European leader thanks to its high quality standards, the national market is suffering from the considerable increase in production costs. Volumes, consumption and exports are down.
Luisa Merche - Largo Consumo
Italy is the leading European producer of tissue paper: kitchen towels, industrial rolls, table napkins, toilet rolls, handkerchiefs and facial tissue. With a production of 1.41 million tons in 2006 (about -2% with respect to 2005), the country has reached a quota of 23% of all European production. And the paper district of Lucca (in the region of Tuscany) is responsible for two-thirds of national tissue production. Data supplied by Assocarta (the Italian paper industry association) reveal that, despite these grand results, since 2001 the national paper industry has been going through a crisis, worsened by the substantial increase in energy costs and fibrous raw materials. In 2006, overall Italian production in the paper field attained a turnover of 7,630 million Euro and tallied in at slightly above ten million tons, divided between paper and cardboard for packaging and for the graphics sphere, glazed and natural papers, newspaper and paper for hygienic sanitary and domestic use, whose production suffered a 2% decrease.
BESIDES BEING THE LEADING PRODUCER OF TISSUE IN EUROPE, ITALY IS ALSO THE FOURTH LARGEST WORLD PRODUCER, AFTER THE UNITED STATES, CHINA AND JAPAN. The tissue field is very important in terms of dynamism and reactivity. Imports, which total about 59,000 tons and are represented almost exclusively by special papers for colored table napkins and hand towels, have decreased by over 10% with respect to 2005. Exports have also signaled a negative trend of 2.5%, remaining in any case an important item in the total production, since 51% is destined for export. Many Italian tissue companies are starting up plants and production facilities abroad. By moving the production process away from Italy, exports will tend to decrease even further.
THE IMPORTANCE OF BRAND. Tissue paper consumption in the country is decreasing. 18,000 fewer tons with respect to the previous census, to be most likely attributed to the loss of production in some paper mills and to a decrease in the paper’s average grammage. The production of large size rolls is increasing, to the detriment of normal size ones. National companies have high quality, technological and production standards that make them very competitive and capable of sustaining foreign competition also in terms of policies and prices.
In contrast to the decrease in the quality of tissue paper produced, ACNielsen data supplied by Assocarta also show positive production performance: the turnover of the kitchen towel family of products increased by 5.2% with respect to 2005 and that of the toilet roll family by 0.5%. Kitchen towels and toilet rolls are two of the most important segments of the tissue market, representing 73%. In Italy, branded products enjoy greater success than private labels, which must be satisfied with a market share of 28%. On national territory, even in the presence of a commodity product, a brand’s persuasive power is always very effective. This fact is a counter-trend with respect to the foreign market, where private labels succeed in attaining market shares of over 65%.
THE KIMBERLY-CLARK GROUP OWNS THE BRANDS SCOTTONELLE, SCOTTEX AND KLEENEX. The latter two are such established brands that they have become the names with which the very product is identified. Roberta Campio, Marketing Director Family Care Kimberly-Clark Italy speaks about branded products’ strategies, consumption habits and success rates: “Innovation and differentiation of the offer to the field itself and to the consumer are, in an economic situation that is not particularly positive, the keystone to guide growth and generate added value. Kimberly-Clark is firmly convinced of this and, thanks to this philosophy, we are leader in the field of paper for home use with a value share in excess of 20%.
Certainly in these last few years, there has been an evolution from purchasing choices guided primarily by rational factors – above all tied to price – towards greater attention to the emotional components such as packaging and the company’s commitment to the environment. The brands that we have placed on the Italian market are historical; they have a strong brand identity and enjoy customers’ consolidated loyalty. Scottex has always been synonymous of the kitchen towels category, Scottonelle is the only premium segment toilet paper, and Kleenex is synonymous of tissue handkerchiefs, in Italy and abroad. Quality is the fruit of technology investments that are not replicable without an analogous economic commitment: brand products enjoy consumers’ loyalty for this very reason. Above all in the tissue market, that runs the risk of being considered a commodity and hence of being trivialized, Kimberly-Clark’s answer to price cutting strategies must be greater commitment to innovation so that our products really confer added value to the consumer through superior quality at the right price.”
