As the European tissue market matures, consolidation may not be just be for the players already in the game as multinational retailers look for growth

New entrants could opt to join a growing market

A number of players are hungry for a bigger chunk of the market

Retail sales of disposable tissue paper products such as toilet rolls, kitchen rolls, paper handkerchiefs, facial tissues and napkins are also estimated to have grown by around a fifth over the same period.

Millennium news

Current economic uncertainties aside, the fact that a number of regional tissue products markets are widely held to be nearing effective maturity - or are at least near enough to see their growth slowing considerably - is one of the underlying assumptions of many within the industry. While certain markets could well experience substantial further growth in the medium to long term, particularly in Mediterranean Europe, Nordic and certain other markets could well be approaching saturation. It is also conceivable that even current per capita consumption levels of disposable paper products in Switzerland or Sweden may never be realistically achievable in certain west European markets for cultural reasons.

1: excluding Greece
Source: CEPI, various national industry associations and MBP Research

On the plus side, the opportunities for long term expansion in Eastern Europe are substantial. Russia, the Ukraine and other parts of the former Soviet Bloc should continue to provide impetus to the "European tissue theatre" for some time after growth in the West flattens out. This is, of course, if economic stability and progress in the East permit.

On the debit side, there are several jokers in the pack which could make their presence felt in the early years of the new century. For instance, there could be an adverse consumer/government reaction against excessive reliance on products that have to be thrown away after use. However remote it may appear at the present time, it is not inconceivable that such reliance on paper-based kitchen towels, napkins and handkerchiefs could come to be frowned upon eventually, especially given the fact that reusable (washable) textile alternatives exist.

One subsidiary point in respect to this potentially vexing issue for the disposable paper products industry concerns the possibility of the eventual introduction of mandatory recycling requirements in Europe. After all, this is already a commonplace concept in some sectors of the global paper industry, however unusual it may seem now for tissue.

Another potential threat to the European tissue products business is the "smart lavatory", which operates without using paper. Although most industry participants make light of the idea, the concept of paperless cleaning/drying of parts of the body is already well established, as the multitude of hot air dryers found across Europe illustrates. Who is to say that the paperless lavatory could not become established in homes throughout the European region?

Suppose for one moment that consumer/ government pressure became such that this could be seen as the ideal solution for removing around two million tons of paper each year from the western European waste disposal system. The effects upon the total disposable paper market would be colossal, to say nothing of the impact such a scenario could have on tissue product producers across Europe. Nevertheless, not too much should be made of this scenario, at least in the medium term.

Getting together

If there is one outstanding feature in the development of western Europe's tissue paper industry in recent years, it is the substantial degree of long term consolidation as companies have moved into the hands of a few multinational groups. By the middle of the 1990s, five of these groups were American. That number has since been reduced to three, with several major European companies also taking an active role in this pan-European restructuring process.

A measure of the degree of this consolidation is the simple fact that almost two-thirds of western Europe's 4.5 million tons/yr of tissue capacity was in the hands of just five companies by 1997 - Kimberly-Clark, SCA, Fort James, Metsä Tissue and CartoInvest. Some 55-56% of the total was controlled by just three of these groups.

Source: CEPI and national industry associations

In the lead

The US company, Kimberly-Clark, and Sweden's SCA are vying for the leadership of the sector in Europe. By 1998, each held around a fifth of western Europe's total tissue paper manufacturing capacity, with another US-based group, Fort James, running close behind.

Kimberly-Clark was still a relatively minor player in the European market until 1995. Before then, Scott Paper of the US led the way for many years. Scott established its position in 1990 when it consolidated in Europe by taking a majority stake in a joint venture into which the former German company, Feldmühle, had placed its German, Dutch, French and other European tissue businesses. Scott eventually gained full control and substantially increased its European capacity during the first half of the 1990s from around 500,000 tons/yr at the end of 1989, to over 700,000 tons/yr by early 1995.

In the summer of 1995, Kimberly-Clark and Scott Paper announced their merger plans. At that time, Kimberly-Clark had a European tissue capacity of just 275,000 tons/yr and was a relatively new participant in the continental European sector. Although it did have a strong position in Britain, one of the results of the merger was the divestment of Kimberly-Clark's tissue mill in the UK. By 1997, Kimberly-Clark had a pan-European tissue capacity of 900,000 tons/yr, which fell slightly with the sale of a small French mill to Proctor & Gamble in 1998.

