Tissue World Focus Report: USA by Tissue World Magazine

STATE OF THE NATION T&T THE USA A market going through fundamental change From slick direct-to-consumer start-ups to the rise of the bidet Euromonitor International Still leading the race, but pedalling harder to keep ahead Fisher International â&#x20AC;&#x153;All of us are feeling the impact of changing dynamics in the workforce.â&#x20AC;? Steve Peters, Bedford Paper, Wisconsin 2020 will see three times the volume of new capacity entering the market than in 2019 AFRY Management Consulting Published by

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Introduction

News

AFRY

Fisher

Marcal Paper

Welcome to the Focus Report: USA, Tissue World magazine’s exclusive report on the world’s leading tissue market.

South Florida Tissue Paper

News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Bedford Paper

Euromonitor

2019 brought relief to tissue’s cost environment – now 2020 will see three times the volume of new capacity entering the market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

FOCUS Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A round-up of news from across America.

AFRY Management Consulting’s Sanna Sosa, principal, and Soile Kilpi, director, report on emerging US trends – from M&As to asset renewals, the shift from multi-small sites to versatile mega-plants, project cost inﬂation, and a potential return for recovered ﬁbre.

US tissue: still leading the race, but pedalling harder to keep ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Americans have the highest expectation of all tissue consumers for range of choice and quality. Bruce Janda, senior consultant, Fisher International, takes a comprehensive look at the history of tissue production in the US, and the powerful dynamics shaping the future market.

Q&A: Marcal Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Merger with Nittany ‘pathway’ to saving brand after devastating ﬁre. We interviewed chief executive Rob Baron to get the latest.

Q&A: South Florida Tissue Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

With major expansion plans on the cards and a ﬁrst venture into the retail industry, South Florida Tissue Paper’s vice president Juan Corzo Jr. spoke to Focus Report.

Q&A: Bedford Paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

As technology advances, the changing dynamics of a quality workforce become more important. We interviewed company manager Steve Peters.

Facing the ‘disruptors’ in a US market going through fundamental change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

From slick direct-to-consumer start-ups to the rise of the bidet, consumer habits in the sales leading nation are never standing still. Report by Svetlana Uduslivaia, head of research, home & technology, Euromonitor International.

www.tissueworldmagazine.com

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Introduction

Helen Morris Senior editor, Tissue World magazine

EDITORIAL HEADQUARTERS

020 is set to see three times the volume of new capacity entering the US tissue market. The easing of the pulp price crisis has meant new energy levels in already strong business, as our contributors to Focus Report demonstrate. Yet the challenges remain. Excess capacity is always a concern, and fears over extreme over-capacity in China have only relatively recently waned. M&A activity has decreased, asset renewals have become a preferred model; versatile mega-plants with advanced energy strategies are replacing multi- small sites, automation technology has advanced to such an extent that finding the trained talent to operate it is a problem;

walk through the doors at the Miami Beach Convention Center fully informed. At the start of a new decade, peers, competitors and industry insiders will analyse the world’s leading tissue market. Themes will include: • Record high pulp prices from 2018 turned into decline in 2019; how is the sector recovering? • Is consolidation coming to the US tissue industry? • Will investments in new capacity continue to be favoured over M&A? • As mid-market movers continue to bring private label focused capacity online, what does the growing trend mean for the

the age of the workforce and an image problem in terms of attracting young and bright talent with new ideas is a developing concern. As is project cost inflation. The recovered paper market needs a fundamental re-shaping – it’s an opportunity – after the Chinese chose to abandon much of its foreign waste policy. Packaging, distribution, direct customer retailing, increasing pressure over sustainability among millennials in particular, the rise of private label, and an increase in popularity of that most French icon … the bidet. There’s never a dull moment. Focus Report is published to offer top level business intelligence to coincide with Tissue World’s leading trade show held in Miami in March 2020. The aim is to have you

market? • Could the growth of tissue consumption per capita in the United States finally peak and start to decrease? • Will American tissue mills continue to change hands and consolidate? • What new challenges and opportunities will environmental regulations bring?

Informa Markets – Singapore 10 Kallang Avenue, #09-16 Aperia Tower 2, Singapore 339510 Tel: +65 6233 6688 Fax: +65 6233 6633 Deputy Event Director & Publisher Agnes Gehot: agnes.gehot@informa.com Senior Editor Helen Morris: helen.morris@informa.com

Introduction

FOCUS ON THE CHANGING DYNAMICS FOR THE GLOBAL TISSUE LEADER

Some trends are certain in the decade ahead. Relatively old US tissue machinery is not getting younger. And Americans, who have the highest expectation of all tissue consumers for range of choice and quality, are not going to accept any less. As our Fisher International analysis suggests … US tissue is still leading the race, but is having to pedal harder to keep out in front.

Tissue World USA Focus Report is a single publication, produced by Tissue World magazine. It can be purchase combined with the Tissue World Miami Show Guide for $60/copy. Please send your inquires to info@tissueworld.com. In Tissue World all measures are metric and all dollars ($) are US dollars, unless otherwise stated. Copyright 2005 – 2020 by Informa Markets –Singapore. All rights reserved. All materials printed in Tissue World magazine is owned by Informa Markets – Singapore and protected under the copyright act. No material may be reproduced in part or in whole without the prior written consent of Informa Markets – Singapore.

