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In terms of retail tissue volume consumption per capita, the US is the second most saturated market in the world. In a market that is already highly developed, demand is thus largely driven by fundamentals such as GDP and population growth, which are not expected to see significant growth in the US in the next few years. In turn, total demand for retail tissue in the US is only expected to grow by a CAGR of 0.10% from 2017 to 2022.
The retail tissue market is experiencing fierce competition between brands and private label, as well as amongst product categories and retailers, leading to continuing pressure on prices. The combination of a saturated market and slowing population growth has created an environment in which branded and private label products must compete for a share of a pie that is not getting any bigger, while promotional activities and discounts remain rampant.
Not only is there competition between brands, but also between product types within consumer tissue. For example, facial tissues and paper napkins face increased competitive pressure from products that provide more cost-effective solutions to the everyday needs of price-conscious Americans; such as the use of toilet paper in place of facial tissues, and paper towels in place of paper napkins.
Competition in retailing also has a negative impact on consumer tissue prices. As retailers compete and aim to make the most out of their shelf space, they force tissue manufacturers to comply. A price war between retailers forces down prices for retail tissue products. The competition in retailing is being further intensified by the growth of private label and the rise of discounters. With improvements in technology, private label tissue products have seen an increase in quality and a widening of the product range; becoming a more popular choice among US consumers. The high growth prospects for private label are supported by the rise of discounters in the US, particularly the expansion of Lidl and Aldi, which combined are seeking to open hundreds of outlets in the US in the coming years. This puts further pricing pressure on retailers, while providing private label with a wider platform for growth.
As volume growth slows down in the US market, innovation has become key to driving further value growth. However, there is a price ceiling that US consumers are willing to pay for tissue products, even with value-added innovation. The key is to create product innovations that offer tangible and meaningful benefits, offering a unique solution for consumers, as opposed to yet another ultra-soft or ultra-strong tissue.
Better All Around, a UK company, has been successful with its Ora paper towels brand, which was launched in the US in 2016. Success among US consumers was due to the unique format and additional benefits. The brand has so far only been available at Target.com and selected Target stores in the US. The initial stock sold out quickly, despite a higher price point compared with other brands and private label, and customer reviews were very positive.
Within consumer tissue, moist toilet wipes provides a value-added opportunity for the industry. The category recently experienced significant growth; far outpacing the growth of dry toilet paper. This was due to a multitude of factors, such as promotional activity, increased visibility on store shelves and higher awareness. This helped shift adult users away from baby wipes and towards moist toilet wipes. Moist toilet wipes is expected see higher growth rates compared with dry consumer tissue categories. While opportunities exist to drive category growth through moist toilet wipes, pricing remains a challenge and a limitation on value growth, as wipes is one of the most price-sensitive categories in retail hygiene.
The US market continues to see investment in tissue production facilities aimed at increasing production for domestic consumption, particularly premium and ultra-premium products. This has led to a scenario where tissue capacity in the market far exceeds current and future demand for tissue products. The US retail tissue market saw demand of over 4 million tonnes in 2017, but consumption levels are expected to be lower in the next few years until 2021. With several projects in the pipeline, and each expected to add at least 60,000 tonnes per year to the market, there is a clear imbalance in supply and demand.
This oversupply will only lead to further competition. Manufacturers in the industry must be strategic with their investment decisions and find growth segments within the market to absorb this additional capacity. Private label provides an opportunity. Looking outside the US to higher-growth markets is also an option. With downward pressure on prices, oversupply, and slow growth expected in the US, tissue manufacturers that can find cost efficiencies and offer US consumers high-value products at a low price will fare well in the market.