Private label versus branded products in the European tissue market

Take it or leave it, private label products are seizing an increasing share of global retail sales on the back of both supermarket consolidation and an improved image.

Marzena Moglia, Euromonitor International

This has become a permanent feature of the Western European tissue market, where, according to research from Euromonitor International, retailers’ brands account for almost half of the value market. Gone are the days when manufacturers’ brands were synonymous with superior quality while private labels had the reputation of being the poor relation of the tissue market in Western Europe.

The share of supermarkets and hypermarkets in the distribution of tissue products in Western Europe is on the increase, reaching almost 70% in 2004. In some markets, Euromonitor International has found that this figure is even higher, for example almost 90% and 80% in France and in the UK respectively. As the importance of supermarkets and hypermarkets in retail distribution rises, private labels continue to evolve from low-cost and no-frill products into a wide range of goods offered at various prices and aimed at different consumer groups.

Initially, retailers moved into private labels as they represented a growth engine because of their high returns on margins and profitability on a relatively small investment. The competitive pricing of private label tissue products also played an important role in attracting price sensitive consumers and “smart shoppers” looking for the best bargains. In the course of the evolution of private label products, retailers’ brands have developed a brand image of their own and they do not compete only on price any more. Although some private labels still compete successfully on a generic basis, offering a low cost alternative to national brands, many private labels are now becoming synonymous with quality and innovation.

PRIVATE LABELS TURN TO INNOVATION. Germany has been one of the fastest growing markets for private labels in Western Europe over the last few years. Private label manufacturers in Germany have been very efficient in tracking and responding to new trends initiated by national brands, thus narrowing the gap in terms of innovation between the two. German consumers have recognized the advantages of private labels providing a similar level of quality to that of branded products at competitive prices.

Euromonitor International’s research shows that the share of private label in the total retail tissue products market, including toilet paper, tissues, kitchen towels and paper tableware in Germany increased by 7 percentage points over the last 4 years, and stood at 60% in 2004. Private label products are particularly strong in the kitchen towel and toilet paper sectors, accounting for 74% and 65% respectively in 2004. These product categories originally lent themselves to private label production as the products tended to be low-tech and devoid of image characteristics. Increasingly, however, the products have taken on some features of their branded models. Innovation in terms of technology and design have been copied ever more swiftly, forcing brand manufacturers to increase their pace in order to stay ahead. As a result, private label toilet paper has become available in premium categories, and niches such as moist papers were quickly entered.

BRANDED PRODUCTS STAND THEIR GROUND. Branded manufacturers have attempted to stand their ground by differentiating their products through improved quality, decorative features and seasonal campaigns. Under the increased pressure from private label competition, Hakle-Kimberly Deutschland, for example, embarked on a quality offensive in 2004.

This included several improvements to the existing line of the Kleenex brand, such as cosmetic boxed tissues, emphasising the product’s increased softness. In the kitchen towel sector, Kleenex products emphasized wet strength and water retention.

In January 2004, Hakle-Kimberly re-launched the entire Hakle toilet paper brand range, leveraging it into the premium sector, supported by its claims of increased softness and absorbency. In a similar fashion, SCA re-launched Zewa Moll toilet paper in April 2004, claiming the improved softness, absorbency and tensile strength of the product. Moreover, from January 2005, Zewa Sensitive became available in a 4-ply version, impregnated with camomile balsam for sensitive skin.

Seasonal campaigns also occurred as exemplified by Procter & Gamble’s Winter Wellness campaign offering the Bounty kitchen towel brand in various decors. Bounty brand was also launched in a limited edition with “The Simpsons” cartoon character print in January 2004. In July 2004, Bounty Fantasy appeared with seven new print motifs in an improved paper and print quality. In order to counter price attacks by private label products, the Bounty Monster roll with 50% more content was launched in October 2004.

“BRAND ENFORCERS” ARE A MINORITY. However, manufacturers’ efforts in increased innovation and marketing of their branded tissue products were defied by similar actions from the retailers’ brands. Private labels in Germany have continued to attract new consumers by expanding and upgrading their offerings with the value-added features of premium brands. Copying branded innovations has quickly taken place, resulting in a whole range of products spanning from economy to luxury, dry to moist and 2-ply to 4-ply products.

As a result, industry sources estimate that approximately one third of German consumers are “brand enforcers”, who buy only branded tissue goods, while the majority buy predominantly private label products or switch between the categories. Private label products are increasingly seen as innovative and high in quality. Retailers feel that the importance of brands in consumer consciousness is declining, with consumers becoming skeptical towards the purported advantages of branded goods. A 2004 study among German retailers shows that more than one third are looking to increase the proportion of private label products in their outlets.