SCA became a major force in Europe with the takeover of the German group, PWA, in the mid-1990s. Combined with Mölynlycke's 175,000 tons/yr, this gave SCA a European tissue capacity of well over 675,000 tons/yr. Following the takeover, Mölynlycke's operations were formally transferred to PWA and in the fourth quarter of 1998 it was announced that PWA was to be renamed SCA Hygiene Products. By 1997, the group's European tissue capacity totaled 817,000 tons/yr and this climbed to more than 850,000 tons/yr following the early-1998 acquisition of Marpo.

Fort James came into being in the second half of 1997 with the merger of the two American groups, James River and Fort Howard. James River's western European capacity was 650,000 tons/yr by 1995, excluding a half-share of 33,000 tons/yr of capacity in Turkey. During the first half of the 1990s, James River's operations were grouped under the auspices of the erstwhile Jamont, which came into being at the start of 1990 as a joint venture between James River, the Finnish group, Nokia, and Italy's Montedison. Fort Howard contributed just a single tissue mill - the former Fort Sterling unit in the UK - to Fort James' European tissue paper manufacturing operations.

Two other groups have significant shares of total tissue paper manufacturing capacity in western Europe. One is the Italian group, CartoInvest, which is predominantly active in Mediterranean Europe. The other is the Finnish group, Metsä Tissue, which operates mainly in northern parts Europe. Both have increased their capacities in recent years, Metsä Tissue primarily through acquisitions and CartoInvest through a brisk pace of new machine construction.

By 1997, a few other suppliers could boast small, but notable, market shares. None of them could boast more than 4%, but they included:

• Procter & Gamble, which in 1994 acquired the German company
  
• VP Schickedanz, in what some observers felt was a long overdue move into European tissue
  
• the Italian groups, Sofidel and Cartiera Lucchese
  
• the German companies, Strepp and Halstrick (now part of Metsä Tissue)
  
• the Swiss Attisholz group
  
• Renova in Portugal
  
• Goma Camps in Spain
  
• Munksjö and Duni in Sweden
  
• Wepa and Fripa in Germany
  
• Celtech International and Kruger Tissue in the UK
  
• Annunziata, Tronchetti and Rapik in Italy
  
• Horgen in Switzerland
  
• Athens Papermill and Thrace Papermill in Greece.

   

The western European tissue business has faced a number of structural changes in recent years. These problems (some might call them "challenges") are likely to persist, or even get worse, in the next few years. They are also factors that have underlined the restructuring of the European tissue paper industry of the 1990s - a process that is probably only partly complete. Such factors include the uncertain and possibly sluggish nature of economic growth across Europe in the years ahead. More pertinently for the tissue products industry, another may be consumers' reluctance to spend any more on household products.

These trends come at a time when major retailing groups across Europe (themselves customers of the tissue products industry) have been implementing product, brand and pricing strategies that have arguably worked to the detriment of tissue manufacturers' own interests. Such issues include not only the traditional strength of private label products, but also concepts such as cheapest-on-display strategies and the rise of economy/stencil brands among kitchen roll and toilet paper products.

"Shelf space" has become a make-or-break issue for manufacturers as major retail multiples have been seeking to stock brands they are most confident of selling readily. The implications of this for product strategies are clear, profound and perhaps irreversible.

Other factors that continue to influence the fundamental viability and long term structure of western Europe's tissue industry include the capital-intensive nature of the sector, environmental issues and legislation, as well as periodic overcapacity and price cyclicality. The industry has often been unable to pass on the full cost of price increases in virgin pulp or deinked fiber to the retail trade. Further long term influences concern the possibility of tissue producers outside western Europe (South American companies, for example) seeking to expand or develop private label and other businesses within the region.

Possible choices

In looking forward here, the final paragraphs of this article represent pure speculation. One or more of the possibilities outlined may eventually become reality, but at present it is too early to say for sure. For example, a number of major multinational companies are only modestly engaged in tissue manufacturing in western Europe and some of these may seek to become major players within the business in due course.

Procter & Gamble springs readily to mind. The group bought VP Schickedanz in 1994 and already has a strong presence in the North American tissue paper business. Few would be surprised if it were to try and develop a much stronger position in Europe, moving beyond the new mill the company is currently constructing in the UK. The stated ambition of Procter & Gamble is to double its total global sales of all products to $70 billion/yr in the 10 years to mid-2006.