Executive Director Chris Kilbee: chris.kilbee@informa.com CEO Margaret Ma Connolly: margaret.connolly@informa.com

Tissue World Magazine | Focus Report 2020

News

NEWS K-C reports “excellent progress” in yearend results Kimberly-Clark (K-C) has used its latest results to emphasise its plan to deliver topand bottom-line growth in 2020. It reported fourth quarter 2019 net sales of $4.6bn, while full-year 2019 net sales were $18.5bn, both even with the year-ago period. Net sales in 2020 are expected to increase 1% year-on-year. Mike Hsu, chairman and chief executive, said: "Our fourth quarter results capped off a year of excellent progress at KimberlyClark. “For the full year of 2019, we delivered 4% growth in organic sales and in adjusted earnings per share, both ahead of our original outlook for the year. “We also achieved strong margin improvements, generated $425m of cost savings and returned $2.2bn to shareholders through dividends and share repurchases. “At the same time, we launched innovations, pursued our growth priorities and increased our investments behind our brands and in capabilities to position us for longer-term success.” He added that in 2020, the plan is to deliver top- and bottom-line growth whilst increasing its growth investments. “We remain very optimistic about our opportunities to deliver balanced and sustainable growth and create long-term shareholder value,” he said. The company’s fourth quarter 2019 operating results were impacted by changes in foreign currency exchange rates which reduced sales by 2% and business exits in conjunction with the 2018 Global Restructuring Programme which reduced sales slightly. In North America, organic sales increased 3% in both consumer products and in K-C Professional. Outside North America, organic sales rose 3% in developing and emerging markets and 1% in developed markets. Fourth quarter operating profit was $751m in 2019 and $639m in 2018. In the personal care segment, fourth quarter sales of $2.2bn increased 1%. Net selling prices increased 2% and product mix improved approximately 2%. Fourth quarter operating profit for the 2

Tissue World Magazine | Focus Report 2020

segment was $445m, an increase of 2%. Sales in North America increased 2%. In the consumer tissue segment, fourth quarter sales were $1.5bn, an increase of 1%. Net selling prices increased 3%, while volumes declined 1% and changes in currency rates reduced sales 1%. Fourth quarter operating profit of $281m increased 36%. The sector’s results benefited from higher net selling prices, cost savings and lower input costs. Sales in North America increased 4% while sales in developing and emerging markets decreased 2%. Sales in developed markets outside North America decreased 2%.

Marcal Paper - “back in business”; finalises merger with Nittany Paper Marcal Paper has returned to regular papermaking operations in New Jersey, America, in January, less than one year after a 10-alarm fire destroyed its iconic manufacturing facilities and caused the immediate shutdown of the business. President and chief executive Rob Baron, said: “We are thrilled to announce that we will officially be back in business. “The prospect of such an announcement seemed impossible eleven months ago, when a devastating fire eliminated eighty years of manufacturing history in less than eight hours. “Thanks to the support we have received from the awesome New Jersey community, and the efforts of our entire team, we will soon return to regular papermaking operations in Elmwood Park. “We understand that many in our family lost a lot the day the fire struck our mill, and we have done everything possible to try to help them recover. “We also understand what Marcal means to Elmwood Park, to Bergen County and to New Jersey as a whole; we were - and now will be again - the one and only recycled tissue manufacturer in the Garden State.” In the days ahead, the company is gathering at the mill to officially restart Marcal, and “launch a new chapter in what is a uniquely New Jersey story”. In the immediate aftermath of the fire, Marcal coordinated an aggressive programme of assistance for those team

members whose jobs were lost that day. State and local officials and dozens of employers connected associates with new employment opportunities and critical human services, and Marcal provided associates with financial assistance and extended health insurance coverage. Marcal has also finalised a merger with Nittany Paper, a converting operation in Pennsylvania, to ensure that the paper rolls manufactured in Elmwood Park can be converted into final product for sale. The fire substantially destroyed sixteen acres of property, including twenty-one paper converting lines. By merging with Nittany, Marcal said it has “secured the only viable pathway to restarting operations in Elmwood Park now, and saving its brand, while leaving open future opportunities for growth or redevelopment at its site in New Jersey”. Baron added: “We did not want to just start up some machines and fail. From day one, we wanted to give ourselves a fighting chance to hire back as many people as we could, as fast as we could, while ensuring we had a viable, sustainable roadmap to thrive - in a very challenging market. “We’ve all waited 330 days to be able to say that Marcal was ‘back in business.’ That day has arrived.” TWM visited the impressive Marcal mill for its north-eastern USA Regional Report in May/June 2016.

Essity reports 8.8% net sales increase Essity has said price increases, improved product mix and higher volumes have resulted in growth and profitability in its year-end report. Between 1 January – 31 December 2019, net sales increased 8.8% to SEK128,975m, compared with SEK118,500m from the same period a year ago. Emerging markets accounted for 37% of net sales and saw an increase in organic net sales of 9.1%. EBITA increased 31% to SEK 15,127m while profit for the period increased 19% to SEK10,212m. The company said the implementation of price increases, a better product mix, higher volumes, cost savings and lower raw material costs positively impacted earnings. However, stock revaluations due to lower raw material prices and higher distribution costs had a negative impact on earnings.

