by MOLLY STRZELECKI
Paper products are increasing in sales, but the high cost of doing business has been a struggle for manufacturers.
Money may not grow on trees, but technically, both private label and branded paper products do. Money has, however, been growing in the various private label paper products categories, as data from Chicago-based Information Resources Inc. shows. For the 52 weeks ending April 17, 2005, private label toilet tissue is up 11.6 percent, raking in $453.4 million in sales. Private label paper products such as paper napkins also did well in the same time period. While only gaining 2.2 percent in sales, the private label paper napkins category continues to keep a strong hold, owning 32.7 percent of the total category share with private label dollar sales of $145.2 million.
Though various categories continue to grow overall, if incrementally, one of the dominant trends papering the landscape is the downsizing of products.
“The national branded companies have all reduced sheet counts and sheet sizes,” notes Paul Neale, general sales manager, consumer products division for Atlantic Packaging Products Inc., Toronto. “It’s brought the national brand pricing a little bit closer to the private label categories and/or given them their price increases without actually taking the price up. As the national brands have gotten closer to the private label price on the shelf, it has made it a little tougher to be the winner in that position.”
|PAPER PRODUCTS Performance |
|Category ||Dollar Sales (in millions) ||% Change Vs. Yr. Ago ||Dollar Share ||Unit Sales (in millions) ||% Change vs. Yr. Ago ||Avg. Price Per Unit |
|Total private label||$150.4||4.7%||15.5%||131.1||4.5%||$1.15|
|Total private label||$453.4||11.6%||13.7%||233.8||5.8%||$1.94|
|Total private label||$145.2||2.2%||32.7%||97.0||1.6%||$1.50|
|Total private label||$387.9||8.6%||18.0%||268.0||-0.3%||$1.45|
|Source: Information Resources Inc. Total supermarket, drug and mass merchandiser sales for the 52 weeks ending April 17, 2005, excluding Wal-Mart.|
Additionally, the rising price of raw materials has had a big impact over the last year, notes John Sarraf, chief executive officer of U.S. Alliance Paper, Edgewood, N.Y., and the pricing pressure has also added to the lowering of sheet counts. For example, what used to be 280-count rolls on toilet tissue has dropped down to rolls with a count around 200, if not slightly lower, Sarraf says.
Lowered sheet counts have become the norm on branded products, but private labels have been slightly resistant to the trend.
“We’ve had to scramble because one of the issues private label manufacturers have to face is convincing customers to change sheet counts or sheet lengths, and that takes a long time,” Neale says. “They’re watching [the branded products] as they change sheet counts and/or size and it’s tough for us to convince them until they’re convinced that’s what the rest of the industry is doing.”
Not all the news is adverse news, however, for private label paper products. While products may be scaling down in size, private labels are scaling up in quality and giving the national brands a run for their money.
“Private label products are increasing the quality of their products to closely match the product specifications of the leading brands,” notes Joseph Smith, national sales manager for Stefco Industries, Haines City, Fla. “Paper is becoming fluffier, more absorbent, yet using less fibers. Through Air Dried (TAD) products are now appearing in private label packaging.” Smith notes that private label manufacturers may be following the national brands’ lead bringing sheet counts down and getting smaller, but it is to keep prices competitive, along with increasing pack sizes to compete with products at club and super stores.
To keep the category moving, branded players continue to innovate, and private label is following their lead. New products such as anti-virus facial tissues and streak-free paper towels continue to “stretch the boundaries of product offerings within a limited retail shelf environment,” says Bruce Woodlief, director of marketing for the Potlatch Corp., consumer products division, Spokane, Wash.
Items that appeal to varying consumer demands are also hot in private label paper products.
“Larger sheet sizes for towels are becoming more important as well as select-a-size towels,” says Philip Shaoul, director of business development for Global Tissue Group, Bohemia, N.Y.
Additionally Woodlief notes, “Since the mid-90s, leading private label paper manufacturers have been providing retailers with multi-tiered quality offerings to keep up with improvements and line extensions offered by branded companies.” He adds, “Increasingly, retailers are demanding comparable quality and product offerings, including packaging and pack sizes, as that which is offered by the national brands. A few retailers are raising the bar further with their premium store label that requires superior quality over the target brand.” By raising the bar, Woodlief says, private label manufacturers then need to move out of the reactive mode of product imitation and develop stronger competencies in product innovation.
“More and more retailers are making ‘Compare to brand X’ statements on their private label packaging that gives consumers more confidence to try the product,” Woodlief explains. “This helps to eliminate consumer confusion as to what product the private label offering is comparable to, particularly where there are several private label alternatives on the shelf.”
Manufacturers of private label paper products have been struggling over the last year to battle against rising costs while still maintaining a quality product.
