Aside from Latin America, the Asia-Pacific region offered manufacturers the highest absolute growth rates in 2007, as the combined size of its tissue products markets grew by an excess of US$500 million. By the end of Euromonitor International’s forecast period in 2012, total revenue generated will almost be on a par with that of the world’s number two region, Western Europe.
Adrian Atterby – Senior Industry Analyst, Euromonitor International
The opportunities for continued growth across the region would seem endless as current per capita spending on tissue products is extremely low at US$2.40 per year. The only region where spending is lower is Africa/Middle East with US$1.40, whilst in Latin America, a similar emerging market, spending has almost reached US$10.
However, whilst the markets of Western Europe are generally at the same stage of development and broadly follow the same trends, in Asia-Pacific things are not as simple. In Japan, consumers have access to high levels of disposable income, have highly sophisticated purchasing patterns and demand products that offer more than basic functional features. Nevertheless, the disadvantage of such markets is that it suffers from extremely high levels of product penetration, making market growth through volume expansion extremely difficult. In comparison, the Chinese market offers manufacturers huge potential for expanding volume sales in second- and third-tier cities and rural areas, whilst at the same time also offering a highly developed consumer base in first-tier cities such as Beijing and Shanghai. At the other end of the development scale is India, where tissue product penetration is minimal, meaning consumers will need to be educated as to their benefits before markets can be significantly developed.
Therefore, in order to fully exploit the rising purchasing power available to consumers in the region, manufacturers need to take a much more localised approach, both in terms of product development and innovation, utilisation of distribution channels and marketing activity.
COUNTRY REVIEW: CHINA. The Chinese market is unlike almost any other, offering manufacturers the opportunity to sell huge volumes of economy products whilst also providing them with access to large numbers of wealthy consumers, intent on spending their new found wealth on premium products. As with the majority of territories toilet paper sales contribute the highest levels of revenue. In 2007 the category claimed nearly 90% of the US$4.3Bn generated by tissue product sales.
In urban centres, toilet paper has become a daily necessity with an almost 100% household penetration rate. However in rural areas product usage is hampered by the relatively weak purchasing power and under-developed hygiene awareness of consumers. Accordingly the overall penetration rate for toilet paper in China is still around the 50%. This means that substantial opportunities for growth still exist, and the market should be able to maintain the current volume growth rate of 7%+ for the foreseeable future. Educating rural consumers as to the benefits of toilet paper use could be difficult due to the lack of developed media channels outside major metropolitan areas. In fact manufacturers see attractive packaging in terms of the designs and right packaging sizes, and wide product distribution to be the main contributing factors to success.
The relative market maturity in the key cities is demonstrated by the levels of product development. The popularity of multi-packs has grown considerably as consumers can increasingly afford to purchase products in bulk to save on costs. As the quality of products has improved the cost has obviously risen and in order to maintain their attractiveness, premium brands are increasingly being marketed as multi-purpose products which can also be used as facial tissues.
The rise in pulp paper costs and oil prices could have a detrimental affect on the development of the market, particularly in respect of brands as manufacturers are forced to increase prices in order to cover costs. However this will open up opportunities for private label manufacturers, particularly those owned by retailing giants such as Carrefour and Lotus who are expected to invest heavily in the development of their own ranges. Because of this increased investment, and also due to the advantages they possess in terms of merchandising, we should expect the share of the market commanded by private label offerings to grow substantially in the next few years.
TARGETING YOUNGER CONSUMERS WITH FACIAL TISSUES. The only other tissue product category generating significant levels of revenue in China is facial tissues. This category saw value growth of 8% during 2007, contributing more than US$500mn, the 3rd largest market globally.
2007 saw tissue manufacturers targeting students as well as young urban working adults with more fashionable and stylish packaging, particularly for pocket handkerchiefs. Demand for such products is mainly driven by the perception among these consumer groups that pocket handkerchiefs are an essential accessory to be carried around while on-the-go.
The strong growth experienced by boxed facial tissues in previous years is due to more households placing boxes in different parts of their homes. Also, the increase in car ownership in developed areas of China contributed to volume expansion as people often place boxed facial tissues in cars. Flexible plastic packaging proved to be very popular, due to its lower price in comparison with paper carton packaging of the same quality, and also the plastic packaging is much more convenient to carry.