Kimberly-Clark (K-C) has confirmed it will permanently close its Fullerton, CA, tissue plant in the first half of 2020. The move is part of previously announced restructuring plans that will see the company closing around 10 sites and cutting 12 - 13% of its global workforce in a bid to improve costs. The Fullerton plant was opened in 1956 and employed 330 people. Company spokesperson Terry Balluck

Focus Report: News

Kimberly-Clark to permanently close Fullerton plant

During the year, the company said it “increased growth, improved profitability and strengthened our competitiveness for the future”. This was done through innovations and investments in sales and marketing that it said strengthened its market positons and brands. The company’s online sales also increased to SEK13bn, corresponding to 10% of net sales. Price increases and an improved product were also noted in all business areas. The group-wide cost-savings programme was concluded at the end of 2019. Activities to improve underperforming market positions continued and resulted in improved profitability in several markets. In Latin America, the company strengthened its market positions and organic net sales increased 10%. The company’s China-based subsidiary Vinda strengthened its position as market leader in tissue and launched Feminine Care with the Libresse brand. In Asia, organic net sales rose 11%. Additional sustainability targets for packaging were also established, with a particular focus on plastic packaging. The company also invested in sustainable technology for alternative fibre for tissue production. In consumer tissue, the company reported net sales of 10.6% to SEK49,904m for the January-December period. Emerging markets accounted for 47% of net sales.Adjusted EBITDA increased 60% to SEK5,321m. This increase was mainly due to higher prices, a better mix, higher volumes, lower raw materials and energy costs, and cost saving. In the consumer tissue business, the company has finalised some negotiations and agreed on price decreases in Europe. The company added that the decreases are on “average low single-digits” and will have an impact in the first quarter of 2020.

Clearwater Paper appoints Arsen S. Kitch as CEO Clearwater Paper has appointed Arsen S. Kitch - the company’s senior vice president and general manager of its consumer products division - as chief executive as of 1 April. He succeeds Linda K. Massman, who the company said will retire from Clearwater Paper after serving in the chief executive position since January 2013. The company also announced that Alexander Toeldte transitioned from chair to independent executive chair of the board on 1 March. Kitch has served as senior vice president and general manager of Clearwater Paper’s consumer products business since 2018. Prior to that, he served as vice president of finance and vice president of financial planning and analysis since joining the company in 2013. He said: “Today, Clearwater Paper has a healthy business and a strong team focused on driving results and building on our recent momentum of solid operational results.” Clearwater Paper manufactures quality consumer tissue, AfH tissue, parent roll tissue, bleached paperboard and pulp. said: "We announced the closure of the Fullerton facility in January of 2018, as part of our global restructuring programme. “These business decisions are not taken lightly, and our priority continues to be on our employees and supporting them through this transition." Headquartered in Irving, Texas, KimberlyClark makes tissue products including Kleenex, Kotex, Cottonelle and Huggies.

Irving boosts ultra-premium capacity with TAD investment Irving Consumer Products invests in second TAD machine following Macon start-up. The machine is planned to start-up in 2022 and will increase the company’s production of ultra-premium products to the North American market, adding 75,000tpy to Irving’s current production. It is a repeat order of the Advantage ThruAir machine that was started up by the company 2019. Valmet’s scope of delivery will comprise of a complete tissue production line with

stock preparation equipment. The new line will include an Advantage ThruAir tissue machine including an OptiFlo II TIS headbox, ThruAir Dryers and Air system and an Advantage SoftReel reel. It also includes mist and dust systems, automation systems, basic mill engineering and advisory services. The value of the new order is not disclosed. Robert K. Irving, president of Irving Consumer Products, said: “The new TAD machine will help Irving Consumer Products continue to grow and deliver ultra-premium quality tissue paper products to our customers.” Previously Valmet has delivered one ThruAir machine to Irving’s Macon, Fort Edward, Toronto site, as well as carried out major rebuilds of tissue machines TM1 and TM2 to Saint John. Irving recently announced it is doubling capacity of ultra-premium household paper products at its Macon plant and is immediately initiating an expansion of the plant. Tissue World Magazine | Focus Report 2020

AFRY Management Consulting

2019 BROUGHT RELIEF TO TISSUE’S COST ENVIRONMENT – NOW 2020 WILL SEE THREE TIMES THE VOLUME OF NEW CAPACITY ENTERING THE MARKET

AFRY Management Consulting's Sanna Sosa, principal, and Soile Kilpi, director, report on emerging US trends – from M&As to asset renewals, the shift from multi-small sites to versatile mega-plants, project cost inflation, and a potential return for recovered fibre.

