In many developed markets, particularly Western Europe and Japan, the tissue industry has seen increasing pressures in recent years due to the threat of private label products, unfavourable demographics and higher raw material costs. Across the Atlantic, the story is completely different with overall tissue products’ sales seeing steady value growth of 5% in North America and 7% in Latin America during 2006.
Adrian Atterby, Euromonitor International
A number of factors are impacting on the development of these two markets. Some factors are common to both regions, such as innovation helping to persuade the most affluent consumers to trade up to higher quality products.
Other reasons are market specific, such as volume growth throughout Latin America in the toilet paper market. Indeed across North America, aside from toilet paper which saw minor volume increases as a result of an expanding population, all tissue product categories saw volume declines in 2006 as consumers relied on cheaper substitute products or alternatively traded up to new improved solutions such as wipes.
TOILET PAPER DRIVES ALL TISSUE GROWTH. According to Euromonitor International, volume sales across Latin America grew by 4% during 2006 as higher disposable income levels allowed poorer consumers to purchase products for the first time. This was particularly true in the region’s second largest market, Mexico, where total volumes rose by 6%. Whilst both the standard and luxury sub-segments saw growth of 5% and 2%, higher sales in the economy segment, up 7%, was the main driver for growth. This is because product penetration rates in urban areas of Mexico are already high, meaning that it is the rural and semi-rural areas which offer opportunities for increased volume sales.
Consumer demands in these areas are different from those of their urban cousins; therefore manufacturers are providing smaller packs or even rolls packaged for sale by piece, making them much more affordable for less prosperous consumers. Special advertising campaigns and stronger distribution have also helped to boost sales.
Higher-quality products are more popular in the region’s largest market, Brazil, with standard and luxury products dominating with 76% of total revenue, whilst in Mexico the figure stands at 55%. Moreover, by looking at these numbers we can see how the relative markets have developed during the last five years. Whilst the proportional split across categories has remained fairly constant in the Mexican market, in Brazil standard and luxury products have seen dramatic growth. In only five years, volume sales of high-quality single and double-ply toilet papers have risen from 35% of total volume sales to 68%.
In North America, penetration rates for tissue products are nearly 100%, meaning that volume growth is fully dependent upon population growth. While volume sales increased only marginally during 2006 thanks to product innovations mostly in the luxury segment, consumers were persuaded to trade up to better quality products. This helped to increase the revenues of luxury toilet papers by 12% in the US last year with brands such as Procter & Gamble’s Charmin Ultra and Kimberly-Clark’s Cottonelle benefiting the most. Consumers were mostly interested in products featuring extra softness, lotions, colours and fragrance.
One downside of this continuous development is that the multitude of products available can lead to consumer confusion. P&G has recently attempted to rectify this by simplifying its Charmin range. P&G’s consumer research indicated that consumers make purchasing decisions regarding premium products based on two requirements, either a desire for superior strength or enhanced softness. Therefore, it now offers two main ‘dry’ products, Ultra Strong, Ultra Soft along with Charmin Basic. This range is supplemented by two additional products, both featuring lotions, Charmin Plus and Charmin Fresh Mates, a wipe product. It is communicating these changes to consumers via a US$86 million advertising campaign across all media channels.
TISSUES ARE ONLY FOR THE RICH. Whilst demand for toilet paper products across Latin America continues to grow, volume sales for other tissue products remain extremely volatile, with facial tissues a prime example. Although markets such as Argentina (+ 8%) and Brazil (+5 %) witnessed positive levels of volume growth in 2006, markets such as Mexico actually saw their market size decline. This was almost entirely due to a small price increase, demonstrating the elasticity of demand of the product.
Although volume sales throughout the region have remained stagnant since 2004 and total revenues only amounted to US$291 million in 2006, this has not stopped innovation. This is because consumers who purchase facial tissue products are generally more affluent and demand premium features. The latest trend is to add aromatherapy benefits and Kimberly-Clark, for instance, has introduced products fragranced with green tea for energy and chamomile to stimulate relaxation in the Argentinean and Uruguayan markets. Also in Argentina, Kimberly introduced a tissue featuring silk fibres, Kleenex con Estracto de Seda (Kleenex with Silk Extract) in order to try and develop the category further.
