosnia-Herzegovina, Macedonia and Montenegro. Its sales share has been declining during the past three years due to tougher competition in the economy segment and the penetration of private label brands (1% in 2011).
In the most prosperous country of the former Yugoslavia, 2009 – 2011 were characterised by sluggishness. Previous recession anxieties had caused consumers to give up premium products or reach for economy options in many tissue categories. While tissue consumption reached 30,000tpy with retail tissue sales around $39m, toilet paper sales remain flat while kitchen towel sales showed some growth (3.5% in 2010 if compared with 2009).
The rise of supermarkets/hypermarkets’ private label lines, as well as private labels offered by the wide range of discounters meant important changes to the Slovenian tissue market structure, and also represents an important lift for the power of domestic brands.
Grocery retailers dominated distribution in retail value terms in 2011, with supermarkets/hypermarkets accounting for the majority share while discounter outlets show even higher growth in terms of reach and density throughout the country. As Slovenian consumers grow more sophisticated and adapted to the information age, they turned to internet retailing and direct selling to try to beat the higher priced major brands. Successful trading due to the good value private labels from supermarkets and discounters has forced major brand suppliers to innovate from the threat of losing consumer’s interest and loyalty.
Croatia is second to Slovenia in per capita disposable income. Annual tissue consumption in the country is 65,000 tonnes with retail tissue sales reaching $85m. Croatia’s tissue sector posted negative value growth for the third year in 2011. The unfavourable economic environment and declining disposable household income levels continued to contribute to the general trend of frugality and money saving across all categories in tissue business.
Supermarket chains are leading tissue product distribution, maintaining its decade-long position in Croatia during 2011 and accounting for 23% of total retail value sales. Konzum, the number one supermarket chain, continues to expand its range of quality private label tissue offers (K-plus brand). Supermarket chain Tommy (Domax brand) uses sales promotion booklets and newspaper inserts for all 135 outlets across the county. Drugstores keep second place with 22% ahead of hypermarkets 21% share. The latest rise of drugstores (being a part of health/beauty retailers) in the distribution of tissue products can be credited to one retailer, DM-Drogerie Markt, the Croatian subsidiary of the German drugstore chain which offers a popular range of private label tissue products under the brand name of Saugstark & Sicher. In 2010-2011 DM-Drogerie Markt invested $6.6m mostly in opening new outlets.
There are two ongoing trends in the country’s tissue consumption that brought a significant drop in volume sales – reduced use of tissue products and general bargain hunting for economy and private labels. Multinational companies assume leadership in tissue products on supermarket shelves helped by own marketing resources that are much stronger than of local players. So it is up to a frugal Croatian consumer to choose from multinational offers of SCA (Zewa), Kimberly- Clark (Kleenex), of Perla (WEPA Lucca), or buy domestic brands Violeta, Harmony or Perfex.
Bosnia – Herzegovina
Before the war, Bosnia-Herzegovina was home to five of Yugoslavia’s largest corporations and the 1984 Winter Olympics. Currently this mountainous country is rebuilding its industry and infrastructure, and seats two major tissue product manufacturers, SHP Celex and Violeta.
While the incomes of Bosnians are yet to recover trailing neighbouring Croatia, local consumers reacted to positive signals in the economy such as growing industrial output, raising exports and easier access to loans. The result was that the tissue segment started showing signs of recovery in 2011, with current retail value sales increasing by 2%, after three years of flat sales (2008, 2009 and 2010) caused by recession. According to Euromonitor International the main trend within retail tissue is segmentation of premium and economy brands related to consumer income diversification.
With the current annual tissue consumption of 35,000 tonnes (retail tissue sales reached $46m) demand is expected to grow, with sales set to be driven by the growth of the economy and rising consumer disposable incomes.
Retail tissue sales growth is attributed to consolidation of large store outlets like supermarkets and hypermarkets making them the leading distributors of tissue products. Manufacturers embrace this consolidation since it allows them to reduce the costs involved in negotiating with small regional and local distributors. AfH tissue products continue to develop robustly, with sales being driven by rising demand across the HORECA (HOtel/REstaurant/CAfe) channel.
As the tissue market surpasses the $80m mark in Serbia, local company Drenik ND accounted for a considerable 21% value share within the tissue segment in 2011, behind market leader Procter & Gamble Marketing & Services (26%). However, statistics by Euromonitor International also include incontinence and feminine disposables (strongest sales for P&G), so if we separate “true” consumer tissue from “hygiene” products Drenik ND might be the actual market leader.
Serbia, the most populous country (7.3m) in the region, is going through hard times with the decline of birth rate and a weakening in purchasing power followed by the highest unemployment rate in the country’s history. As a result, consumers continue to lean towards cheaper economy tissue products, including private label. However, with the annual tissue consumption at 61,000 tonnes, Serbian consumer tissue sales show healthy gradual growth in 2011 both in toilet paper (4.4%) and kitchen towels (6%) if compared with 2010.
As a typical pattern for the region, for many years supermarkets in Serbia represented the main distribution channel for tissue products. Drugstores and non-grocery retailers have the largest capacity for growth even given the fact that currently only two drugstore chains – Serbian Lilly Drogerije and German DM-Drogerie Markt – operate in the country. Despite very dynamic development for the last five years, retailing in Serbia is still missing discounters, however, there are signals that the first discounter will be Lidl Stiftung & Co., a German global discount supermarket chain, already registered in the country.
As a result of the referendum in 2006, Serbia and Montenegro split into two separate independent countries leaving Serbia without access to the Adriatic Sea. The tissue segment dynamics of Montenegro (pop. 0.66,) are very similar to Serbia’s with the estimated annual tissue consumption of about 5,000 tonnes.
Macedonia’s tissue market has an annual consumption of 12,000 tonnes with retail sales of $16m. It is dominated by regional companies and 2011 was another year of solid performance by the renowned tissue brands, while local tissue converting remained hardly visible.
Despite renewed worries about the strength of the Eurozone economies and the euro itself, consumer confidence is stable, helping tissue sales to sustain solid positive growth in 2011 after the decline of 2009 and the subsequent recovery in 2010. Consumers in the country remain highly price driven, seeking the best possible product for the price offered. Economy tissue products are gradually being abandoned and replaced with standard and premium brands, which are recognised as better value for money, however, private labels failed to attract more consumers and did show flat performance. This was mainly the case with toilet paper and kitchen towels in 2011.