Sanna Sosa Principal, AFRY Management Consulting

fter high input costs drove tissue sector pains in 2018, 2019 was a return to a more normal operating environment for tissue manufacturers. Tissue demand was stable and producers were finally able to implement tissue product price increases by direct price changes, as well as continuing

65,000 short tonnes. In preparation for new and more efficient capacity to come on line, GP and Cascades have both closed highcost tissue manufacturing assets in 2019, while Kimberly-Clark (K-C) has slated their Fullerton, CA, mill for closure during the first half on 2020.

sheet count reductions, to pass through the previous year’s pulp price escalation. Also supporting the positive tissue sector operating environment in 2019 was only modest net tissue supply growth, with a mere 115,000 short tonnes (net) of new capacity coming online from Clearwater, Irving and Georgia-Pacific (GP). However, three times the capacity additions in 2019 are expected to start hitting the market in 2020. The total 2020 new capacity growth is expected to be 365,000 short tonnes, minus exits estimated currently at around

Aside from modest capacity growth, 2019 did not bring any significant changes to the industry supplier structure, as tissue manufacturing sector M&A activity remained meek. The notable exception was Cascades acquisition of Orchids Paper assets and hence consolidating the private label tissue space, and especially the growing recovered fibre-based retail private label tissue supply landscape.

GRAPH 1: TOP TISSUE PRODUCERS IN NORTH AMERICA

Soile Kilpi Director, AFRY Management Consulting

Tissue World Magazine | Focus Report 2020

Asset renewal programmes by the leading players Rather than marching the path of mergers and acquisitions, the tissue sector’s leading players have focused on asset renewal. The reasons for their favouring of new build capacity over M&A include that the top three companies already dominate two thirds of the retail tissue market, and hence there just aren’t many tissue brands to buy. Nor are there many manufacturing assets that would complement their product portfolios, especially on the retail tissue side. GP continues to be the largest tissue manufacturer in North America, with capacity as large as the number two, P&G, and number three, K-C, combined. After some time on the sidelines, GP has been actively renewing its tissue mill assets over the past year or so. In 2019, it brought on line a $400m investment at Palatka, FL, on a new TAD machine and converting operations to expand its premium private label towel and branded retail towel capacity. At the same time, GP was rationalising its production platform and in conjunction with a closure of bleached board manufacturing at Crossett, AR, one of the mill’s older and smaller tissue machines was also closed. At its other Southern US mill in Pennington, AL, the company is investing $120m in a new tissue machine and roll storage building. The new line is expected to replace two older machines at the site late this year. After K-C announced a massive workforce reduction - cutting 13% of its workers and closing down ten plants company-wide in 2018 - similar to GP the company is now back on track of renewing its assets on multiple fronts. There is a $100m investment in Mobile, AL, towards tissue machine replacement to improve efficiency and quality. The mill has capabilities to process both virgin and recycled fibres and has received significant capital improvement projects over the recent years. And that is not all. K-C has $235m capital improvement plans at Beech Island, SC, and Jenks, OK, manufacturing complexes. The capital programme includes expansion of the Jenks mill and installation of a new tissue machine and converting operations to manufacture facial and bath tissue

products, and is expected to be completed in 2020. Similarly to GP, to balance its capacity footprint K-C announced the closure of its two tissue machines at Fullerton, CA, removing 67,000 short tonnes of capacity. All of the top three tissue manufacturers are investing. In early 2019, Procter & Gamble (P&G) committed to its plan to expand operations at its Box Elder, UT, plant, which was originally built in 2011. The $310m announcement will create 221 jobs in Utah. Across its businesses, P&G has been shifting its manufacturing strategy from many small plants to versatile mega-plants. Growth of Box Elder seems to align with the strategy.

Mid-market movers and shakers continue to bring private label-focused capacity on line In addition to the asset renewal projects by the leading players, the mid-size tissue manufacturers continue to bring private label focused new tissue capacity online [FIGURE 1]. However, running large scale tissue capacity growth projects on time and budget has proven to have its challenges. Clearwater Paper completed its Shelby, NC, expansion project during the first half of 2019. The Shelby expansion is now successfully running, but had challenges with a tight construction labour market and building material cost inflation causing the project to cost $80m more than the $340m budget originally estimated at the beginning of the project in 2017. Irving Tissue’s state-of-the-art Greenfield tissue production plant in Macon, GA, was inaugurated in late 2019, and similar to the Shelby project, the announced project cost of $470m appears to be about $70m higher than the original estimates provided in 2018. But, the potential construction budget increase did not cause Irving Tissue to slow down its US South premium quality tissue growth plan. The company confirmed an additional $400m expansion project to add another TAD tissue machine by 2022. In 2020, both First Quality Tissue and Sofidel are on schedule to bring on line the final additions to both companies’ so far announced North American growth plans. First Quality Tissue’s footprint will soon consist of seven high quality, TAD, private label-focused tissue machines with total capacity of close to half a million tonnes at two mill sites in Anderson, SC, and Lock Haven, PA. Sofidel’s North American platform will expand to six tissue machines with 370,000 Tissue World Magazine | Focus Report 2020

