The threat of hyperinflation is fuelling expectations of Argentina experiencing yet another financial crash. Euromonitor International’s Ian Bell finds a market fighting for survival.
By Ian Bell, Euromonitor International’s global head of tissue and hygiene research
Argentina continues to exhibit very strong value growth across almost all FMCG categories, with retail tissue being no exception, set to register 28% value growth in 2013. While such strong double-digit growth is enough to make even the Chinese market blush, this can be largely, if not completely, attributed to rampant inflation rather than any renaissance in the tissue industry. Such are the levels of inflation experienced in Argentina and similarly afflicted Venezuela that both, although small demographically and economically when compared to regional powerhouse Brazil, are influencing Latin American value growth patterns as a whole.
In preparing this piece and talking to local contacts in Argentina, it is clear that high inflation, the threat of hyperinflation and the general expectation that the country is heading for yet another crash is the only story.
TISSUE VOLUMES STALL
Moving away from value analysis and towards more reliable volume data, in 2013 tissue consumption in Argentina remains at around 3.2kg per person, a figure that has changed little over the last five years. It is an indication that the current inflation problems have meant that categories such as tissue have stalled as consumers look to maintain their levels of consumption in most cases but have little prospect of increasing them.
Over in Brazil where in spite of a recent slowdown economic fortunes have remained far more favourable, per capita sales have risen to 4kg in 2013. This is notable given that Argentinian consumers registered volume consumption some 15-20% higher back in 2000. Such is the influence of economic issues on tissue consumption that Argentina has been left behind by the developing regional superpower. That said, if the country were to rebalance its economy and incomes were to grow, then there remains a large opportunity in additional volume just to get per capita consumption up to the regional average.
‘Tissue consumption in Argentina remain at around 3.2kg per person. It is an indication that the current inflation problems have meant that categories such as tissue have stalled as consumers look to maintain their levels of consumption.’
In 2013, Argentina finds itself once more in a familiar place. While official figures suggest 10-11% inflation is typical, this is misleading and underreports the precarious situation in which many consumers find themselves. According to the country’s national statistics office INDEC, the average income of the lowest 30% of the population increased by 231% over 2007-2012, while a broader assessment of real inflation indicates something approaching 280%. This is an illustration of how incomes have been under pressure among the consumer group the tissue industry would normally be looking at to drive consumption and therefore volumes. This has not happened in Argentina and the tissue market has stalled as a consequence, only growing by 1% in volume terms in 2013.
RETAIL CHANGE AND PRIVATE LABEL
With all the negative economic pressure on consumers there has been a notable shift in approach to purchasing tissue. Sales in supermarkets and hypermarkets, which have typically dominated theArgentinian market thanks to retailers’ efforts to find convenient locations, have been on the wane. It is no surprise from a European perspective that pressure on spending has fostered the perfect environment for the hard discounter model to move into Argentina, offering consumers no-frills products at low prices.
‘Pressure on spending has fostered the perfect environment for the hard discounter model to move into Argentina,offering consumers no-frills products at low prices.’
These no-frill products are also more often than not private label lines and consumers have latched on to private label as the most effective way of tapping into reasonably-priced tissue during the current economic malaise. Private label commands an 11% value share in Argentina in 2013, up from just 2% five years earlier and way ahead of the reported regional average of 4%.
PRICE CONTROLS PROVE A FAILURE?
The proliferation of private label has also been driven by retailers’ own considerations. Grocery prices have largely been controlled by the national government via a policy enacted back in 2007. General price controls were further strengthened in 2012, with 500 key brands, agreed with retailers, listed as being under price control. All major bathroom tissue brands have been included on the list including Higienol, Elite and Scott.
Price controls in major chains such as Carrefour, Jumbo and Wal-Mart have encouraged retailers to look to private label and smaller brands not covered by price controls as a means of raising tissue prices. In addition, smaller brands and a plethora of new labels have helped retailers side-step supply problems which have been associated with major suppliers limiting production of priced-controlled brands as price controls have simply meant that there is little margin in much of the now listed tissue market.
Price controls have as a result only had a limited impact on the tissue market and have led to a certain degree of fragmentation in the retail environment and consumers’ purchasing habits in order to find the lowest price products, which are ironically seeing the highest price increases, clearly a situation which cannot persist over the long term. Price controls are a short-term fix and with this particular fix not working and leading to shortages, widespread opinion suggests they may well be lifted sometime in early 2014.
‘Price controls in major chains such as Carrefour, Jumbo and Wal-Mart hav encouraged retailers to look to private label and smaller brands not covered by price controls as a means of raising tissue prices.’
ON THE BRIGHT SIDE – ‘WE ARE NOT VENEZUELA’
While things are bad, consumers have by all accounts tended to remain quite sanguine as the situation is far worse in Venezuela, where shortages have forced the military to move into toilet paper production in 2013. That said, the pace at which the Venezuelan economy has seen inflation and thengovernment control dominate an increasingly precarious position which has been seen to spiral out of control, is certainly a concern for Argentina which may once again find itself on the brink before too long if current problems remain unchecked.
For many consumers, waiting for the crash has become something of a national pastime, with tissue consumers perhaps even being forced back to the bidet, the now little-used convenience still found in the corner of most Argentinian bathrooms. While it is typically rare for consumers to trade out of tissue, the situation in Argentina appears so precarious that for many this is becoming a very real prospect.
TISSUE IN ARGENTINA IN 2013
11% Value share of private label products
3.2kg Tissue consumption per person
28% Retail tissue value growth
1% Tissue market growth in volume terms