Tissue gets a quick picker upper from rising economy.

As the most brand-oriented of all paper grades, tissue has recovered along with the general economy in the United States and Europe. Unlike its more commodity-oriented sister categories in the paper industry, tissue has clearly benefited from overall economic growth as well upturns in specific industries, such as travel and foodservice. As a result, 2004 was a good year for the global tissue industry.

In 2004, the global retail tissue industry achieved 4% growth compared with 2003, according to a report from Euromonitor International, London, England. This positive result was driven by sales growth in the very large North American market as well as continuing growth--some of it double digit--in developing markets like Eastern Europe.

One trend in the tissue market is the growing "nationalization" of the business, as the large players such as Georgia-Pacific, SCA, Procter & Gamble, and Kimberly-Clark consolidate their operations. As these companies have developed more comprehensive national manufacturing capabilities in some countries, such as the United States, they are looking for more distribution capabilities--inside and outside their companies--that are more nationally focused as well, according to trade reports. Many paper companies are looking to strengthen their brand names by looking for national accounts, as opposed to regional accounts, to supply with their branded products. These can include fast-food restaurants, hotel and motel chains, and gas stations.

Another trend driving tissue sales in the vital "away from home" market is increasing levels of "germophobia," at least in the United States. With consumers eager to kill germs lurking everywhere they look, tissue has clearly benefited--as have products like hand sanitizers. Americans seem to be growing more conscious of "cross contamination" in public places, and many businesses have responded with new, more hygienic, dispensing systems.

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This "hygiene awareness"--in some cases marketed by tissue manufacturers themselves--has driven trends such as the use of "touchless" towel dispensers in public restrooms, which are said to be one of the fastest growing segments of the paper towel market. This gives manufacturers and distributors the opportunity to "sell solutions" along with their products. Some public restrooms have gone totally "touchless," with sensor driven faucets, soap dispensers, and paper towel dispensers.

NORTH AMERICAN TISSUE BOUNCES BACK

According to the Euromonitor report, consumers in North America spent more than US$ 12 billion on retail tissue products in 2004, a hefty 5% increase over 2003. This increase came after two years of decline brought on by the post-9/11 recession. Toilet paper led the parade by growing more than 6% during the period, driven in part by manufacturers raising prices--some as much as 15%--as raw material prices escalated.

The rapid implementation of through-air-drying (TAD) technology in the United States and demand for high quality products has led to very high growth rates in the "luxury" toilet paper market. TAD machines are effective at producing the very soft and high bulk luxury tissue papers. According to Euromonitor, luxury toilet paper sales grew at a rate of 10% in 2004, while standard toilet paper was up 7%.

Many product features are driving both the luxury and standard markets, such as multi-ply paper, enhanced textures, and lotionized paper, said the report. Many manufacturers have nearly continuously upgraded their products, making tissue that is softer, thicker, stronger, or more heavily textured--sometimes all of the above. Kitchen towels did almost as well as toilet paper in North America in 2004, with a 6% growth rate in value over 2003, said Euromonitor.

GROWTH IN EASTERN EUROPE

One of the less visible but increasingly valuable markets for tissue manufacturers and marketers is Eastern Europe. With increasing income levels among Eastern Europe's urban consumers, tissue consumption has shown marked growth. Still, there is still a long way to go. The Eastern European market has comparatively low levels of per capita spending on tissue products compared to their Western European markets--approximately US$ 9, compared with over US$50 in Western Europe, according to the report.

The new members of the European Union--Slovakia, Poland, Hungary, and the Czech Republic--have all shown strong growth in retail tissue sales, according to Euromonitor. Other markets--such as Ukraine and Russia--also grew well above the regional average in 2004. This new demand included sales of high-quality premium brands in addition to traditional "value" brands. "In Russia, products previously regarded as non-essential items, such as kitchen towels, delivered a double-digit growth rate in 2004 for the third year in a row, while retail sales of napkins in Ukraine have grown on average by 19% in the last seven years," said the Euromonitor report.

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WESTERN EUROPE STAGNATES

While North America and Eastern Europe have demonstrated a robust recovery in 2004, Western European retail tissue sales have been a bit disappointing, according to Euromonitor. The Western European market--valued at US$12 billion--grew only 1% in 2004, compared with 2003. One of the chief culprits was stagnant sales of "value" priced tissue, kitchen towels, and toilet paper in Western Europe.

The Euromonitor report noted that the share of supermarkets and hypermarkets in the distribution of tissue products increased in 2004, exceeding 68%. Private label products are steadily increasing their market share every year. The biggest gains were made in toilet paper and kitchen towels, where retailers' private label brands now account for about 50% of retail sales in the value category. In 2004, penetration of private label brands of tissue products stood at almost 45% in Western Europe, up 3% over the past three years, said the report.

NEW PRODUCTS ARE KEY

Like its counterpart in the United States, the retail tissue market in Western Europe is considered mature, with little room for increased market penetration. With boundaries on the growth of the Western European market, Euromonitor International expects it to grow by an average of 1% CAGR over the next 5 years.

As a result, tissue manufacturers and markets must do more to create value, according to Euromonitor. "With volume growth prospects minimized, and a mounting competition from private labels, tissue products' manufacturers in mature markets will increasingly focus on creating value by widening their range of products and encouraging wealthier consumers to spend more by trading up to premium brands," said the report. "Hence, increased product segmentation is expected, as manufacturers will try to meet the needs of the most discerning time-poor, cash rich consumers."

Some examples of recent innovative products are: scented core centers of toilet paper (Charmin Scent from Procter & Gamble), reusable kitchen towels (Kitten Soft Ultra-Wipe from Georgia-Pacific) and disposable tissues that kill cold and flu viruses (Kleenex Anti-Viral from Kimberly-Clark) All of these products are on the premium end of the market, noted the report.

Euromonitor International also predicted that the decorative aspect of a product and its packaging will become significant features in marketing value added, branded tissue products to combat growing competition from private label products in Europe.

ALAN ROOKS, EDITORIAL DIRECTOR

WHAT YOU WILL LEARN:

* How global tissue retail sales recovered in 2004.

* Trends driving tissue consumption.

* Variations in regional demand growth.

ADDITIONAL RESOURCES:

* "A Beginner's Guide to Towel and Tissue, Part 1," by Jim Atkins, Solutions!, September 2004. To access this article, please enter the following Product Code in the search field on www.tappi.org: 04SEPSO32, or call TAPPI Member Connection at 1 800 332-8686 (US); 1 800 446-9431 (Canada); [phone] (International).

* "A Beginner's Guide to Towel and Tissue, Part 2," by Jim Atkins, Solutions!, November 2004. Product Code: 04NOVSO30.

* "Characterization of facial tissue softness," by J. Liu and J. Hsieh, TAPPI JOURNAL, April 2004. Product Code: 04APR03.

* "Tissue: The Quest for Softness and Absorbency," by Jan Bottiglieri, Solutions!, March 2005. Product Code: 05MARSO24.