Focus Report: AFRY Management Consulting

A notable characteristic of the North American tissue industry is that although there are many small and medium-size producers behind the big three producers [GRAPH 1], there has been little M&A activity over the past few years. It is very typical for industry consolidation to take place in markets with industry structure similar to the tissue sector, especially when market demand growth is only modest – which, tissue demand growth rate is at 1-2%/a. Typically, in industries with similar fundamentals, the industry leaders grow their market share via acquisitions, or the medium scale players aim to become one of the industry leaders via M&A. Cascades acquisition of Orchids did move Cascades up one notch from the fifth largest tissue producer to the fourth largest tissue producer ahead of Essity in North America. Orchids’ acquisition price was $237m, with about five times implied acquisition multiple, which is well aligned with the typical Canadian Paper & Forest Products trading range of five-seven times, according to RBC Capital Markets. Cascades disclosed their logic for the acquisition to be “low risk strategy to modernise Cascades asset portfolio”. The Orchids business did come with two mills in Barnwell, SC, and Pryor, OK, with about 110,000st/a of premium and value quality recycled tissue capacity targeted for the retail private label market. The Orchids Paper mills had had an aggressive capital investment programme in the years leading to the acquisition. In 2015, Orchids Paper invested $39m for a 17,000 short tonnes tissue machine to replace an older, smaller one at the Pryor mill. An additional $165m was invested in a new QRT tissue machine along with converting lines and a deinked pulp line at Barnwell in 2017. However, Cascades has already announced to convert the Barnwell QRT machine to conventional tissue manufacturing technology. Capex details for the conversion were not published, but based on AFRY’s estimates, could range between $5 - $10m. In addition to modern assets, the acquisition will eliminate tissue outsourcing contracts Cascades has had in place and will optimise the company’s operations footprint. Closures of Waterford, NY, and Kingman, AZ, converting plants have been announced. Another new merger in the industry is Marcal, which is coming up from a devastating fire at their Soundview, NJ,

plant, merging with a Pennsylvanian converter Nittany. The merger creates an integrated recovered fibre based Awayfrom-Home tissue product supplier, but, again will not change the overall all tissue industry structure or supplier landscape.

Investments in new capacity continue to be favoured over M&A

FR AFRY Management Consulting

short tonnes of production capacity on three mill sites in Oklahoma, Ohio, and Florida. The mills in Inola, OK, and Circleville, OH, have both been built since 2018 and each houses two tissue machines with integrated converting operations. Circleville investment cost estimates have ranged around $300m, while the more recent Inola project has been reported to have a $360m budget, which is consistent with the observed growing capex requirement trend with tissue mill investments..

FIGURE 1: TISSUE CAPACITY EXPANSIONS & CLOSURES 2019-2023

The crucial role of fibre costs for the tissue sector To change gears from investment costs to operating costs, fibre costs represent 60-80% of market pulp and about half of recovered fibre-based tissue product manufacturing costs, and hence are a significant driver for tissue companies’ performance. 2019 brought relief to tissue

mixed paper in fibre furnish. In a tissue manufacturing context, mixed fibre use could work especially in the brown AfH product context and could be possible with relatively low capex upgrades and

plans is the apparent project cost inflation, which has added, order of magnitude, 20% on original project cost estimates. Low likelihood of mega mergers. The tissue sector top suppliers chart 2021

companies’ cost environment. The record high pulp prices in 2018 turned into decline in 2019, falling by close to 30% from peak pulp prices only a year earlier. The developments in recovered fibre markets and recovered fibre prices have been even more dramatic than in market pulp over the past year. Sorted Office Paper (SOP) price fell close to 60%. As a result, tissue companies were able to show improving EBITDA performance throughout 2019. Over the past years we have observed tissue companies adjusting their fibre furnish slowly away from recovered fibre. Based on AFRY’s estimates, in mature markets recovered fibre has lost 5% share of tissue furnish over the past decade. The change has been driven both by growing product quality needs, but also due to concerns over continued high quality recovered fibre

modifications in tissue mill recovered fibre screener and washer systems. US retailers have been expanding their private label tissue product portfolios with recycled fiber content product line additions. Both Target and Albertsons launched 100% recycled fibre content private label tissue products in 2019, following Walmart’s footsteps from a year earlier. Although still a small segment of the market, most of the leading US supermarkets do offer recycled fibre content private label products. Interestingly, there appears to be only a few main sources for recycled fibre based private label tissue products in North America – Cascades, Georgia-Pacific, Kruger and Soundview. Aligned with the search of more fibre raw material options, the map of tissue capacity changes [FIGURE 1] includes one interesting

edition is likely to look very similar to the 2020 edition in this article. The sector will likely continue to favour capacity build up and asset renewal over radical M&A. We are most likely to see M&A activity relating to vertical integration. Opportunities with recovered fibre. The Chinese exit from the global recovered fibre market has created a domestic recovered fibre surplus, which offers opportunities for tissue mills to innovate with low cost and positive environmental image raw material. Although it is yet to be seen to what extent the US consumer market – where product quality, softness and bulk is king - is ready for recovered or alternative fibre content tissue products.

availability driven by declining consumption of office papers and printed media overall. However, China’s implementation of the National Sword programme to limit imports of recycled materials to China, including recovered fibre, has brought a dramatic change to recovered fibre availability and prices in North America. If SOP prices declined by close to 60% in 2019, the value of Mixed Paper collected typically from residential recycling bins plummeted to worthless after China stopped buying it in early 2018. Over the past decade, Mixed Paper prices typically fluctuated between $50 and $100/tonne, but currently Mixed Paper is offered to domestic paper mills practically for free. Hence, both the packaging and tissue mills have shown interest in increasing use of

tissue mill plan on the Pacific Northwest in Dallas, OR. Mint Valley Paper might have a unique approach to tissue product fibre raw material in the North American context. The company has disclosed interest in exploring alternative fibre sources for the mill, potentially using wheat straw pulp from the close-by Columbia Pulp wheat straw pulp mill in Eastern Washington.