“I think we’re all scrambling to be more profitable,” Neale says. “Everyone is suffering in this industry from increased costs to trucking issues. The cost of electricity is going up, the cost of labor is going up. It’s been something that we’re all working hard toward trying to stay and maintain our profitability and develop new products and come to market with new ideas.”
As manufacturers fight the uphill battle, retailers, many say, are helping out and doing their part to continue driving the category.
“Most retailers realize the profitability of quality private label products with improved packaging and design,” Stefco’s Smith notes. “They are increasing shelf space allocated to private label and positioning the private label right next to the national brands.”
“The retailers always try to move [the category], and usually the consumer is looking for something of value,” Sarraf says. “If the retailers can offer them the value and not sacrifice too much on the quality, that’s where they’re going to really move the product.”
“Consumers like to have that value item,” Neale adds. “[Private label products] have given the people who are suffering from the poor economy a chance to save a few dollars. But the market itself is being pushed by the retailers to protect their margins.”
As retailers do their part, manufacturers must also continue to hold up their end of the supplier/retailer relationship.
“Retailers have realized the category potential and they are now listening, learning and improving their categories,” Global Tissue’s Shaoul explains. “The collaboration between supplier and retailer has become even more intertwined to drive the category. Suppliers must be active in guiding their retailers and building the category, while being creative with promotional opportunities that work well for both retailer and supplier.”
Most will agree that in a bad economy sales of private label products tend to increase, especially for those consumers looking to save some paper. Paper money, that is. But in a good economy, when people aren’t necessarily shopping on price, is there still a place for private label products?
“There is,” Neale says. “There are always price shoppers and there are always premium shoppers. Obviously the premium shopper will pay a rather excessive price for a roll of paper towels, but there are others who will say it’s just a roll of paper towels that will clean up a bit of spilled milk and there is no need to spend an exorbitant amount of money on it. So [the products] end up doing well in both good and tough economies.”
Potlatch’s Woodlief adds, “During the latter period of 2004 through year-to-date 2005, brands within the paper category have been passing on the higher costs of papermaking and freight in the form of sheet-count reductions and price increases. During this period, some retailers have pushed sales of their store brand because of the added value in more sheet counts and lower relative price they can offer vs. the national brand.”
Price points continue to play a major role in any private label category, and paper items are no exception. According to IRI data, prices for private label toilet tissue average $1.94 per unit, compared to branded prices averaging $3.36 per unit. As the quality of products continues to increase through premium and super-premium products, retailers and manufacturers have a great opportunity to reach previously untapped consumers.
“Pricing has always been a key factor with private label, including paper products,” Woodlief says. “Nevertheless, over recent years with improved product quality, much of what is at parity to and in some cases better than target national brands, consumers are recognizing that private label is appealing on several fronts beyond just price.
“Overall, the better the quality offering in private label, the smaller the price gap needs to be between the store brand and the national brand.”
In general, the price gap between private label and branded paper products should average 20 percent for premium products and closer to 30 percent for value items.
As the year progresses, private label paper products will most certainly continue to increase in sales, and subsequently capture more dollar share of the total category, so long as store buyers understand the importance of maintaining the category.
“It’s a very fast-turning necessity,” Atlantic Packaging Products’ Neale explains. “You can’t do without bathroom tissue in your house. The category needs the support of the store buyer, and they need to make sure they support it with extra display space or the occasional ad to keep the consumer aware that the product is available.” Neale adds that double-, triple- and “monster” rolls of products are growing, which tends to lead to more usage, as when consumers know that a big roll of, say, paper towels is at hand, they’ll grab more to clean up a spill.
“There is a bump in usage,” he says. “There is some growth just by going back to these double rolls, some expansion.”
“The paper products category is highly developed in U.S. households,” Woodlief adds. “Penetration of bathroom tissue, facial tissue, paper towels and paper napkins is among the highest of any non-food category…Opportunities for growth will continue primarily in dollar sales as manufacturers, including private label, develop higher-quality, value-added product offerings.” PLB
A Papered Environment
Consumers these days support most every cause imaginable. In food items, health trends can deeply impact a category, making it skyrocket or plunge to the ground. Though not as dramatic, the same can be true for non-food items. In paper products, the issue of how the items impact the outside environment touches many consumers who try to do their part in keeping our earth clean.
Oftentimes such extravagant outlooks are reserved for national brands that have the money and backing to follow an issue, but private label is starting to play an increasing role in recycled and environmentally friendly paper products. The trend, however, is just beginning to pick up steam. Though not many, a few retail chains do offer consumers special environmental sections that carry the products under a store brand, notes Paul Neale, general sales manager, consumer products division for Atlantic Packaging Products, Toronto.
“There is a market for it, but it’s still a small thing,” he says. “The right program with the right retailers could see it be a wonderful segment for them.
“At the end of the day, if we can take something that was a notepad or a letter and turn it into another product before it hits its final use, then that’s just a no-brainer as to how to keep things out of the waste-stream.”