PARTNERING WITH HEALTHCARE BRANDS COULD BE THE FUTURE. Although the North American facial tissue market was worth US$2 billion in 2006, it has found volume sales coming under pressure, declining by 12% since 2001. The reason for this decline is that less affluent consumers have abandoned the category in favour of readily available substitutes such as toilet paper and kitchen towels. This has prompted a raft of innovations as manufacturers have attempted to add further value in order to recover revenue lost due to the lower volume sales.
Initially developments focused on products with balms and other lotions and extracts such as Aloe, chamomile, and vitamin E. However, companies have also worked to combine tissues with OTC medications to promote additional health benefits. P&G’s Puff Plus with a ‘Scent is one such example. It is likely developments of this kind will become ever more frequent as they add real convenience and make the product much more relevant for consumers. Manufacturers have also focused on developing packaging in order to make the products more attractive and pertinent for modern lives. Both Kimberly-Clark and P&G now offer North American consumers the opportunity to personalise tissue cartons with photos and other graphics. Kimberly-Clark also offers a range of ‘design focused’ containers under the Ovals brand which come in a range of stylized prints and a palette of colour to complement consumers’ home décor.
Kimberly-Clark has also been applying innovative marketing techniques. In early 2007 it launched a new television and radio marketing campaign called “Let it out” featuring people sitting on a couch in the middle of Times Square telling stories about their life. The stories usually result in tears of joy or sadness, requiring the storyteller to reach for the Kleenex tissues. The advertisement encouraged consumers to visit the Kleenex website to listen to and read more personal stories.
PAPER TABLEWARE OFFERS SURPRISING OPPORTUNITIES. The paper tableware market in Latin America is much more dynamic than one would imagine, with revenues totalling US$507 million in 2006 thanks to growth of 11% over 2005. What is remarkable about this figure, aside from the fact that virtually all the revenue comes from the sale of napkins, is that it is only slightly less than that generated in the North American market, and indeed Euromonitor International predicts that by the end of 2011 Latin America will have overtaken North America as the world’s second largest paper tableware market.
In terms of volume sales, the market in Latin America is almost three times the size of North America and demand for napkins in North America is falling. The reason for the falling sales, particularly in the USA, is that American consumers are eating away from home more often, creating less need for the purchase of paper tableware. The trend towards away-from-home eating is also slowing volume sales and in turn value sales of tablecloths. These products are most often used for special occasions, which are increasingly being celebrated outside the home.
Even in the Canadian market which has seen moderate value growth, volume sales are stagnating as consumers switch to cloth napkins for more formal dining occasions, or to the use other, more common disposable options such as paper towels or tissues when serving a casual meal.
In Latin America, it is the Mexican market which dominates sales, contributing 36% of regional revenue during 2006.
Product penetration here has been helped by the fact that Mexican consumers regularly use paper napkins for wrapping food as well as drying kitchen utensils or surfaces. This means that the strength of napkins when wet is of great importance, and manufacturers who are able to produce high quality products are best equipped to flourish in this market. Therefore it is of little surprise to see three global businesses, Kimberly-Clark, SCA Group and Procter & Gamble, claiming an 88% value share of the Mexican market.
HIGH COST AND AVAILABILITY OF SUBSTITUTES THREATENS GROWTH. The kitchen towels market was the only product segment to see both volume and value declines in Latin America during 2006. As with facial tissues, kitchen towels are considered a luxury item by most Latin Americans. However unlike facial tissues, affluent consumers have little need for them as they employ people to perform household cleaning tasks, thereby limiting demand for reusable cleaning materials.
This means that purchasers of kitchen towels are more likely to come from the lower middle classes, and this consumer group is far more susceptible to price increases and will abandon the category if prices get too high. Indeed this is exactly what has occurred in the region’s latest market, Brazil, which in 2003 was worth US$161 million, but by 2006 this had declined to only US$90 million.
