Brad Kalil, Director of Tissue, RISI
Oct. 31, 2008
The tissue market is one of the strongest growing segments in forest products, especially in the mature markets of North America. Over the last 10 years the North American tissue market has expanded 2.1% annually while the rest of the world has grown by 4.6% annually. Even with worldwide tissue growth nearly double that of North America, the United States is still the largest tissue market in the world.
The North American tissue market is comprised of toilet tissue (45% share of North American consumption), toweling (36%), napkins (12%), facial tissue (6%) and other uses, including sanitary (1%).
The US remains the largest single market because of its continued growth in the per capita consumption. It takes the worldwide lead at close to 24 kg, followed by Canada at 22 kg, Figure 1. In the last 20 years US per capita consumption has increased by 5 kg, and by 2 kg in the last 10 years. This development illustrates that the tissue business continues to have good growth opportunities even when the market is mature and product penetration is high.
It should be noted that US per capita consumption of tissue continues to be much higher than western European consumption (slightly less than 16 kg), as it has for at least the last 20 years. Both cultural and market differences between the US and western Europe contribute to this trend, including: the more advanced away from home (AfH) tissue sector in the US; the generally positive attitude towards consuming and shopping; the wider variety of tissue goods available; strong promotion of brands; and demographic/housing differences benefiting US tissue consumption over that of western Europe.
Current market structure
Approximately two-thirds of US tissue consumption is in the consumer sector, or At-Home, while the rest (32%) is in the AfH sector, including industrial converting applications. AfH tissue can be found in commercial and industrial settings such as office and government buildings, hotels, schools, airports, hospitals and highway rest stops -- anywhere restroom and kitchen facilities are not in a private home. However, the popularity and availability of club stores, hypermarkets and some office supply chains have made it increasingly difficult to classify tissue sales as At-Home or AfH. Figure two illustrates the product category sizes within each of the sectors.
Consumption growth has been faster in the At-Home (2.9%) than in the AfH sector (0.8%) in the last 10 years, further increasing the At-Home share. Usage patterns are similar in the US and in Canada. US per capita consumption is higher than Canadian consumption, particularly in toweling, while climatic factors contribute to the high facial tissue consumption in Canada.
North American tissue consumption experienced very strong growth in 1996-2000, driven by the strong US economy and consumer spending. At-Home shipments continued to be rather strong thereafter, although the growth declined to 1.7% annually in 2001-2006. Growth accelerated again in 2007 to 2.2%. For the period 1997-2007, North American consumer sector tissue growth averaged a respectable 2.9% annually.
Kitchen toweling has shown the fastest relative growth rate benefiting from new products and product modifications by all the main players, including Procter & Gamble (P&G), Kimberly-Clark (K-C) and Georgia-Pacific (G-P). Decorative designs, nice print quality and color embossing have made toweling an attractive product for use not only in the kitchen, but also in many other household applications.
Consumer toilet tissue and kitchen toweling, by far, accounted for the largest volume of growth in North America in 1996-2006, Figure 3. The facial tissue segment is a stagnant market facing increasing competition from nonwoven-based wet wipes (such as "Dove" or "Oil of Olay" products). Suppliers have made efforts by increasing the supply of pocket hankies to complement boxed facial tissue when traveling and other "to go" applications, but these efforts have not been successful in growing the total facial tissue consumption.
The AfH sector, on the other hand, has suffered drastically from the consequences of September 11: North American converted product shipments declined 2.1% in 2001 after several years of 2-3% annual growth. AfH growth rates have not returned to those higher levels, partly due to product rationalization by the main producers in several product segments. The overall growth rate of the AfH sector was further negatively influenced by the sharp decline in diaper carrier sheet demand, as new diaper constructions no longer require a tissue sheet, using instead a nonwoven sheet. This change took place within a relatively short period of time. Further severe substitution came from cleaning wipes using nonwoven and other higher-performance materials. The AfH tissue business suffered an additional (albeit one time) loss by the successful efforts of wholesalers and big end-users to use just-in-time deliveries and tighten inventory control. Inventory has been shortened to about 10 days.