In order to increase brand perception among consumers, the German Branded Products Association launched an advertising campaign to mark its 100th anniversary in 2004. The assessment of the campaign’s success was, however, met with mixed results. Through the activities of consumer associations, German consumers are increasingly aware that brand manufacturers, such as SCA Group, also market often identical private label products. According to Euromonitor International, this practice is apt to further undermine brand strength.

PRIVATE LABEL TAKES CARE OF THE ENVIRONMENT IN ITALY. The evolving perception of private labels tissue products versus their branded equivalents was not only confined to the German market. Other Western European markets, most notably Italy, all witnessed similar patterns of consumption and private label activity has been equally intense in this category.

The Italian tissue market has traditionally seen low levels of private label penetration compared to its Western European peer. This has been mainly due to the fragmented retail structure and the popularity of independent "corner shops" playing a big part in consumer shopping patterns. Increased expansion of the French retail giants Auchan and Carrefour into the Italian market, in addition to the strength of local Coop and Conad supermarkets has, however, supported the gradually growing share of private label. Economic instability and higher inflation rates further boosted sales, which gained momentum in 2004 and expanded by a healthy two and a half percentage points over the last three years to account for over 34% of the tissue market.

Toilet paper, tissues and napkins are perceived by many Italian consumers as commodities, and competition tends to take place mostly in terms of pricing. In this context, private label is clearly favoured. Again, many retailers have developed their ranges beyond simple economy products, strengthening the position and image of private label even further.

This is the case for Coop Italia, one of Italy’s leading retailers. It has focused its marketing efforts on environmentally friendly products, promoting a range of recycled toilet paper brands through a partnership with Cartiera Lucchese manufacturer for years, with increasing success. Such was the success of this promotion that other examples followed closely. In the most recent years, other retailers, such as Pam and Rinascente, decided to enter the category by launching their own range of recycled toilet paper products. Most recently, Coop has launched new ranges of tissues, paper tableware and kitchen towels certifying their origin from sustainable forests.

PRICE SENSITIVITY – A KEY ISSUE IN EASTERN EUROPE. Private label tissue products offer a slightly different picture in Eastern European markets. In these markets, private labels first appeared in the mid 1990s, accompanying the dynamic expansion of foreign retailers’ chains. They became particularly attractive to Eastern Europe’s price sensitive consumers; unable to afford more expensive branded products, private labels successfully competed with the existing low quality local brands.

Lower pricing proved to be a key attraction, strong enough to win over a growing number of loyal consumers. With the increasing share of supermarkets/hypermarkets in the distribution of tissue products in Eastern Europe (currently at 38%), the penetration of private label products rose accordingly. Although the private label shares of the Eastern European tissue market stood at just 16% in 2004, there was a distinct variation between the selected markets. For example, private label tissue products accounted for as much as 14% and 13% in Hungary and Poland in 2004, respectively while Euromonitor International found that it was negligible in Russia.

In spite of the dynamic growth of private labels in Eastern Europe, price has remained the main factor in purchasing decisions.

The price difference between retailers’ tissue brands and branded products is still quite significant and can exceed 40% in some markets. In Poland, the most popular private label in the last couple of years has been Aro from Makro Cash & Carry, spanning its offer from toilet paper, tissues, cotton wool, kitchen towels to paper tableware products. An increasing number of Polish consumers accept Aro brand as an extremely practical option, both in terms of quality and price. As a result, the share of private labels in the Polish tissue market has advanced by 8 percentage points over the last three years. The perception of private label is gradually changing in Hungary as well. A few years ago, Hungarian consumers used to perceive private label tissue products as cheap and of poor quality. This perception has changed significantly, and despite the 20% lower price tag compared to branded products, consumers tend to agree that the quality of private labels has significantly improved over the last few years.

Branded tissue products, such as Zewa toilet paper and tissue brand from SCA Group, Velvet kitchen towel (Kimberly-Clark) and Lotus napkin (Georgia-Pacific) remain unquestionable leaders in their respective tissue categories in Eastern Europe and private labels are distant followers in share terms. However, with a relatively low per capita consumption across the region, and improving perception, Euromonitor International predicts that private labels are set to grow dynamically in Eastern Europe in the years ahead.

In Western Europe, price pressures will gradually lead to a diminished price gap between branded and private label products, a phenomenon that has already taken place in Germany. Branded products are, however, likely to remain trendsetters and lead the tissue industry in terms of product innovation. At the same time, Euromonitor International forecasts that private labels are likely to become faster at copying these features while maintaining competitive pricing and an improved image. •

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