In 2015, the Brazilian economy went into recession and lost two places in the ranking of the largest economies worldwide, slipping from seventh place in 2014 to the ninth largest economy in the world in US dollar terms in 2015.
Svetlana Uduslivaia, Head of Tissue & Hygiene Industry - Euromonitor International
The challenging macroeconomic conditions in Brazil have unfavorably impacted the consumer tissue and disposable hygiene industries in the country. Rising energy bills, declining exchange rates (affecting the buying of raw materials) and higher fuel costs directly influenced the increase in production costs in 2015. Despite this increase, manufacturers had a difficult time adjusting prices at the retail level due to a decline in purchasing power in the country and changes in consumer demand.
INCREASED CONSUMER PRICE SENSITIVITY. Over the past several years, retail tissue in Brazil has become more sophisticated and has seen a significant focus on value-added higher-quality products. However, economic downturn resulted in financial insecurities and stronger attention paid to prices on the part of consumers, thereby affecting the demand and sales growth of consumer tissue in retail. The average unit price of retail tissue products in the country registered an increase of 5% in 2015. This adjustment was mainly driven by an increase in production costs and high inflation rates, which reached 10% in 2015. Price increases were not significant enough to offset the country’s inflation rate, as price competition in retail remained strong, reflective of consumer price sensitivity, which also manifested itself in a shift towards cash-and-carry outlets and bulk purchases to reduce household costs.
ALL IN ALL, RETAIL SALES OF CONSUMER TISSUE IN BRAZIL GREW 1% IN VOLUME (TONS) IN 2015, which represents a much weaker pace compared to earlier years. In value terms (US$, constant, fixed 2015 exchange rate), retail sales declined 2%. Toilet paper remains the most prominent category within retail tissue in Brazil, accounting for an 85% share of retail volume sales. In 2015, the category displayed all the signs of troubled times, as growth in volume and, in particular, value terms weakened significantly. Furthermore, while higher-quality more premium toilet paper was driving demand and sales in previous years, 2015 saw a consumer shift towards more standard products that offered better prices to households on tighter budgets.
ACCOUNTING FOR A 10% VOLUME SHARE, KITCHEN TOWELS IS THE SECOND MOST IMPORTANT PRODUCT CATEGORY WITHIN RETAIL TISSUE IN BRAZIL. In 2015, it recorded slow growth in volume terms and a decline in value terms (US$). Large promotional packages had become important to support consumer purchases and drive volume, which naturally came at the cost of revenue losses. Similarly, paper napkins saw only a modest positive trend in volume terms while losing sales in value terms, with consumers mainly opting for basic products. Faring the worst was facial tissue, declining in both retail volume and value terms in 2015. Per capita consumption of facial tissue in the country still falls far behind that of more developed markets, and most Brazilians still perceive the product as being of little relevance. Understandably, then, in the weakened economy, facial tissue – also the most expensive type of consumer tissue in retail – was at the bottom of the priority list for cash-strapped households in Brazil. While branded consumer tissue products struggled to drive sales in the country, economic downturn benefited private label, which saw its share of retail tissue sales continue to rise. A combination of lower prices and improved tissue quality helped to sway many consumers in favor of store brands. In fact, in 2015, private label tissue was fastest growing in both volume and value terms.
ECONOMIC RECOVERY AND SIGNIFICANT UNMET POTENTIAL TO SUPPORT FUTURE GROWTH. The average per capita consumption of retail tissue products in Brazil stands at 3.9 kg, which is still considerably lower than rates in more developed markets such as the US (13.8 kg) and Western Europe (8.7 kg). There is still clear potential for an increase in consumption, especially among the lower-income households. In fact, the country’s unmet retail tissue potential is estimated to be around 600,000 tons, leaving substantial room for future growth. All in all, retail consumer tissue sales are expected to see a 2% CAGR in volume terms over 2015-2020, while value (US$) is projected to increase at a 1% CAGR in constant terms. Toilet paper and kitchen towels will be leading sales, with paper napkins and facial tissue showing a slower pace of recovery over the forecast period.
IN THE SHORT TERM, 2016 IS EXPECTED TO BE ANOTHER COMPLICATED YEAR FOR BRAZILIAN CONSUMPTION as the macroeconomic downturn continues. Economic and political uncertainties will continue to impact consumption trends. Brazilians are expected to continue prioritizing their budgets and limiting expenditure, especially on products with added value when other, more affordable, products are available on the market. Bulk shopping and the greater relevance of channels like cash-and-carry are expected to continue driving sales for the category. With projected economic recovery from 2017 onwards, consumer demand will likely recover and retail sales of consumer tissue will be picking up.
POST-RECOVERY CHALLENGES FOR THE INDUSTRY WILL INCLUDE PERSUADING CONSUMERS TO RETURN TO VALUE-ADDED PRODUCTS RETAILING AT A PREMIUM. With more standard products and brands and private label players improving the quality of their products, while at the same time offering better pricing, many Brazilians will have settled into the habit of bargain shopping that they have been developing during the times of downturn. Innovation and marketing support to increase the appeal of value-added tissue to consumers, once the economy and consumer confidence are on the upswing, will be important in encouraging the trading up. *