AfH toweling growth has been cut by the ongoing change from folded towels to roll towel dispensers. Roll towel dispensers help purchasers save on paper quantity. Tissue companies, as well, have launched new series of touch-free, motion-activated and controlled-use towel dispensers, which promote source reduction and discourage paper waste by controlling the amount of toweling dispensed at each use. These changes may have curbed AfH toweling growth by at least 0.5-1.0% annually.
Driving forces for future demand
The main variables that will drive future tissue demand in North America include:
• Expected future economic growth
• Population growth and other demographic changes
• Quality upgrading and inventiveness by companies for new product specifications
• Dispenser developments in the AfH sector
• Substitution effects.
The North American tissue business has grown in recent years mainly because of quality upgrading, new product launches and modified product re-launches, in addition to innovative marketing by the industry leaders. We expect this to continue, although it may be increasingly difficult for companies to find further, desirable innovations.
A recent major development has been the trend toward reduced weight per product sheet by reducing the size of the sheet and/or basis weight reductions without a price change. This trend has accelerated since 2003, and while it may not completely stop, there are limits to how much the fiber contents can be reduced. The light-weighting trend pervades the entire tissue product range.
It is expected that new product developments will continue to be seen in At-Home toilet tissue and kitchen toweling applications. It is interesting that, despite G-P's main rivals, P&G and K-C, being committed to using Through-Air-Dried (TAD) and Uncreped Through-Air Dried Technology (UCTAD) (a proprietary process of K-C) their highest quality category products, G-P decided for a "hybrid" towel product, and improved toilet tissue quality with structural changes in the sheet through micro-embossing. An interesting innovation will be G-P's three-ply toilet tissue product, designed to compete against the TAD quality products of its two main rivals.
Product development in the kitchen towel sector has been particularly rapid. TAD and UCTAD products with super absorbency have established new standards, with the product appearance and package printing gaining increasing interest as well. New print designs, increased use of color, new embossing patterns and luxury packaging are all aiming at the same target: increased shelf attraction and differentiation from competing products. It is likely that kitchen towels will increasingly develop into an "all-round" tissue in US households.
At-Home napkins are expected to rapidly lose position to kitchen towels in every day use for two reasons: price and competitive quality provided by the kitchen towels of today and the future. Kitchen towel roll dispensing may be more convenient to store in many kitchens, as napkin packs are often quite large (400-count). This development will be an essential negative factor for consumer napkin demand in North America over the forecasting period. Napkins will increasingly develop into intensively printed design products, and have the party goods/special occasion market as the important end-use.
At-Home facial tissue is a mature product in North America with limited expectation of any major demand boost through quality developments apart from new package designs. Competition from wet wipes will continue to hurt the facial tissue business. Improved medicines and generally milder winters have also reduced the rate of illness and thus some need for facial tissue.
In AfH toilet tissue, the three main players, G-P, K-C and SCA, will continue to stress commercial versions of their consumer brands, pushing hotels and offices to use home-quality type products. These efforts are expected to drive the average AfH toilet tissue quality upward and have a positive influence on overall consumption.
In AfH toweling applications, the no-touch dispenser concept will continue its successful penetration in the upper market segment, replacing major folded towel quantities. Roll towels typically use dedicated dispenser systems and tie clients with the supplier for paper delivery. Hot air dryers are not expected to endanger toweling in the future. The "Scott Fold" TAD towel dedicated to the upper market segment has established a preferred position in many quality office applications.
In the AfH napkin sector, one-at-a-time napkin dispensers are likely to reduce total napkin use substantially in fast food restaurants. Increasing use of part-recycled fiber-based tissue for napkin converting is also reducing napkin costs.
AfH facial tissue will continue to benefit from the steadily increasing number of new hotel rooms and restaurant washrooms, virtually all furnished with a package of facial tissue.
In sanitary tissue applications, the consumption of diaper carrier sheets has already declined to a very small tonnage in North America and the main substitution process is over. Medical tissue demand will be positively affected by the aging population and increasing number of facilities needed for seniors, but quality upgrading has brought nonwovens strongly into this end-use and, in the longer term, tissue is likely to be the loser in this competitive game.
Overall demand for tissue products in North America is forecast to grow at an average annual rate of 1.2% over the next three years (2008-2010), growing nearly 93,000 tonnes annually. Canadian demand is expected to grow slightly faster than US demand. Quality upgrading will continue in the Canadian market where there is still more upgrading potential than in the US.
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