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E-commerce and private labels – the changing landscape in the tissue sector

By Poyry Management Consulting’s Sanna Sosa, principal, and Sivashankari Bharathi, intern.

Online shopping has experienced rapid growth over the past few years.

According to the US Census Bureau, for the fiscal year of 2018, US consumers spent about $517bn in online retail, growing 15% from 2017 e-commerce sales. And as of the first quarter of 2019, e-commerce represents 10% of total retail sales in the US.

In addition to online shopping, another retail market segment experiencing rapid growth is private label products. Overall private label dollar sales grew 4.4% in 2018, which is nearly six times the growth of national brand sales.

According to the bureau, Millennials, representing more than one-quarter of the nation’s population, have become the largest consumer cohort in the US and are also a key force behind private label products’ growth.

Millennials are becoming more indifferent about brand names and are treating private labels “as just another brand” and not a cheap substitute for the real thing.

For instance, according to a report by Cadent Consulting Group, a typical shopping cart of an average consumer is filled with 25% private label products, but Millennials’ baskets have about 32% of private label products.

Consumers are also moving towards private labels for high-quality products. About 20% of private label sales growth is driven by products that are branded premium, trendy or organic.

In addition, over 40% of consumers would like to see more “better-for-you” or more unique attributes in private label products offered on retailer shelves, or online scroll menus.

Among the various private label products, private label tissue products have seen an increase in demand as well. Private label tissue products currently represent an estimated 30% of retail tissue demand in North America, and the share is growing. Private label tissue products have caught up in quality to the leading brands and are becoming a more popular choice among US consumers, especially in terms of everyday-needs tissue products like toilet paper and paper towels. And just like how private label tissue products are growing within retail stores, consumers are opting for private label tissue products on e-commerce websites as well.

Private label products on the rise on Amazon’s best sellers list

The online juggernaut Amazon makes up almost half (47%) of total US retail e-commerce sales. But, in terms of private labels, Amazon’s private label products currently contribute to less than 1% of their sales. However, the Home & Kitchen and Health & Household categories, which are the home for tissue and hygiene products, make up 11% and 8% respectively of Amazon’s total private label sales.

Amazon’s most famous private label tissue brand, Presto!, started around 2016 and added tissue products in 2017. Presto!’s new paper products quickly morphed into a major driver of sales and growth with an average weekly sale of $350,000, according to Edge.

Presto! towels’ market share grew 80 times on Amazon.com in 2018 compared to its negligible share of less than one-tenth of a percent in 2017.

When Amazon acquired Whole Foods in 2017, they also acquired Whole Foods’ 365 Everyday Value private label line. 365 Everyday Value tissue products have a strong environmentally-friendly market positioning. Since 2007, all 365 Everyday Value tissue products have been 100% recycled content.

However, the national brands still firmly lead Amazon’s top sellers’ list. In 2018, P&G’s Bounty was reported to be the top seller towel brand with 47% share of sales, followed by Kimberly-Clark’s Viva with 12%, and Georgia-Pacific’s Sparkle with 10% and Brawny with 8%.

But, Amazon’s own Presto! was a close fifth on the top sellers’ list with a 6% share of towel sales, followed by Everyday Value as the sixth biggest seller.

In addition to consumer-oriented tissue products, Amazon also offers its own Amazon Basic’s private label products targeted for the AfH market. For example, Amazon Basics offers professional economy jumbo roll toilet tissue for businesses or commercial use.

Retailers are stocking online marketplaces with private label tissue products

Walmart is the third largest e-commerce retailer in the US, after eBay, with a 5% share of total online sales. Walmart reported its e-commerce sales growth at 37% for Q1 of 2019 and its e-commerce sales are projected to continue to grow at 33%. The bricks-and-mortar retailer has two major private label brands offering tissue products: Great Value and White Cloud. Great Value offers toilet paper, paper towels, facial tissues, and everyday napkins.

Aligning with the environmentally-friendly product trend, and/or availability of low-cost recycled fibre in the post-Chinese recovered fibre import ban world, Walmart launched its first 100% recycled content product bath tissue under the Great Value label in 2018.

White Cloud, which is primarily manufactured by Kruger, offers premium bath tissue and is ranked #1 at Walmart for 2-ply toilet paper.

