Guy Goldstein is one of the best-known names when it comes to consultants in the tissue business. Perini Journal caught up with him recently to talk about the European tissue market, as well as other developments.
Perini Journal
Perini Journal: If we look at the European market, what do you see as the big trends or changes that are occurring?
Guy Goldstein: I think we need to be very concerned about the continued decrease in the market share of brands. All the data shows that private label tissue continues to take market share away and every year the figures get better for private labels and worse for the brands. In Western Europe this is a fact.
For example, in Germany, private label share of the entire tissue market is around 60% while in France, Spain and the UK it is around 50% and in Italy it’s about 35%. And the trend has been very clear. For bathroom tissue the value share of private label in 2001 was 40% and in 2006, 45%. The same thing with kitchen towel, going from 41% in 2001 to about 50% of the value share in Europe in 2006.
PJL: What about Eastern Europe? Are brands doing better there?
GG: Yes, you see lower percentages for PL in Eastern Europe. But I would say this is simply due to the fact that the hypermarkets and hard discounters are just starting to get established there. It is clear that the big retailers are heading for Eastern Europe so it won’t be too long before those markets face a similar situation. The private label grades now only have about 7% of the Eastern European bathroom tissue market and 3% of the kitchen towel market, so you know that those percentages can only go up.
PJL: What is the biggest threat to brands in the future?
GG: In my opinion, the hard discounters are truly the enemies of brands and they are expanding further in Europe. Retailers such as Aldi, Lidl, Leader Price, and many more (the first two of whom started in Germany), will continue to push hard to expand further across Europe. They will bring the private label, cost-conscious buying mode with them to more countries and penetrate more in all markets. If you look at Germany, where these guys are very big, that’s where the private labels have the biggest share. It is almost unbelievable that the Germans, with a reputation for quality-consciousness and attachment to brands, have bought into PL so strongly. But they have, based on the low prices of the hard discounters. And as they cover more of Europe, the PL numbers will go up. The philosophy of these distributors has also changed, as they are aiming at delivering more quality and competing on a “comfort” basis with the premium products.
I remember visiting Helsinki, Finland, several years ago when I was told that one Lidl store had opened. The Finns were laughing about it because they found it extremely unlikely that such a concept would succeed in quality-conscious Finland. A year later there were already 45 Lidl stores in that fairly small market. The hard discounters are very tough competitors and they instill a cost consciousness in the entire market. This isn’t just for tissue but for all consumer goods.
They are strong on deals in any product line. I recently bought a pair of electronic weighing scales for €4.99, the alkaline battery which I needed to operate it was €6.00. You really wonder where it is going to stop. In fact we see that they are aiming very often at ONE brand and their Private Label only, so if you want to remain in business you better be number one with a global brand.
PJL: Will the big brand companies be able to compete?
GG: That is a hard question to answer. These developments are clearly a headache for the big companies like Kimberly-Clark and Procter & Gamble, Georgia Pacific and SCA who are, for some, essentially totally devoted to brands. As an example, in France the Charmin brand, which was being made at the Orleans mill, has basically been pushed out of the market. The TAD tonnage that is being made there is now being sent to Germany, which really doesn’t make too much sense. TAD is facing problems and we all know there are TAD machines in Europe that are not running to their full capacity because the market just is not taking that much tonnage.
On top of this, some of the Italian tissue makers that had been devoted to private label are now starting to develop and expand their own brands. For example, Sofidel is pressing its Regina brand very hard in many of the European markets and succeeding. Tronchetti is also starting to expand its Foxy brand as well.
Quite frankly I think the supermarkets are happy with this. They want alternatives to the suppliers of the big brands. They are trying to get as many potential suppliers as possible to play against each other, and this clearly is leading to a downward spiral in prices.
Private label has played this role and I think newly emerging brands will also give retailers leverage. I don’t think the retailers have any loyalty whatsoever to the brand manufacturers.
PJL: What other factors are at work?
GG: Another important issue is the high quality of the assets and machines which the private-label producers have built. Today there’s really no gap, when it comes to conventional tissue, between the big multinationals and many of the smaller players.
Sofidel is a good example of a company that has incredibly modern, efficient and productive assets and they have really surpassed many, if not all, of the multinationals in terms of quality of their machines. Sofidel in 2006 started 150,000 tons of tissue capacity, adding 35% extra capacity to their output. Thus the aging assets of the big guys, combined with difficulties for their brands and the growth of the former small guys, mean it’s a tough struggle for some of them.
So it’s clearly a rather messy situation on the European market, which suffers from low prices and highly concentrated distribution, as well as lack of investments by the majors while the outsiders have built state of the art mills, creating overcapacity.
And it may get even more confused with the possibility that Georgia Pacific’s European tissue business may end up in different hands in the future. The recent sale attempt by the owners of GP Europe did not get offers at the level they had dreamed of. So they will retain it for now and will make it competitive, probably in the same way Al Dunlap (Chainsaw Al) did to Scott some years ago. I think that the eventual sale of the Georgia-Pacific European business could possibly change the face of the entire European tissue industry, but that remains to be seen. Stay tuned. •