Tissue World Magazine | Focus Report 2020

Future directions Capacity growth risk. 2020 will see three times the volume of new capacity entering the market than in 2019. While the demand growth rate is not expected to triple, the tissue sector might face some short term over capacity, unless closures of older high cost capacity relieve the supply pressures. Another risk factor for the capacity growth

IF SOP PRICES DECLINED BY CLOSE TO 60% IN 2019, THE VALUE OF MIXED PAPER COLLECTED TYPICALLY FROM RESIDENTIAL RECYCLING BINS PLUMMETED TO WORTHLESS AFTER CHINA STOPPED BUYING IT IN EARLY 2018. OVER THE PAST DECADE, MIXED PAPER PRICES TYPICALLY FLUCTUATED BETWEEN $50 AND $100/ TONNE, BUT CURRENTLY MIXED PAPER IS OFFERED TO DOMESTIC PAPER MILLS PRACTICALLY FOR FREE.

Fisher International FR

US TISSUE: STILL LEADING THE RACE, BUT PEDALLING HARDER TO KEEP AHEAD

Focus Report: Fisher

oday’s United States consumer tissue industry appears to be an anomaly when compared to other domestic paper grades and the international pulp and paper business in general. At a time when major players are actively consolidating in mature markets, the US is attracting new entrants into tissue production. The beginning of the 21st-century marks a new dynamic for US tissue production. In the 1970s it was concentrated among four large players: Kimberly-Clark (K-C), Procter & Gamble (P&G), Scott Tissue, and American Can (James River). These four controlled an overwhelming majority of the nationallybranded tissue share. Television advertising was costly and could only be supported with large share, and brand owners had the power to dictate terms to tissue retailers. Many stores and

chains tended to use one of the notable brands to manage their paper aisle and choose competitive brand placement. Each producer had its own TAD technology for producing advanced structured tissue. Private labels were a small share of total tissue sold and tended to be considered generic quality. At the same time, the commercial tissue segment consolidated to only three major players that had well over 80% market share: Georgia-Pacific (GP) Commercial Tissue, Kimberly-Clark (K-C) Professional, and Essity (SCA, Wausau/Bay West). In the last 25 years, K-C acquired Scott Tissue and GP acquired Fort James (consisting of James River and Fort Howard with some legacy GP Tissue), and P&G built a new mill in Utah to better serve the west coast, giving the big three consumer

NOW IN 2020, WE STILL HAVE THE AMERICAN COMMERCIAL TISSUE MARKET DOMINATED BY THREE LARGE COMMERCIAL PRODUCERS (GP, K-C, AND ESSITY). BRANDED CONSUMER TISSUE IS STILL DOMINATED BY THE SAME THREE CONSUMER PRODUCERS (GP, K-C, AND P&G). BUT MANY NEW PRODUCERS HAVE ARISEN TO MAKE CONSUMER PRIVATE LABEL TISSUE FOR LARGE CHAINS.

Figure 1

Bruce Janda Senior consultant, Fisher International

tissue producers global or multi-regional production. The stage was set for a very consolidated American tissue industry with three large consumer tissue manufacturers and three sizeable commercial tissue manufacturers. Now in 2020, we still have the American commercial tissue market dominated by three large commercial producers (GP, K-C, and Essity). Branded consumer tissue is still dominated by the same three consumer producers (GP, K-C, and P&G). But many new producers have arisen to make consumer private label tissue for large chains and club warehouse stores.

Figure 2 Tissue World Magazine | Focus Report 2020

FR Focus Report: Fisher

P&G and GP withdrew from their European mills making K-C the only American-based tissue company operating outside of the United States. Meanwhile, producers from Canada and China have acquired and built tissue assets in the US. Figure 1 shows the production by each American tissue company from 2007 to 2023 based on announced capacity changes. Each colour represents a different company. Several companies came into or went out of existence during this period. US production volume of all tissue grades increased at a CAGR of 0.96% over this time and is projected to grow at 1.07% through 2023. Two of the big three producers appear to have experienced share erosion as K-C and P&G have not added any new machines in this period (breaking news from the Box Elder, Utah paper that suggests that P&G could be adding a second machine soon). However, production numbers don't tell the whole story. Figure 2 shows the evolution of US tissue imports from 2007 through 2018. These have been trending up significantly. Canada is the largest supplier, followed by China,

