Is sustainability shaping the hygiene tissue industry? Evidence from the field

Article by 1Nicole Hensley MBA, 2Amelys Brito, 1Franklin Zambrano, 3Dr. Hasan Jameel, 3Dr. Richard Venditti, 3Dr. Stephen Kelley & 3Dr. Ronalds Gonzalez MBA

1. Ph.D. student focused on consumer perception, North Carolina State University (NCSU) 2. Ph.D. student focused on sustainability, NCSU 3. Professor, Co-Director Tissue Pack Innovation Lab, NCSU

Based on cutting-edge data collected by the Tissue Pack Innovation Lab at North Carolina State University

The world is demanding more sustainable materials and processes to power the economy and improve lives. Global megatrends, e.g., sustainability and changes in demographic behavior (Fig. 1), are shaping the way we conduct business 1, and consumers are relying on companies to lead the path forward in addressing these trends 2. Sustainability-conscious consumers are driving changes in the market by simply purchasing products and services marketed as “green.” Consumer goods and service industries have responded with unprecedented and massive changes in their product offerings, along with a critical review of their manufacturing processes and supply chains 3,4,5. The hygiene tissue industry is no exception, leading producers to explore alternative technologies, raw materials, and additives to meet this new demand and drive innovation 6. In the last few years, we have seen dramatic increases in the number of tissue products making claims around sustainable attributes. Some players in the industry have looked at these market developments as an opportunity to create product differentiation, accompanied by significant price premiums.

MARKET DYNAMICS AROUND THE SUSTAINABILITY MOVEMENT AND CLAIMS IN THE HYGIENE TISSUE INDUSTRY

Shifts in the market will be determined by gaining influence from generational groups, e.g., Boomers to Gen Z, who have different priorities and behaviors. Millennials are attracted by the environmental aspects of a sustainable lifestyle, while Gen Z is more concerned about social impacts such as human rights and poverty 7. The older generations, namely Baby Boomers and Generation X, still

1 Modly, T. (2016). Five megatrends and their implications for global defense and security. PwC Report on Megatrends, 1-27. 2 Cone Communications. (2017). 2017 Cone Communications CSR Study. Boston, MA: Cone Communications. Retrieved from www.conecomm.com/2017-cone-communications-csr-study-pdf ` 3 Nike Purpose: Supply Chain Sustainability Index. (2020). Retrieved 20 February 2020 from https://purpose.nike.com/supply-chain-sustainability-index 4 Where to Begin & Overview | 3M Sustainability. (2020). Retrieved 20 February 2020, from www.3m.com/3M/en_US/sustainability-us/ 5 Marriott International. (2020). 2025 Sustainability & Social Impact Goals. Retrieved from http://serve360.marriott.com/wp-content/uploads/2019/10/Serve-360-goals-page-tabloid_2-updated-20180916-English.pdf 6 Fisher International. (2019). Could Consumer Focus on Sustainability Disrupt the Tissue Business? Retrieved from www.fisheri.com/ images/features/webinars/Fisher_Webinar_Could_Consumer_Focus_on_Sustainability_Disrupt_the_Tissue_Business.pdf. 7 Cone Communications. (2017). 2017 Cone Gen Z Study: How to Speak Z. Boston, MA: Cone Communications.

Figure 1: Characteristics of Genarations 7,8,9

represent the greatest amount of disposable income 8. Most baby boomers use TV as their main source of news while the majority of younger generations use online sources (including social media) as their main source of news9 (Fig. 1). Currently, sustainable products are not a large portion of the tissue marketplace, but they are expected to grow with generational shifts and the corresponding response by corporations seeking market share and profits 10,11 .

While there is clear interest from consumers, there is a great deal of ambiguity in what should be considered a sustainable product. With no set legal restrictions, companies can and do create their own claims or attributes. Some of these changes may be brands simply remarketing or renaming existing products to align with current sustainability values, while some represent brand new, impact products or processes that can move the market.

Nowadays, tissue companies are using different approaches to convey some sort of sustainable attributes (Fig. 2), which could be classified into three different types of environmental product declarations (EPDs). Without agreed-upon sustainability standards, consumer confusion and greenwashing are rife, allowing companies to profit from products that do not effectively meet consumers’ needs. We believe this is a temporary situation (6-8 years) while the market self-corrects by demanding rigorous evidence and cradle-to-grave analysis to create credible “sustainable scores”.

Figure 2: Claims on Sustainable Products BRINGING DATA INTO THE DISCUSSION

The Tissue Pack Innovation Lab at NC State University has been bringing reproducible, peer-reviewed data to the discussion. The Tissue Pack team has been collecting detailed product performance and attributes for bath tissue and kitchen towel products for the last three years.

8 The Generational Breakdown of Purchasing Patterns. (2020). Retrieved 19 February 2020, from https://revelsystems.com/resources/generational-breakdown-purchasing-patterns/ 9 Newman, N., Fletcher, R., Kalogeropoulos, A., Levy, D., & Nielsen, R. (2020). Reuters Institute Digital News Report 2017 (p. 10). Reuters Institute for the Study of Journalism. Retrieved from https://reutersinstitute.politics.ox.ac.uk/sites/default/files/Digital%20News%20Report%202017%20web_0.pdf 10 Kimberly Clark. (2018). 2018 Sustainability Report. Retrieved from www.kimberly-clark.com/en/responsibility/annualreports 11 Georgia-Pacific. (2018). Georgia-Pacific Sustainability Highlights. Retrieved from www.gp.com/wp-content/uploads/2019/11/sustainability-highlights-brochure-georgia-pacific.pdf

In addition to analytical performance data, the team has been researching how consumers perceive sustainability and how the marketing of sustainability drives purchasing with a focus on the hygiene tissue industry. Findings from this research will help the industry by enabling companies to make data-based decisions and connect with sustainabilityoriented consumers.

