The role of large-scale retail trade in the tissue industry

Perini Journal

PJL: The rise of private labels market share has deeply changed the relationship between industry and large-scale retail trade. How did the converting industry react to this new scenario?

Massimo Gai: The evolution of the brand in the product range offered by associated large-scale retail chains has naturally led to the development of Private Labels. The role they play is that of proposing to consumers retailer brand products with characteristics similar to the various categories of branded products: private label products are linked to the concept of the benefits that the label to which they belong usually guarantees to its customers. The tissue industry, in particular, must be able to handle the market positionings of the different products in order to avoid useless overlapping between Branded products and Private Labels, always in-line with market potentialities.

PJL: Price competition, a focal aspect of the commercial policy of these recent years, has led to reduced profit margins and consequently to an increased contribution by the industry. How have the companies operating in the tissue business answered to this new situation or how can they answer?

Massimo Gai: In order to be present on the shelves of hypermarkets and supermarkets, it is necessary to deeply know the variables of the specific market, detecting the correct real and efficient actions or resources that the market needs. It is also necessary to plan an efficient marketing strategy (including communication, innovation, quality, pricing) to meet the needs of our one and only value element: the consumer.

PJL: Which do you think are the main tools the tissue industry needs in order to increase the visibility of tissue products? Massimo Gai: The tissue industry has a strong tradition in terms of technical and production competence, furthermore it possesses the art of papermaking. The evolution of purchasing habits should lead us to make the value of this product less banal: although it is a commodity product par excellence, innovation, characterisation, personality and added value are extremely important to meet the unconscious needs of consumers, leading them to make the right choice. All such aspects are to be taken into account both in branded products design and in the evolution and sophistication of private label products.

PJL: Which is today the role and the approach of large-scale retail trade to tissue products?

Massimo Gai: The modern large-scale retail trade market accounts for 80% of tissue products consumption. The same market is characterised by the strong promotional pressure exerted by the various competing retail chains to gain customers.

Convenience goods (pasta, water, home cleansers, tissue products) are those that mainly underline the convenience and quality of a label. The role of these sales channels is very important for the market and only through continuous partnership between retailing and the industry can we find new efficiency, new synergies, evolution and growth, always adding value to both channels.

PJL: How can the industries producing both branded and private label products conciliate these two roles, considering that quality and price are important elements for both channels?

Massimo Gai: Actually, the elaboration of a brand takes into account all such marketing variables, including price. With the leading brand of its range of products, the industry vehicles its own mission, potentiality, innovation and quality, distinguishing itself on the market thanks to a specific positioning. The needs to which PL products answer are mainly linked to price, and this often dims the aspects of innovation and quality. In order not to trivialise the comparison – industry and trade – at the level of quantity, industry must accompany trade in category choices, thus promoting both the marketing and production aspects, according to its own market positioning. The market can develop only with the pro-active action and partnership of these two players, industry and trade.

PJL: How can the tissue companies present on the market with their own brands oppose the effects of the market share increase of retail private labels?

Massimo Gai: The market indicates the consolidation of the various positions in the European context, with PLs carrying great importance in the turnover. The Italian situation is different, basically due to trade pulverisation and to the strong presence of important historical brands. Industry must invest to support Brand, to increase its market share, its distribution and enhance its visibility, thus contributing to the growth of the market itself. A growing market also allows the evolution of PLs, which is very positive as long as the trend is innovation/sophistication rather than mere degradation on the basis of price.

PJL: How do you think is it possible to create value in the tissue industry?

Massimo Gai: Innovation and quality are fundamental in all their aspects: technology, marketing, services and logistics. Today the tissue industry is progressively conforming to the ECR (Efficient Consumer Response) criteria between industry, retailing and the consumer.

The value of all market categories is an aim that can be developed and pursued also in the tissue business through: synergies, optimisations, the research for higher efficiency, the management of the company through specific professional competences for each function of the company’s organisation, a clear development strategy to promote consumption growth taking advantage of our extensive technical and production know-how, which is very valuable both on a national and European level.

The common effort should be that of making less trivial something which has indeed a trivial nature par excellence. We can induce the choice of products that may satisfy and gratify an unconscious need: decoration, embossing pattern, printed or embossed messages, a particular format, a perfume are all elements contributing to product segmentation and different market positioning.

PJL: Which are the main difficulties for the converting industry in managing the relationship with retailing?

Massimo Gai: Definitely, the development of Private Labels offered trade the opportunity for a deeper interpretation of the economic situation of this market. The belief of many people not belonging to this field that the lower prices of PL products are due to the fact that they do not use advertising, is absolutely false. Actually, PL products trade is essentially based on convenience as well as quality, but PLs cannot replace brands.

On the other hand, negotiation for purchasing contracts, the resources for outlets and promotional sales have reached such a high level of development that the industry can hardly find new resources for communication, innovation, research and development and, consequently, growth. Partnership means something more: collaboration, development, planning. To boost consumption with the aim of making the market grow is a must both for us and trade. Not everyone in the industry and large-scale retail shares this belief, which maybe stems from specific short-term targets. We have the strong responsibility of feeding and disseminating culture in this business to allow its growth. But, very often, this doesn’t happen.

PJL: A look to the future: which are the tissue market’s future developments and perspectives?

Massimo Gai: The macrodata of the law of supply and demand are well known. At the beginning of my experience in this field I realised to my surprise that the potential of “made in Italy” can be applied also to tissue.

Like the big foreign multinational groups, we too can be proud of our structures and our competence exported in all of Europe.

The undisputed professional competence and our typical creativity, if accompanied by the specialisation of each single company to develop each market segment, could lead to a healthy competition based on innovation, quality and category appraisal. All this can be accepted by the consumer like all types of products that evolve, are renewed and modernised through research, science and progress.

Furthermore, we should not forget about allied industries, the small and medium converting industries and the technological sophistication that can be applied to machinery.

By understanding one’s own role and position on the market, it is easier to identify the strategy to pursue. Only by opening our “world” towards the outside world can we obtain long-term benefits. We must leave our “small-town mentality” in order to have an important political and economic role in the national and European contexts.

As happens in other main production categories, our needs should be coordinated, represented and made pro-active for the development and preservation of the consolidated realities. I think that in the future a natural selection will occur, as a consequence of the change of trade and the evolution of consumers. We must be ready to lead such an evolution for a healthy and sound creation of value. Consumers will increase the purchase of our products only if we are able to increase their perceived value and to lead consumers towards more evolved purchasing habits according to the development of styles, ideals and lifestyle models. All this will be possible only through a fair quality/price ratio that will allow us to grow, conferring value to our balances and to our important economic-social reality. •