Figure 3

Deinked fibre makes up 33% of the total tissue production, and not deinked texture adds another 5%. The combined total of 38% recycled fibre is one of the highest recycled tissue fractions in the world. This is largely driven by the highly recycled content in the commercial tissue segment. Tissue fibre integration with pulp supply has become a significant driver of cost in the tissue business. The amount of integration for consumer or retail tissue production is shown in Figure 6. About 23% of consumer tissue production is integrated with virgin pulp production, and 16% is integrated with recycled fibre production. Baled pulp represents 61% of production, much of this is imported, including eucalyptus pulp from Brazil for increased softness. Figure 7 shows the same analysis of integration for the commercial or AfH tissue mills. Some 84% of all fibre comes from integrated recycled plants co-located with the tissue machines. Only 7% of production comes from virgin fibre integrated sites. Comparing Figures 6 and 7 illustrates one of the significant differences between the consumer and commercial tissue grades in

Figure 4

Figure 5

Indonesia, and Mexico, with small growth from Italy. US tissue exports are shown in Figure 3. Again, Canada is the largest, trading with a virtual balance in trade either way. Japan and Mexico are the other main customers of USAID tissue production. The US is a net tissue importer, with exports representing about 60% of the average import volume. The United States tissue grade structure is shown in Figure 4. Consumer tissue represents 65% of the total volume produced and 34% of production, while speciality tissue remains very small at 1% of the total. Americans have the highest expectation of any consumers for tissue product range and availability when travelling or at work. The product designs for AfH products are significantly different and driven by expectations of the facility host for the performance, quality, and cost that match the business strategy. Most commercial tissue products are designed for very high capacity, quick change, and to prevent waste or misuse. Figure 5 shows the USA tissue furnish breakdown by source type.

Figure 6 Tissue World Magazine | Focus Report 2020

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Figure 7

Figure 9

the United States. Figure 8 provides another way of looking at USA tissue furnished deployment. Consumer bath tissue contains a significant amount of eucalyptus fibre, while consumer towel includes a considerable percentage of northern softwood fibre. Again, the commercial product formats are heavily based on recovered papers, brown fibre, and pulp substitutes. Another unique area is the adoption of advanced technology for structuring the tissue. This structure is wet-shaped and then dried into place to create persistent, three-dimensional topography that is resistant to crushing and maintains its form when re-wet. The three-dimensional aspect of dryembossed tissue is created in converting and does not retain its shape under compression wet or dry. Dry-embossed tissue can appear softer at the expense of strength, but it cannot create the absorbency or softness gains at increased strength that we see with advanced wetshaped technology. The most prevalent advanced tissue technology is TAD. This technology was

Figure 8

Figure 10

developed by P&G at its Green Bay, Wisconsin, facility in the early 1960s. TAD was also picked up by Scott tissue and K-C and spread around the world by these three companies. By the end of the 20th century, enough patents had expired to allow machine builders to sell turnkey TAD systems just at the time private label and warehouse club tissue brands were taking off. TAD requires higher initial capital expenditure and increased electrical power for vacuum pumps and air blowers. It also requires increased natural gas consumption to make up for the lack of mechanical water removal seen in conventional tissue processes. European tissue machine builders have answered with several technologies intended to create TAD-like products with lower capital investment and energy consumption. The first of these was Voith's ATMOS process that was applied in Europe, North America, and South America. This process could be changed from normal tissue making to structured and back in 24-hours. Sample sheets from this process show a

significant structured character, but this tissue product never seemed to take off. Some of these machines are still running in a structured mode. Valmet answered with several iterations that became the NTT process. This process uses a textured press belt that can be changed in one hour to create varying degrees of structure. Again, this process allows swinging from conventional dry crepe to structure, and it's difficult to tell which mode each of the machine is operating. GP developed its own in-house structured tissue process called eTAD, although there is no TAD dryer associated with the process. This process is unique in that fabric creping, another critical technology included in TAD, is added to drive further structuring effects. After an initial rollout, GP seems to be backing away as they deploy additional new TAD machines. They have also sold the rights to this process to Valmet. The little talked about QRT process appears to be a combination of eTAD and NTT. Figure 9 shows the current deployment of advanced structuring technologies in the USA tissue machine fleet. Over 40% of Tissue World Magazine | Focus Report 2020

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production is now advanced technology. Figure 10 shows the deployment of technology firmly on the consumer side representing slightly more than half of consumer bath and about 80% of consumer towel. Commercial bath tissue has less application as high count roles are needed to minimise the labour cost of servicing facilities. It's interesting to note structured technology is having an impact on commercial hand towels because of increased absorbency, softer feel, and a vastly upgraded customer experience versus the old brown wet creped hand towels. Despite this technology, the average American tissue machine is relatively old compared to current or potential sources of tissue imports to the United States. Figure 11 shows both Canada and the United States lag in the average tissue machine technical age. However, the average throughput per inch of machine width on the y-axis remains competitive. China has the newest average machine age, but the machines are relatively narrow. The same set of current and potential tissue trade partners is shown in Figure 12 in a cash cost curve. Brazil, Canada, Turkey, United States, Italy, and Germany all have similar cash costs per tonne of tissue. Indonesia and Mexico have lower labour and fibre costs that tend to give them a cost advantage. This analysis doesn't consider shipping costs. Transporting tissue is a notoriously expensive way to ship air in boxes. High bulk structured tissue is even worse. Mexico's proximity to the United States and favourable trade agreements provides a unique advantage. However, the cost per tonne to

