Private label success in Western Europe

The tissue market in Western Europe is suffering from stagnation, growing by only 2.4% between 2002 and 2005 and valued at just over 10 billion Euro in 2005 – a slight drop on 2004, according to Euromonitor International.

Adrian Atterby, Euromonitor International

The market is highly mature and manufacturers are also under pressure from rising energy and raw material costs, as well as overcapacity. The largest tissue segment is toilet paper, which accounts for over 57% of sales across the region.

Aside from these problems, branded manufacturers are also suffering from a change in consumer attitudes towards staple items. Consumers are now less willing to pay premium prices and will use multi-pack options, discount stores or private labels in order to cut costs. The improvement in the quality of private label products in recent years has exacerbated this trend.

THE EASTERN EUROPEAN MARKET IS SMALL COMPARED TO WESTERN EUROPE and in 2005 was worth only a little over 1 billion Euro. In contrast to Western Europe, Euromonitor International’s data shows that the Eastern European market grew by 7.9% in 2005 and by 19% since 2002. As disposable income levels rise, particularly in those countries granted entry into the EU, a greater proportion of consumers will trade up to better quality products. The expansion of Western retail outlets, such as Tesco and Carrefour, will also help to grow the market as they develop better and more consolidated distribution chains. Growth will be slow however, and we are not likely to see Western levels of spending in Eastern Europe for many years ahead.

BRANDED TOILET PAPER SALES STRUGGLE DUE TO HIGHER QUALITY PRIVATE LABEL. The Western European market has seen a number of advances in toilet paper technology over recent years; however, some may be responsible for the problems now facing the industry. The introduction of 3 and 4-ply technology has certainly helped to improve strength and absorbency. Yet, at the same time, it may have resulted in consumers using fewer sheets meaning that each roll lasts slightly longer, hurting volume sales.

As competition has increased from private label products, manufacturers have tried offering discounts and additional rolls free of charge in order to maintain market share. This has had the effect of not only reducing profits, but also altering consumers’ mind sets as to the value of toilet paper, meaning it is difficult to re-establish full prices.

THERE ARE SOME SUCCESS STORIES TO BE FOUND. The introduction of moist toilet paper has proved to be particularly popular in Germany and Switzerland, where it accounts for 8% and 10% of revenue generated, respectively. Introduced in 2003, Charmin Soft & Fresh is currently the leading brand in Germany. The introduction of moist paper has allowed manufacturers to partially differentiate premium brands from standard versions. Euromonitor International’s research shows that the luxury segment has enjoyed strong growth since 2002, with growth across the five major markets at 13%, with particularly strong results in the UK (up 21.6%) and Spain (up 24.6%). In the most part, this has been due to the development of papers impregnated with lotions and balms, such as Andrex Aloe-Vera in the UK and SCA’s Zewa Sensitive, which is available throughout Europe and particularly popular in Austria and Germany.

MANUFACTURERS HAVE ALSO ATTEMPTED TO ADD A ‘DESIGN’ ELEMENT INTO TOILET PAPER, with the Portuguese company Renova being at the forefront of this push. Earlier this year, it developed a super-premium category through the launch of its Renova Black range and has since added red, green and orange variants. Although this will never develop into anything more than a niche, it does show that there are certain segments of the consumer base that are not served by the market.

IN COMPARISON, THE EASTERN EUROPEAN MARKET IS STILL IN ITS INFANCY and offers manufacturers the opportunity to grow both volumes and value. The market is more fragmented than in Western Europe, with a larger number of local players. These players are increasingly finding their market shares under pressure from global businesses such as SCA and Kimberly-Clark, which can afford large marketing campaigns across a number of media types. A number of global companies have or are planning on opening plants in Eastern Europe in order to take advantage of cheaper labour costs. SCA has recently agreed to open a new plant in Moscow, which is slated to start production in early 2008. These strategies will enable global companies to offer more competitive prices, challenging one of the key competitive advantages of domestic players. Traditionally, these local producers would manufacture poor quality products.

However, since Eastern Europe has been opened up to Western influences, consumers are now demanding better quality products and are also prepared to pay that little bit extra to get it, meaning the market has changed from being price-led to quality-led.

EXPANDING USAGE VITAL FOR BRANDED TISSUES. Although the facial tissue market, valued at just over 1.3 billion Euro in 2005 according to Euromonitor International, is considerably smaller than the toilet paper market in Western Europe, it is suffering from many of the same problems. Private label sales account for nearly 45% of revenue across Western Europe and are increasing by 1% per year as consumers seem unwilling to pay a price premium for a product they now consider a commodity.