SUSTAINABILITY AND PRICING ON THE SHELF

Given market dynamics, companies wonder what attributes and magnitude in performance influence consumers to purchase specific products. It is well-known that softness is correlated to shelf prices for bath tissue, while water absorbency is the major performance attribute for paper towels (kitchen towels) 12,13. As expected our observations from the

Figure 3: Kitchen Towel Water Absorbency and Pricing in North America (2017 & 2018)

field show that shelf prices of products that are perceived to be sustainable tend to be higher than those of traditional products. Specific data for the kitchen towel market segment suggests that sustainable products have higher shelf prices (48% higher) and lower water absorbency (37% lower) compared to the average product offering (Fig. 3). The samples used in this study were collected in 2017 and 2018, with products representing over 90% of the U.S. kitchen towel market.

From our detailed product analysis, we found that shelf price for “sustainable products” within the kitchen towel category increased ca. 7% from 2017 to 2018 and ca. 2% from 2018 to 2019. More recent and complete data is available for 2019, if interested please contact the authors.

State-of-the-art market research has found that the greatest barrier to purchasing eco-friendly tissue paper products has been related to higher relative price, availability in stores, and poor communication of product attributes14. Previous studies also neglect the effect of product performance on the purchase decision process. It seems that consumers might be unsure of the trade-off (perceived benefits versus higher price) and do not

12 De Assis, T., Reisinger, L. W., Pal, L., Pawlak, J., Jameel, H., & Gonzalez, R. W. (2018). Understanding the effect of machine technology and cellulosic fibers on tissue properties–A review. BioResources, 13(2), 4593-4629. 13 Wang, Yuhan, Franklin Zambrano, Richard Venditti, Sudipta Dasmohapatra, Tiago De

Assis, Lee Reisinger, Joel Pawlak, and Ronalds Gonzalez. «Effect of Pulp Properties,

Drying Technology, and Sustainability on Bath Tissue Performance and Shelf Price.»

BioResources 14, no. 4 (2019): 9410-9428 14 Barbarossa, C., & Pastore, A. (2015). Why environmentally conscious consumers do not purchase green products. Qualitative Market Research: An International Journal.

Figure 4: Relative price of sustainable products per performance tier in North America

Figure 5: Kitchen Towel Technology in North America take initiative to research product attributes except for a narrow segment of consumers15 . In our annual hygiene tissue benchmark analysis, we have classified tissue product offerings (consumer tissue) into three tiers, Economy, Premium, and Ultra (using those product performance metrics with higher correlation to pricing). We found that almost all sustainable products were located within the Economy tier, a few in the Premium tier, and none in the Ultra tier (Fig. 4). The few sustainable Premium products had lower average prices than those in the Economy tier, showing an expected inconsistency in the price-attribute-performance relationship. We know that for those “sustainable products” price does not correspond to performance but also found that manufacturing cost does not align with the price. The least expensive tissue production technology, light dry crepe (LDC), is the most commonly used technology for sustainable kitchen towels (Fig. 5)16 . While sustainable products typically fall into the Economy tier with lower performance, we expect a shift towards higher-quality manufacturing technology and in turn, better performance of sustainable products.

BUSINESS STRATEGIES AND IMPLICATIONS BASED ON FINDINGS

While the larger national brands do not aggressively promote their products as sustainable, they appear to be working to improve their perceived sustainability by enhancing their manufacturing processes, through corporate giving or other strategies. A strategic approach that national brands are implementing is to use more recycled and alternative fibers in Away-from-Home products where attributes such as absorbency are less valuable. This approach is illustrated by Kimberly-Clark’s GreenHarvest Products 17. Another example can be seen from Georgia-Pacific, the largest national producer to create a new line for sustainable bath paper called Aria in addition to their existing EcoComfort line. Both of these product lines incorporate sustainability at a number of steps in the production process including materials selection and process improvements . Each of the large producers is taking a different approach but all are beginning to make sustainability a priority. The tissue industry is in a transition as it adapts i) to the behavior of the next generations driving demand and ii) the increasingly competitive nature of the industry. All companies are interested in being perceived as sustainable, but there are clear needs for a better understanding of the standards that can be uniformly used and accepted across all stakeholders. It is still not clear what specific factors are driving the purchase of sustainable tissue and towel products, and what performance/price trade-offs consumers are willing to risk. It is also not clear how consumers will reward market leaders who develop new product lines that are truly sustainable and that have documented performance advantages. The Tissue Pack Innovation Lab at NC State is currently leading scientific research to answer these questions.

15 Cone Communications. (2015). 2015 Cone Communication/Ebiquity Global CSR Study.. Boston, MA: Cone Communications. 16 De Assis, T., Reisinger, L. W., Pal, L., Pawlak, J., Jameel, H., & Gonzalez, R. W. (2018). Understanding the effect of machine technology and cellulosic fibers on tissue properties–A review. BioResources, 13(2), 4593-4629. 17 Kimberly Clark Professional. (2020). Kimberly-Clark Professional Launches Innovative GreenHarvest Products Made With Rapidly

Renewable Plant Fiber. Retrieved 2 February 2020, from https://www.prnewswire.com/news-releases/kimberly-clark-professionallaunches-innovative-greenharvest-products-made-with-rapidly-renewable-plant-fiber-300073191.html 18 Georgia-Pacific. (2018). Georgia-Pacific Sustainability Highlights. Retrieved from https://www.gp.com/wp-content/uploads/2019/11/sustainability-highlights-brochure-georgia-pacific.pdf