Latin America: healthy growth and opportunities in away-from-home tissue

In 2014, sales of away-from-home (AFH) tissue in Latin America represented 32% of total tissue volume in the region and recorded a healthy 3% increase from the previous year.

Svetlana Uduslivaia, Head of Tissue & Hygiene Industry - Euromonitor International

While not without its risks and hiccups, the AFH marketplace has been gaining strengths in many markets in Latin America, supported by economic growth, dynamic business activity and the rising power of middle and upper income consumers increasingly spending on restaurants, entertainment, and travel. In fact, for the large number of markets in the region, horeca (hotel, restaurant and catering sector) remains the key distribution channel for AFH tissue, supported by burgeoning foodservice and hospitality industries. In per capita terms, AFH tissue across Latin America still falls behind the developed countries. Even in the most advanced markets like Chile, Brazil and Mexico, per capita AFH tissue stood at 2.5 kg, 2.4 kg and 2 kg respectively in 2014 compared to North America’s 7.5 kg. Other markets in the Latin American region trail even further behind, indicative of significant growth opportunities ahead.

REGIONAL DIVERSITY IN 2014. Brazil and Mexico remain the largest tissue markets in Latin America, accounting for a 58% share of total tissue volume within the region. In the AFH segment, their combined regional share stands at 63%. In 2014 Brazil recorded a 5% increase in AFH volume of sales, while Mexico grew by 2%. FIFA World Cup boosted tourism demand in Brazil, helping also fuel the demand for AFH tissue. Additionally, despite the fact that the growth in average incomes decelerated in 2014, Brazilian consumers continued to spend, including eating out and frequenting places like shopping centers. On the other hand, in Mexico, weaker economic performance during 2014 encouraged business clients to be more cost-efficient, which resulted in slower growth in AFH tissue volumes in 2014 compared to 2013.

CHILE ENJOYED OVER A DECADE OF MOSTLY UNINTERRUPTED PROGRESS. Economic stability and consumer confidence afforded businesses of all stripes to outsource their tissue needs. Retail tissue is well established in Chile, at per capita consumption of 8.1 kg in 2014. This is only slightly below regional average in Western Europe, although still behind the North American average of close to 14 kg per capita. Subsequently, in 2014 Chilean retail tissue saw 1.7% growth in volume terms, which was well below the regional 3.3% for Latin America. The AFH market, on the other hand, recorded an 8% growth in volume.

GROWTH ABOVE THE REGIONAL AVERAGE WAS ALSO RECORDED IN PERU AND BOLIVIA IN 2014, with increases coming from the urban areas. In Peru, foodservice and shopping centers continued to expand in Lima and provincial urban areas. Moreover, increasing purchasing power and busier lifestyles of Peruvian consumers resulted in more time away from home, thereby contributing to demand for AFH products. As a result, AFH tissue posted a 6% growth in volume in 2014. In Bolivia, the increasing number of middle- and high-income consumers visited foodservice outlets. Bolivians have also been spending more on entertainment such as cinemas. However, similar to Peru, AFH sales remain concentrated mainly in urban areas of the country. While most markets in Latin America posted positive growth, Venezuela and Argentina did not fare well. Economic downturn, government policies, and product shortages affected demand and sales, with both countries recording a decline in AFH tissue volumes in 2014.

FOCUS ON PRICE, PRODUCT VARIETY AND CUSTOMER SERVICE. Opportunities in the AFH market come with its own set of risks. According to the studies by OECD, small and medium enterprises (SME) play a significant role in Latin America. Of the private enterprises in the region, in 2012 SME accounted for 99% of businesses and 67% of employees. Smaller businesses are often more acutely aware of budget constraints, and fixed contracts for tissue might be considered a deal breaker for a small business trying to control costs. Many SME in Latin America buy in retail. The Chilean economy experienced a de-acceleration in the 3rd and 4th quarters of 2014, and consumer confidence saw its lowest rates since the global financial crisis in 2009. This presented an opening for the more economical Chinese brands to enter the Chilean market, leading to a nearly 2% drop in the average price of AFH tissue and diminished value growth. In Brazil, away-from-home clients also tend to choose based on price, with the main differentiation between suppliers coming from the customer service they provide. Moreover, smaller businesses tend to purchase tissue products at large retailers, including large supermarkets. Also purchasing from retail outlets are businesses, government agencies and healthcare providers in Bolivia. Tendencies towards price sensitivity and purchases in retail on the part of many AFH clients in the region have been shaping strategies of domestic and international tissue manufacturers to respond to and encourage more demand in the AFH market.

CURRENT STRATEGIES FOR THE COMPANIES INVOLVED IN A MORE DEVELOPED AFH TISSUE SEGMENT IN CHILE include customized solutions and the offering of diverse product portfolios to meet the needs of a wide range of clients. For example, CMPC Tissue offers Elite Maxwipe, paper towels designed for very specific industrial uses such as absorbing lubricants, oils and solvents. Papeles Industriales targets the economy and premium end of the AFH price spectrum. It also leads innovation in design with its Tork line, which features a range of dispensers for soap, toilet paper and paper towels. Food processing plants are a primary focus for Kimberly-Clark Chile, which responds to the specific needs of this industry with a range of paper towels, dispensers and soaps.

IN BOLIVIA, THE MAIN PLAYERS ARE KIMBERLY-CLARK BOLIVIA SA, COPELME SA, AND CLIN SRL. KIMBERLY-CLARK BOLIVIA SA is well positioned in restaurants and hotels thanks to its strong distribution network. Clin Srl and local company Copelme SA focus on healthcare channels. The only domestic brand, Nacional from Copelme SA, offers napkins and toilet paper only. The brand tends to be more affordable and as such is preferred by independently owned businesses. In addition, Copelme started to sell its AFH products through retail channels to extend its customer reach to small businesses that purchase in retail.

POSITIVE LOOK AHEAD. The overall growth in AFH tissue in Latin America is set to continue. Over 2014-2019, the region is expected to record a 3% CAGR (compound annual growth rate) growth in AFH tissue volume. Bolivia, Chile, Peru and Columbia are expected to demonstrate the best performance. Argentina and Venezuela are likely to recover somewhat and are also projected to record positive trends in AFH consumption. The opportunities within AFH are ripe throughout Latin America, and leading players should leverage their brand recognition into something more than success in the retail market. Economic factors will continue to cause uncertainty in the region, but we can be certain that Latinos will need as much tissue this year as they have at any time in the past.

COMPANIES SHOULD FOCUS ON DEVELOPING NEW DISTRIBUTION CHANNELS as well as on diversifying their portfolio to include a full range of pricing options, given the inevitable expansion of more economy level players. Additionally, innovation in terms of paper products, dispensers and customized services tailored to an increasingly diverse AFH client base will remain important. These strategies go hand-in-hand with the global trend of providing custom-made products for institutional clients which can help them to generate savings in the short and long term.

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