Costco is the sixth largest e-commerce retailer (after Apple and Home Depot) with a 1.3% share of total online sales. Costco’s e-commerce sales are forecasted to grow by 28% in 2019 and round up to $7.7bn in sales. Costco is also expected to expand e-commerce operations internationally, beginning early summer in Japan and by the end of summer/early fall in Australia.

In terms of overall tissue sales, Costco makes about $400m annually in bath tissue sales and bath tissue accounts for 12% of all sales at Costco, based on a CNBC report.  Hence, Costco takes great care of its private label tissue programme by active product testing and paper mill monitoring for quality, water use, and how white the final product is, to ensure it is meeting consumers’ expectations.

Target is another retailer that has a growing e-commerce operation. In Q1 2019, Target’s e-commerce sales increased 42% and purchases that originate online now represent 7.1% of Target’s total transactions, up from 5.2% a year ago. Target has multiple tissue private labels such as Everspring, Smarty, and Up & Up. Similar to Walmart, Target also launched an Eco-Friendly private label tissue product line in April of this year.

The private label, Everspring, introduced a 100% recycled content premium paper towels and bath tissue in Target’s private label product portfolio. Target’s other private labels; Up & Up and Smarty, only sell tissue products that are made from virgin pulp. Although the products do not have recycled content, the products are made from responsibly sourced forest fibres and carry SFI and PEFC certifications.

National brands investing in e-commerce channels

National brand manufacturers are also investing in upgrading their e-commerce strategies. Major tissue manufacturer, Procter and Gamble, has reported that its overall global e-commerce sales were up 30% for the year and accounted for nearly $4.5bn of sales –about 7% of total business.

Although, P&G has been introducing e-commerce strategies since 2016 when they released an online subscription service for Tide pods capsules.

In order to adapt to the new e-commerce channel requirements, P&G is introducing its first product launch from its fabric care’s e-commerce innovation group; new tide boxes. The new tide boxes contain 30% less water and use 60% less plastic than the 150-ounce tide press tap jug.

The tide eco-boxes also take up less space because of its boxed design meaning more of the product can be shipped with fewer delivery trucks. The tide boxes also weigh less than 8 pounds but can ultimately wash the same number of loads as the 150-ounce jug.

With P&G changing its packaging to fit the e-commerce standards for its fabric care and household line, the next question is what does this mean for the tissue product line?

Will P&G develop e-commerce-only packaging for its Bounty and Charmin products like it did with its Tide eco-boxes? And if so, how will the new packaging look like?

Will it still contain the plastic wrap found in retail stores? And will P&G eventually be shipping products directly to consumers’ doorsteps too?

Kimberly-Clark is also looking to develop its e-commerce sales. Kimberly-Clark makes about $2bn in e-commerce sales and had a growth of 13% during the 2017-2018 period. In order to make e-commerce a bigger strategic priority, Kimberly-Clark has announced the K-C-strategy 2022. K-C-strategy 2022 is designed to elevate core businesses and drive digital marketing and e-commerce revenue further.

Since Kimberly Clark is starting to invest more in e-commerce activities, what type of initiatives will emerge for tissue products? Will there be a subscription service model for tissue and hygiene products?

Georgia-Pacific, one of the world’s largest tissue manufacturers, is looking to facilitate more business-to-business e-commerce practices. GP is spending up to $7m to open a new centre for supply chain innovation in Atlanta.

To the Future

E-commerce is growing at a swift rate and is becoming the “go to” for shopping rather than retail stores. According to the US Census, as of the first quarter in 2019, E-commerce was 10.2% of the total retail sales, had an increase of 3.6% from the prior quarter, and an increase of 12.4% from the 2018 Q1 sales.

Consumers have also started buying more private label products, including private label tissue products. Private label tissue sales are forecasted to reach third of all retail tissue sales by 2023. Major retailers are continually investing in private label brands and the number seems to be increasing every year.

Overall, we expect the key trends to continue:
• Consumers getting more comfortable with private label tissue brand products;
• Retailers expanding the number of private label tissue brands;
• Manufacturers introducing new e-commerce strategies to increase their sales;
• Private label tissue product sales growing on e-commerce websites;
• Manufacturers making more private label tissue products with recycled content.