Commercial tissue: big market kept under wraps.

Commercial tissue is the "plain Jane" of the tissue industry. While its well-heeled cousin, consumer tissue, enjoys national advertising programs, flashy packaging, and media coverage, the commercial market operates mostly "behind the scenes," in plain brown packaging. Yet, the North American commercial tissue market is an enormous and profitable segment for suppliers. Like the consumer tissue market and unlike other segments of the paper industry, commercial tissue is growing--albeit at modest rates.

The North American commercial tissue market amounted to about 2.3 million short tons in volume and US$ 3.5 billion in sales in 2001. The market is dominated by three large producers. Georgia-Pacific Corp., Atlanta, Georgia, USA, holds about 40%; followed by Kimberly-Clark, Dallas, Texas, at 23%; and SCA North America, Eddystone, Pennsylvania, USA, at 19%. All other manufacturers hold about 18% of the market. (SCA North America is a subsidiary of Sweden-based SCA.)

Toweling is the largest product category (by tonnage), accounting for 41% of the North American market, followed by tissue at 28%, napkins at 24%, wipers at 7% and others at 1%.

Cost is the largest driving factor in the North American commercial tissue market, and "economy" products account for about 53% of the market (by tonnage), according to figures from Georgia-Pacific Corp. "Near premium" products account for another 36% of the market and premium products about 11%.

There are three major distribution channels for North American commercial tissue products: paper distributors account for about 36% of the market (by sales); janitorial/sanitary product distributors (Jan/San) hold 27%; foodservice distributors about 28%; and all others about 9%, according to Georgia-Pacific.

There is a wide range of "end buyer" segments in the North American commercial tissue market. The largest user of commercial tissue is the food service industry, accounting for 30% of the US$ 3.5 billion market, followed by health care at 14%, industrial 13%, office buildings 11%, education 10%, government 8%, and lodging 6%. All others accounted for 8%.

The North American commercial tissue market has seasonal "spikes" in sales. According to Georgia-Pacific, the 3rd quarter (July-September) is typically the highest volume quarter, followed by the 2nd quarter, 4th quarter and 1st quarter. These volume spikes are attributed to schools starting classes in August and September, and the July/ August vacation season, when many people spend more time out of the home than in other months.

DIFFERENT NEEDS

Producers have always focused on selling their products in a manner that reduces costs for end buyers while making the product profitable for distributors. Indeed, cost is a driving factor in every major commercial tissue market. However, segments tend to have varied needs. Commercial tissue producers have developed targeted products that meet those needs, according to an analysis by Georgia-Pacific.

For example, in addition to low cost, most categories focus on good hygiene for customers as a primary driver. These categories include foodservice, health care, and retail. However, image and product quality is a more important driver for categories such as entertainment/recreation, lodging and office buildings.

These categories also tend to have different growth rates. Foodservice is projected to be the fastest growing channel for commercial tissue over the next three to five years, growing at an annual rate of 3%-4%. The health care and entertainment/recreation categories are each projected to grow 2%-3%, with all other categories will grow at 2% or less annually.

TIGHT CONTROL

Commercial tissue is a highly competitive market where manufacturing cost control and good logistics spell the difference between success and failure. Manufacturers continue to pursue consistent manufacturing and business processes that allow different business units to operate efficiently on the local level. By focusing on operating efficiency, low overhead costs, and supply chain management, North American commercial tissue manufacturers continue to battle for this inconspicuous, but vital, market.