Syktyvkar Tissue Group: a winning strategy

Syktyvkar Tissue Group has just reaped the fruits of a development plan it has recently concluded and is anxious to start a new one. Lots of projects with a sole objective: to keep the pace with multinationals and conquer new market shares. 200 km away from Moscow, we met Alexander Kagan, Business Development Director of the new facilities in Rostov, who told us about recent goals attained and new plans for the future.

Martina Giusti

It is impossible to tell the story of Syktyvkar Tissue Group without taking a look at what has been happening in the Russian tissue field in the last few years. Consumption has increased by 40% from 2006. Consumers’ demands have changed. Softness, absorbency and aesthetics: these are the features required of a tissue product in Russia today – features almost unheard of just a few years ago. Products that were considered top tier just ten years ago are today everyday items purchased by the great majority of the population. The preference for colored tissue is still rooted. Pack sizes most requested are 4 rolls for kitchen towels and 8 for toilet rolls (most requested 2 and 4 rolls, request for packs 4 and 8 is growing). The road to attain European standards is still long but progress has been significant and visible. This change was brought about mainly by three factors: • The arrival in Russia of supermarket chains that have filled their shelves with products having characteristics similar to European standards. This caused Russian producers to gradually adapt to the levels of Western Europe.

• Tissue companies have invested in machinery capable of producing increasingly sophisticated products.

• The increase in economic well-being has allowed consumers to choose higher quality products.

IN THE CURRENT RUSSIAN SCENARIO, STG plays the role of protagonist and rides the wave of general progress. Present on the tissue scene since 1987 with a plant in Syktyvkar, capital of the Komi Republic, a year ago STG inaugurated another production plant in Rostov, the result of an investment plan started up in 2005. Development began with the arrival of new shareholders at STG for a 65-million euro project that was concluded at the end of the summer with just one target in mind: to increase production. Back in 2005 the construction of another plant was not yet in the cards. The first step was to build a new paper mill and install a new converting line at the Syktyvkar site. But this was not sufficient. So a project for the construction of a whole new plant in the center of Russia was put in the works. Rostov seemed the perfect place to erect an industrial building that today has a surface area of 40,000 m2. Work began in 2011; in 2013 the plant started producing, but only in 2014 did it churn out important volumes with the installation of a paper machine. At the end of the summer, the project came to a conclusion with the installation of an autonomous water cleaning system. The new facility area includes a paper mill and three converting lines (a Perini line and two lines for industrial and interfolded products). The project has had a strong social valence, too: 95% of the employees are residents of Rostov and surrounding areas (very poor areas before the construction of the new plant). Currently, 250 people are employed in the Rostov plant and 400 in Syktyvkar.

TOTAL TISSUE OUTPUT FOR THE TWO PLANTS IS 85,000 TONS PER YEAR. Of these, 65,000 tons are comprised of hygienic products, kitchen towels and napkins. The 20,000-ton difference is sold as parent reels. But the goal is to further develop production and install a new line in Rostov in order to be able to use the remaining 20,000 tons too. STG sells Veiro and Veiro Professional branded products as well as private labels. Just to give an idea of the numbers involved: 30% of consumer production is directed at private labels. Looking at the general sales structure, about 40% of its products is sold via large federal retail chains and 60% through local retail chians. Specifically, 80% of the Veiro-branded products are distributed via dealers and the remaining 20% through direct contacts with retail chains. Sales are mostly in Russia with small expansions to a few bordering countries (Belarus, Kazakhstan and Ukraine).

TODAY STG DETAINS 8% OF THE RUSSIAN MARKET; it is on the podium, on the third step behind two multinationals. Since the market is developing so much and so fast, further investments are needed in order to maintain this percentage. So new plans are already in the works that entail the construction of a new plant. Expectations are very high and a market growth of 7%-8% is expected for 2016/2018. STG must expand both in terms of machines and structures in order to meet these changes. And this requires new partners interested in investing in Russia. STG is open to new possibilities of cooperation in forthcoming projects in order to envision an even brighter future. At this point, the only question is whether STG will find European or Asian partners.

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