As the market develops further, instead of solely categorising consumers in terms of their purchasing powers, brands will explore the possibilities to cross-segment consumers by gender. As such, gender-specific products are expected to be launched, with dark coloured papers and packaging used to cater to male consumers while fancier designs with brighter colours will be employed for female-oriented tissues. On top of that, cartoon characters such as Hello Kitty and Mickey Mouse will continue to be used to attract the attention of younger consumers.
COUNTRY REVIEW: INDIA. Whilst in developed economies tissue products are viewed generally as an inexpensive necessity, the same cannot be said for India. Toilet paper products are viewed as expensive luxury items in and as a result per capita consumption levels are extremely low, at 0.007kg per person. Even in West India, which is much more developed than the other three regions and where per capita income levels are comparatively high, consumption levels are still extremely low at a mere 0.013kg per year. Indians prefer to use water to cleanse after visiting the toilet as they believe toilet paper to be less hygienic.
Because of this sales revenue generated in 2007 was extremely low, only US$9 million. However, as many parts of India continue to benefit from the influx of foreign investment, Western cultural habits are being picked up by an increasingly educated population. This in itself will help to drive growth.
However, manufacturers really need to invest in advertising and marketing campaigns which educate the consumer as to the benefits of using toilet paper over more traditional methods. During 2007 manufacturers continued to make use of promotions to encourage product trial of toilet paper; however without marketing support this strategy is bound to fail as consumers will not buy a product they neither want nor understand, no matter now cheap it is.
Surprisingly, the facial tissues market in India is worth considerably more than the toilet paper market, US$15 million versus US$9 million. Sales have been boosted because as people spend more time commuting and travelling, they have started keeping boxed facial tissues in their cars as a more hygienic alternative to cloth handkerchiefs. Indeed the majority usage of tissues occurs outside the home, so when designing new packaging manufacturers need to take this into consideration. The cube or oval type packaging available in Western Europe and North America would probably prove to be unpopular with consumers as it could not easily be stored in the door space of cars.
Wide display areas dedicated to tissue products in the growing number of supermarkets/hypermarkets has also helped to create increased levels of awareness, whilst promotions have heightened the number of consumers who are willing to trial the product, unlike in the toilet paper market.
The kitchen towels segment suffers from the same problem as toilet paper - that it is seen as an expensive luxury. In 2007 total revenue generated was only US$5 million.
Sales are further restricted by the wide availability of cheap substitute products such as washable cloths and towels.
Because of these factors, sales of kitchen towels are restricted to only the most affluent consumers.
Recent product development has focused on providing improved functionality in relation to absorption. However, over the course of the forecast period (2007-2012) it is expected that aesthetic improvements will also come to the fore with coloured and embossed papers becoming more fashionable. Unit prices are expected to decline over the forecast period as the market is very nascent and the current high price of kitchen towels makes them out of reach for the masses. Thus, manufacturers will be forced to lower prices in order to further increase the penetration and usage frequency of kitchen towels among consumers.
OTHER OPPORTUNITIES ABOUND. There are a number of other markets in the region that could offer manufacturers significant opportunities.
The South Korean kitchen towels market, for instance, has expanded by 40% since 2002. With the help of marketing activities from major companies, South Korean consumers increasingly perceive kitchen towels as daily necessities.
Companies have improved the quality of their products and have also diversified by introducing new formats such as boxed and tensile washable kitchen towels. As a result, kitchen towels are increasingly replacing products such as wipes, tea towels, tissues and napkins in Korean kitchens. However, although consumer preference towards premium products with enhanced absorbency is increasing in toilet paper and tissues, in the kitchen towels market the same preferences are not being seen. Instead, local consumers appear to prefer using specific types of kitchen towels for various occasions, for example more durable kitchen towels for cleaning kitchen surfaces and boxed kitchen towels for using as napkins on tables.
Another market that saw positive growth in 2007 was Taiwanese toilet paper at 6%, with value sales predicted to continue growing at an average rate of 4% over the 2008-2012 period. However, almost half of this expansion will be due to increases in unit costs as volume growth will lag behind that of value. For instance, in 2007 Kimberly-Clark raised prices between 5-10% on its toilet paper products. Manufacturers also shortened the period for which they were prepared to run promotional campaigns, although the discounts available continued to be high, on some occasions reaching almost 40%.
An argument also arose in 2007 between manufacturers and retailers due to what brands believed to be excessive shelf fees. This led to some manufacturers actually removing their products from sale in a number of major retail chains. The effect of this, however, was that private label products received a boost in share, up by 1.5 percentage points to 7.5%. Indeed, in the last few years consumers have been increasingly prepared to purchase private label toilet paper due to the rapid improvements in quality.