FILOMENA PANARELLI, MARKETING RESEARCHER AT SOFFIGEN, located in the Italian region of Puglia, expresses her opinion on the capability of large companies to condition the market, to the detriment of consumers and of smaller companies: “We produce and distribute articles for domestic use in pure cellulose and are today present in some retailing organizations as well as in the vast sphere of normal trade. The superpower of large companies in the field and the agreements underwritten by them with retailing, limit maneuvering space for small-medium size companies, many of which manufacture excellent products in the quality/price ratio and are able to guarantee top commercial and logistic service. Unfortunately, despite the optimal level of our products that are positioned in the “average” price range, lord and masters are in any case multinational companies that produce famous, more expensive brands, offering retailers economic-contractual advantages that unfortunately, at the time of product positioning, translate into prices that are certainly higher than those we propose.”
PROMOTION AND INNOVATION. As Gianni Fiore, governing director of Soffigen explains, increases in raw materials and in energy costs have much stronger repercussions on small companies, but the present crisis dates back twenty years and is to be attributed to the responsibility of Italian multinational companies in the domestic tissue field that have “run a crazy race to build more ‘integrated production systems’ in almost all of Europe. After twenty years of these daring and frantic investment operations, we have gradually reached dangerous overproduction of both semi-finished and finished products. If until 2004 the enormous Italian production had found an outlet in exports to European countries, this solution ceased as both European and Italian production became saturated. The paper field is very ill. And this malady must not have gone unnoticed by credit insurance companies that, between 2006 and 2007, have revoked many of the guarantees conceded in the past. From here, in my opinion, the scarce affluence of cellulose from producing countries, especially towards Italy.”
ALSO SANDRO PASQUINI, MARKETING AND EXTERNAL RELATIONS MANAGER OF CARTIERA LUCCHESE, owner of the Lucart brand, gives his opinion on the present situation: “The Italian tissue market, suffering from chronic supply excess, has for several years now been very fierce and competitive. With time, this situation has led to a growing incidence of promotional sales, something that for many brands has come to represent over 50% of turnover, consequently trivializing the offer. “In the last two years, however, the tissue products market has been characterized by growing tension on the cost front: all the main production costs (cellulose, energy, subsidiary materials, workmanship, transport) have registered significant increases, placing sales margins at risk and making a revision of price lists and commercial policies indispensable and immediately necessary. In recent years, producers have tried to provoke purchasing choices that gratify consumers’ ego, differentiating their offer through packaging proposals, décors, new embossing types and perfumes that are constantly more evolved from a technological point of view. Not always, however, has the consumer replied in a positive manner to these stimuli. Something different must be said for the continuous increment in the sale of ecological products. Today, between brands and private labels, the ecological tissue segment represents between 7% and 8% of the value market and continues to grow at rhythms in excess of 20% per year, in a market that, overall, is substantially stable (source: AC-Nielsen).”
EUROVAST SPA IS ANOTHER COMPANY WORKING IN THE LUCCA PAPER DISTRICT. Silvia Guerrini, marketing manager of the company, underscores a positive trend: “For Eurovast, in the course of 2006 there has been a strong growth and this trend was consolidated in 2007, especially in private labels. The only problem are the new price lists, whose application becomes increasingly more difficult, especially in these current times where the strong increases in the cost of raw materials and energy products have exceeded every reasonable forecast.” Eurovast produces toilet rolls and multi-purpose rolls (kitchen rolls) in various types and formats. Rotolotto, the multi-purpose roll, is fruit of investments in innovation and technology.