In order to address this slide and build value back into their brands, companies in Western Europe have focused on packaging and developing tissues impregnated with lotions. Kleenex has even developed tissues impregnated with an anti-viral solution. Manufacturers hope that by producing more stylish boxes, consumers will be more willing to leave tissues on display, which in turn will encourage usage. Kimberly-Clark has recently launched its Expressions Ovals in the USA, tissues which come in an innovative oval packaging instead of the traditional rectangle shaped box and feature one of nine designs. Euromonitor International predicts that it will not be long before this product is available in Europe.

Unfortunately, the speed at which private label product producers are able to copy the latest developments means that brands are very quickly seen as overpriced.

IN EASTERN EUROPE THE USE OF FACIAL AND POCKET TISSUES IS LOW. This is due to the availability of cheaper substitute products like toilet paper and traditional cloth hankies. Some countries have seen increased usage however, and in general terms it has been those countries that have experienced higher levels of economic growth. Poland and the Czech Republic are beginning to see higher levels of usage, not just during the winter months, but also as a substitute product for make-up removal and general cleaning.

INCREASING PENETRATION FOR KITCHEN TOWELS. Although growth has been virtually non-existent since 2002, the kitchen towel market in Western Europe was worth a little over 2 billion Euro during 2005. As with toilet paper and tissues, the kitchen towels market has suffered from the aggressive expansion of private label products. In some markets, such as the UK, Euromonitor International’s research shows the success of private label has been so great that it now accounts for 70% of the total market value.

However, kitchen towels do offer manufacturers an opportunity not available to them in other product areas: namely, to grow volumes as penetration rates stand at around 70% across the region. In order to try and capture increased market share, manufacturers have been focussing on providing improved strength and absorbency. Task-specific kitchen towels such as Bounty Glass and Surfaces have also started to become available, segmenting usage. Manufacturers have also spent vast sums of money promoting their brands through expensive television campaigns in order to try and increase brand awareness and customer loyalty.

In the UK, attempts to add value by using colour and licensed children’s cartoon characters have failed. Consumers prefer higher quality compared to ‘pretty patterns’. In the US, Georgia-Pacific recently launched Sparkle kitchen towels impregnated with a lemon scent, the first scented kitchen towel on the market – a trend that is likely to reach the shores of Europe very soon.

The continued presence of private label products in most large retailers has had a downward effect on prices and forced brands to adopt price cutting measures, generally by offering additional rolls for free. This has had the effect of cutting both value and volume growth as well as reinforcing in consumers’ minds the idea that kitchen towels are a commodity.

IN EASTERN EUROPE, KITCHEN TOWELS HAVE ACHIEVED MUCH LOWER LEVELS OF PENETRATION due to poorer living standards and continued use of traditional cloths as a substitute product. Their popularity is growing however, partially as a result of improved economic conditions. Economic expansion has been steady rather than spectacular, averaging 7% across the region in 2003, rising to 9% in 2004 and standing at 16% in 2005, resulting in revenues of 169 million Euro. Growth has also been aided by improved distribution channels and the development of western retail chains. As with facial tissues, the highest levels of growth are found in those countries which have experienced the highest levels of economic growth such as in Poland and Russia. Purchasers of kitchen towels tend to be younger people, who are leaving home earlier and want quick, easy and disposable solutions for their cleaning requirements.

Small but dynamic: that’s paper tableware. The paperware sector has been the most dynamic of all tissue product segments in Western Europe in terms of growth since 2002. Euromonitor International’s research shows that during the period 2002-5, the sector expanded by 8%, resulting in revenues of just less than 1 billion Euro during 2005.

Growth can be attributed to the increased time pressures of modern life, resulting in younger consumers being particularly unwilling to spend time washing and ironing textile products. Manufacturers have tried to cash in on this increased interest for paper tableware by producing extended festive ranges, including products specifically for Halloween. The majority of purchases made in this segment however, are for napkins. Renova has launched a range of upmarket napkins, available in the same colour range as its toilet tissue (black, red, orange & green). The company hopes that consumers will purchase them for ‘special’ occasions when they want to add ‘style and design’ to their dining table.

Future success strategies. The problems faced by manufacturers in these two regional markets are very different. In Western Europe they need to innovate quicker, but also in a way that is difficult for private label manufacturers to copy.

In Eastern Europe manufacturers need to build usage, particularly in tissues, towels and paper tableware, where currently consumers use substitute products.

They can do this by offering lower priced products that are affordable to customers, who have much lower levels of disposable income compared to Western consumers. Manufacturers also need to continue to market their products aggressively, not only focusing on developing brand awareness, but also the benefits of using a disposable product compared to traditional substitute products, such as cloths.

Opportunities for growth do still exist in the Western European markets, as demonstrated by Renova’s development of the super-premium category for toilet paper. Euromonitor International predicts that further growth should be possible in the kitchen towel market due to lower levels of penetration as well as in the provision of anti-viral tissues.