March 2008
By Robert Ryan
The challenge of competing in a mature market dominated by giant global producers failed to discourage Australia's ABC Tissue from building success in the tissue game down under, nor from planning its next expansion phase.
ABC Tissue Products is a privately owned producer that has built a substantial presence in the Australian household and sanitary grades business. This independent company has successfully challenged the global players in the highly competitive Australian tissue market, and it now generates annual sales revenues of over A$ 200 million ($179 million).
ABC is owned by the Ngai family, which came to Australia from Hong Kong in 1985. The company began operating the same year. "Initially our business was importing tissue from Hong Kong," says Sunny Ngai. Sunny is the company's marketing director and general manager, and son of the company founder Henry Ngai.
"We began converting operations in 1986," he adds. ABC started producing napkins and facial tissue from jumbo rolls that year. This was followed by the start-up of toilet tissue converting in 1989.
Upstream moves
Any tissue converter with ambition will eventually start considering a move upstream into tissue production, and the management of ABC was soon thinking along these lines. In the 1990s, ABC began planning an investment in a tissue machine at its Wetherill Park site. The site is located in the western suburbs of Sydney, Australia's largest city.
The investment plans for the Sydney site were well advanced when another opportunity intervened in 2002 - the prospect of buying an established tissue mill in the city of Brisbane, Queensland. ABC went ahead and acquired the tissue mill formerly owned by the financially troubled Softex Industries (Cosco Holdings) from the receiver, in the face of a competing bid from New Zealand's Carter Holt Harvey.
The Cosco acquisition gave ABC a combined capacity of 19,000 tonnes/yr on two 2.7-m wide tissue machines plus a deinking plant, all of which is located in the Brisbane suburb of Carole Park. The deal not only gave ABC its first tissuemaking capacity but also a foothold in Queensland – a prosperous state in the tropical north with a population of 4.2 million and a vibrant economy supported by a mining boom.
ABC operates its Queensland assets under the name Queensland Tissue Products. The company carried out a rebuild of one of the Carole Park mill machines following the takeover. "It was a good learning curve for us," says Sunny Ngai.
Wetherill Park project
"The Cosco deal delayed our Sydney project," says Sunny Ngai. But the sidelined plans for its Sydney home base were soon back on track after the successful acquisition up north. In September 2004, ABC placed an order for a tissue machine with A. Celli. The tissue machine, which is known as Sydney PM 1, was commissioned in March 2007.
PM 1 is a 3.4–m wide machine, and it has a capacity of 25,000 tonnes/yr. The machine has a design speed of 2,000 m/min and features a conventional Yankee drier. The tissue machine features a high temperature PremiAir hood – the only such hood in the southern hemisphere, says Sunny Ngai.
Apart from the modern tissue machine, ABC Tissue has numerous converting lines for toilet tissue, facial tissue, napkins and kitchen towels at a number of sites in Wetherill Park. These include a fully automated facial tissue line that needs only three operators to run the entire line.
Brands and markets
Quilton bathroom tissue is ABC Tissue's flagship brand. The other brands in the ABC/Queensland Tissue Products stable include Naturale, Softex, Softly, Symphony and Cottonsoft. These brands also have a foothold in the New Zealand tissue business.
Quilton premium grade toilet tissue is made from imported market pulp. The middle ply of this three-ply product imparts strength, while the outer plies provide softness. A four-ply grade is also produced.
Quilton recently snared the top spot in the premium toilet tissue space, says Sunny Ngai. Quilton three- and four-ply bathroom tissue accounted for 31.9% of sales in the segment during the three months to December 2 2007, according to scan data from major supermarkets (Woolworths, Safeway, Coles and Bilo) and processed by Aztec.
The other premium brands in this segment are two-ply Sorbent and single-ply Cottonelle, produced by the Australasian-based operations of ABC Tissue's global rivals. These brands accounted for 28.9% and 28% of sales for the quarter respectively. Supermarket private label products made up the remaining 11.2% of premium toilet tissue sales.
Sunny Ngai estimates that premium grades account for a combined 75% share of the total tissue market. The remaining quarter of the market is comprised of home brands and other medium quality products, and recovered fiber (RCF)-based toilet tissue.
Overall, RCF-based toilet tissue makes up only about 5% of total toilet tissue sales in Australia, and it is priced some 20% below premium grades. ABC Tissue is also active in this space – the Naturale brand toilet tissue is produced at the Queensland Tissue Products mill from 100% RCF, including mixed office waste (MOW). "We have a 50% share of the Australian recycled fiber-based toilet tissue market segment," notes Sunny Ngai.
ABC Tissue is strongest in the bathroom sector, but the company also has a significant slice of the facial tissue business. The firm's premium grade, three-ply Quilton brand facial tissue had some 5-7% of the total facial tissue market in 2006, explains Ngai. The company also makes two-ply Symphony brand facial tissue, which is targeted at more price sensitive consumers. This brand has about a 5% share of the Australian facial tissue market.
ABC Tissue is also in the kitchen towel business. It produces Tuffy and Naturale kitchen towel. The company has so far built up only a very small share of the Australian kitchen towel market.
Well-planned and comprehensive distribution is one of ABC Tissue's strengths, and its stable of brands can be found in supermarkets, convenience stores, pharmacies, newsagents and so on, and its away-from-home grades have good penetration of hotels, corporate offices and institutions. ABC Tissue has its own fleet of trucks for delivery of finished tissue to wholesalers and retail distribution centers across Australia. "We deal with major retailers and wholesalers on a national basis," says Sunny Ngai.
ABC Tissue's products have clearly earned a sizable place in the shopping trolleys of Australian consumers. These shoppers are spoiled for choice, so this is no small achievement. Market research into brand awareness backs this up. Some 20% of Australian shoppers know the Quilton brand when tested for unprompted awareness. This figure rises to 70 to 80% of consumers for prompted awareness.
But what does the future hold for the Australian tissue business? And how can smaller, privately owned tissue companies remain competitive in a market under threat from low-priced imports and well-resourced global tissuemaking giants? Ongoing improvement and development of new products is the name of the game according to Ngai: "We need to continue to innovate, or we will fall into a price war," he says.
Queensland expansion
ABC has already made strong inroads into the Australian tissue business. But the company is not resting on its laurels. The company has bought a large parcel of land in Brisbane and intends to order a new tissue machine and install it at this site.
"The order for our fourth tissue machine is not years away. It is just months away," says Sunny Ngai. The management of ABC Tissue has not announced any final decision on the size and other specifications of the new machine.
The new 220,000-m² site is located just 30 km from the existing Queensland Tissue Products mill in Carole Park. "That's 10 times the size of the site occupied by the head office at Wetherill Park," notes Ngai. The plan is to relocate the existing Carole Park mill, including the tissue machines, to the newly acquired location within the next five years.
One advantage of investing in Queensland is that freight costs from this northern state to large markets to the south are comparatively low, says the general manager. Added to that, the Queensland government offers investment incentives that are lacking in some other states, explains assistant general manager, Ming Ly.
Key player
Given that ABC has almost 50,000 tonnes/yr of capacity in two Australian states, established brands, strong distribution channels, and even a share of the New Zealand market, plus grand expansion plans, the company is clearly more than just a niche independent producer.
The Australian popular singer Paul Kelly made these lyrics famous: "From little things, big things grow". He could have been singing about ABC Tissue – the entrepreneurial mouse that roared, until its giant tissuemaking rivals had to sit up and take notice.
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