The enormous investments required to innovate both in the paper mill and in paper production, often constitute a barrier for access, to the advantage of those groups that possess the resources to sustain the new challenges. The less productive plants or those that do not have the necessary financial resources to re-organize and rationalize the production activity often are not able to survive and are forced to close down. Assocarta, in its analysis of the field, confirms how retailing continues its aggregation trend. Few names dominate the shelf. The push towards innovation and quality are the levers that move the market. The value of raw materials used is fundamental in price determination: the product made with pure cellulose is certainly more expensive than the one made with recycled or waste paper.
High quality is the reason for the growth of the Italian product also in Eastern European countries, where the basis of the market is still represented by the low quality obtained with recycled fibers. The ETS (European Tissue Symposium) is a commercial trade association. The ratio attained for the period 2006-2007 on the consumption of facial tissue, kitchen towel rolls, table napkins and toilet rolls, reveals the current trends in the European territory, highlighting the different habits of the citizens of the European Union.
EUROPEANS’ PREFERENCES
Pocket packs of handkerchiefs and boxed facial tissue represent today in Europe a market value of over 1,400 million Euro a year. But the two segments have witnessed different developments in the different European countries and in the world. Starting from the first half of the 1920s, a wide diffusion of facial tissues and handkerchiefs – the so-called “cellstof” – takes place: boxed tissues are distributed in the USA and in Great Britain, pocket size ones in the rest of continental Europe. Still today, these two diverse formats dominate their respective markets. Indeed, in continental Europe, boxed facial tissue is not very popular and the attempts to introduce a greater quantity of boxed tissues in the homes has not yet been sufficient enough to increment sales.
Here are some consumption data on paper handkerchiefs: the country that uses the highest quantity of this product, both in the boxed and the pocket format, is Switzerland. Germany, Austria and France follow, outdistanced. Tissue products circulating in European countries have different characteristics. In Germany and in Austria, for example, products with theme packaging (Christmas, winter, but also sports events, films, etc.) enjoy strong success. In Portugal, we can find kerchiefs of any color, theme and design, and even perfumed. The Finns want square tissues, folded twice, the French want compact ones, the Poles reward quality. As for the toilet paper category, a substantial value growth has take place in Europe. Category segmentation promotes a variety of differentiated products, starting from low cost ones to premium segment and super-premium in the more advanced markets.
The rhythm of innovation and differentiation has increased and the toilet paper offered now is more consistent, more resistant, quilted, perfumed, gentle on the skin, colored, embossed, “branded”, with respect to the category’s standard products.
Some countries that have had access to the free market are recently showing that they appreciate more sophisticated products than those they were accustomed to. Russia, for example, like all Eastern European countries, shows its substantial growth potential also on the tissue products front. Especially in cities such as Saint Petersburg and Moscow, these are preferred in the more refined varieties in terms of color, consistency and features.
But other countries, too, are showing a preference for particular products. Moistened toilet paper was first produced in Germany, and this innovation has brought important value growth in almost all the markets where it was introduced.
In the United Kingdom, toilet paper with aloe vera has met with success. Norway, in clear counter-trend and in respect of all that is ecologically correct, still shows a preference for products made with recycled paper and no brand name, even though some premium segment references, introduced with focused printing campaigns, are reaping in strong consensus. Differentiation, customers’ trust and loyalty are the key factors pushing the value growth of the market.
An effective success strategy in the diffusion of new products assumes, as usual, a joint effort by suppliers and retailers, with an eye attentive to shelf positioning, even in the kitchen towels and table napkins segment. On this front, the ETS report highlights a European growth of 270% for kitchen towels and 350% for napkins with respect to the US market. No longer only confined to the kitchen, these rolls become consistently more resistant and versatile; and it is for this reason that their market is rapidly expanding and the alternative definition of “household towels” instead of “kitchen towels” is extremely appropriate. Table napkins, instead, are object of restyling in all of Europe, where recent trends show a preference for those that are decorated with printed designs.
In the realm if tissue paper, too, aesthetics have become important, placed at the same level as resistance and quality by consumers. And so today, handkerchiefs, table napkins and rolls live their triumph fully in a variety of colors and prints.