Some markets have witnessed positive developments however, Argentina being an example, with value sales growing by 17% in 2006 alone. Expanded sales of kitchen towels have had an adverse effect on paper napkins as Argentinean consumers perceive kitchen towels to be a more than adequate substitute. Likewise, the Mexican market has seen sustained growth since 2001, with the market increasing in size by more than 40%. Despite this surge in sales, the market remains highly immature and price sensitive. Thus, producers are trying to maintain low prices through increases in productivity and by adding more economy brands to their portfolios.
EXPANDING USAGE BEYOND THE KITCHEN. The North American kitchen towel market is highly developed, worth nearly US$4 billion in 2006. US consumers have always considered kitchen towels more of a staple item than consumers in Western Europe, and although this has meant fewer possibilities for volume growth, it has not stopped significant value sale increases in recent years as users have continually traded up to higher quality products.
In 2006 consumers continued to value quality, purchasing pricier premium kitchen towels, despite rising fuel costs. Indicative of this trend was the fact that Bounty, one of the most expensive paper towel brands, grew by around 6% during 2006, while Kimberly-Clark’s Viva brand, priced similarly to Bounty, increased its sales by 13%.
Manufacturers have also been able to expand usage beyond the kitchen, with P&G’s Bounty Heavy Duty now being targeted at men and promoted as suitable for use in the garage or garden due to its improved durability and wet strength.
Even some consumers who prioritise price before quality traded up. P&G’s Bounty Basics –15-20% less expensive than standard Bounty – performed well in 2006. Although Bounty Basic is more expensive than some value brands (hence it being considered a “trade-up”) it found a niche in the market, attracting price-conscious consumers who prefer a branded product but are only willing to pay a small premium.
DIFFERENCES REMAIN IN THE FUTURE. According to Euromonitor International, the Latin American toilet paper market is set to expand at a rate of 5% per year by 2011, adding a further US$1 billion to the overall regional total.
Growth will be concentrated in a small number of markets however, with Brazil and Mexico being responsible for more than US$600 million of this extra revenue. While the Mexican market will continue to be dependent upon expansion in the economy segment, it will be luxury products that will drive potential in Brazil.
North America, on the other hand, will see much lower growth, which will mainly occur as a result of consumers trading up from economy to standard products. Furthermore, innovations such as the introduction of balms, lotions and quilted textures which have become common in luxury products will gravitate downwards in the standard categories.
Both regions will see only small levels of actual growth in boxed and pocket tissues by 2011, although for different reasons. In Latin America, the number of consumers who can afford to purchase such products is likely to remain low.
Due to low volume gains, manufacturers will be reliant upon price increases and innovation in order to boost value sales.
In North America, despite increased preferences for more premium products, the majority of purchasers are happy to use standard alternatives, meaning the opportunity to drive additional growth through trading up is limited in the long term.
The development of the Latin American kitchen towels market will continue to be dependent upon general economic development and such products will remain a luxury for the majority of consumers in the years to come.
However, in the North American market, continuous product development, combined with consumer perception of kitchen towels as a staple item, will help to boost sales revenue by a further US$250 million by 2011. Innovation will continue to be dynamic with stronger and more absorbent products being particularly attractive for consumers. Brands will also continue to segment the market further by introducing more task specific products and fragranced varieties.
Strangely the paper napkins market is the one category where developments over the period will be in exact opposition to each other. Napkin sales have always been higher in Latin America due to a culture whereby consumers view them very much as multi-functional products, much in the same way as North Americans view kitchen towels. This therefore presents a great opportunity for brands to develop the category by various means, segmentation by occasion and quality being the best two examples.
By contrast, the North American paper tableware market will decline in size. This will be due to changes in consumer lifestyles reducing the number of occasions where paper napkins are used. The availability of a wide range of substitute products will also continue to harm sales as people are generally happy to use kitchen towels for day-to-day use or cloth versions for more formal occasions.