Figure 11

IT'S INTERESTING TO NOTE STRUCTURED TECHNOLOGY IS HAVING AN IMPACT ON COMMERCIAL HAND TOWELS BECAUSE OF INCREASED ABSORBENCY, SOFTER FEEL, AND A VASTLY UPGRADED CUSTOMER EXPERIENCE VERSUS THE OLD BROWN WET CREPED HAND TOWELS. manufactured tissue doesn't tell the whole story. Figure 13 shows the same cash cost curve expressed as equivalent statistical cases. This considers the extra bulk, and therefore reduced fibre content, of the structured technologies to produce a comparable use case of product for sale. The United States, with 42% advanced technology, shifts to third place in low cost next to Mexico and Indonesia. The effect is even more significant than this as consumers tend to pay higher prices for rolls of structured tissue with less fibre. The FisherSolve Next viability curve (Figure 14) provides a more in-depth analysis of tissue machine quality than the average technical age shown in Figure 11. This ranking shows a combination of factors for the average tissue machine in each of the countries in the comparison group. In this case, transportation to Chicago was also included in the analysis. Again, the United States tissue fleet compares well on average and is surpassed only by Mexico and Turkey. The final benchmark chart is carbon emissions per tonne shown in Figure 15. This is a crucial indicator of sustainability in the future and is being incorporated into some country’s environmental rules and leading companies environmental reporting. The results show the United States securely in last place for this metric.

Figure 12

Tissue World Magazine | Focus Report 2020

Two factors probably contribute to this performance. The country has been blessed with very cheap energy, especially natural gas, that has reduced the economic drive to conserve energy. Natural gas in the United States is so cheap that it’s being flared at the wellhead in places without infrastructure for distribution. The higher cost of energy per tonne required for TAD production also plays a part in this analysis. However, the reduced fibre weight of a case of the equivalent product was not considered by this curve. The United States tissue industry should expect pressure from both international activists and domestic consumers if this performance continues. Figure 16 provides another look at energy use by tissue mill configuration in the United States. Both advanced and conventional technology are shown in the bars for the integrated and non-integrated mills. Advanced technology has a higher energy cost per tonne as expected. However, the potential advantage of virgin integrated mills with on-site bioenergy potential is clearly shown for both types of tissue technology. So far, this analysis doesn’t show where competition is going or why the number of American tissue producers has increased instead of consolidating. Porter's Five Forces analysis of market competition provides some ideas.

Figure 13

Figure 15

About Fisher International, Inc. Fisher International, by virtue of its deep expertise in the pulp and paper industry, provides insights, intelligence, benchmarking, and modeling across myriad scenarios. By arming companies with the knowledge that will help them gain a better understanding of their strengths and help identify weaknesses, Fisher is helping businesses stave off challenges and better position themselves for long-term growth. For more information, visit www.fisheri.com, email info@fisheri.com or call +1 203.854.5390 (USA)

Figure 14

Figure 16

Tissue World Magazine | Focus Report 2020

Focus Report: Fisher

more discriminating about sustainability and drive winners and losers among the tissue producers. Could the growth of tissue consumption per capita in the United States finally peak and start to decrease with increased consumer concern about sustainability? This is an area that producers and investors need to watch closely. All the data presented in this report represent averages of a considerable fleet of tissue producers in the United States. Analysis of competitive position requires specifics on tissue producers and individual machines. This article presents a static picture summary of the current American tissue industry. Fibre prices, exchange rates and environmental regulations will change, providing some participants with advantages and others with new challenges. American tissue mills will continue to change hands and perhaps consolidate; neighbouring countries may invest in tissue-making capacity, thus affecting America’s imports and exports.

Tissue producers are being squeezed by the consolidation of the retail channels in the United States to a few large entities with tremendous bargaining power. As private label and warehouse club brands approach 40% of the consumer tissue market, there is less attention and less room for branded tissue products. A typical club store will display two branded tissue products with its private brand. These are always ultra-premium and advanced technology products. The American consumer has shown an overwhelming preference for ultra-premium performance that did not waver during the Great Recession. The power has shifted to the retailers. Amazon has gotten into the act with its Presto brand of TAD bath tissue and consumer kitchen roll towel. The decline of communication paper grades resulted in a shakeout of suppliers of both capital and consumables used in tissue making. Again, the power has shifted away from tissue producers and to their suppliers. The availability of turnkey technology has allowed many new suppliers to jump into and dominate the private label market. The result is a significant intensification of rivalry or competition between American tissue producers. It’s reasonable to expect another shakeout will come as some producers achieve better cost structures or higher performance products from similar inputs. North American tissue making has a poor reputation for tissue converting efficiency versus Europe. High converting waste rates can also drive high carbon emissions as the waste is remade on the tissue machine with additional energy input. Not all advanced tissue technologies are equivalent in quality and productivity. So far, the TAD alternatives have not been able to create a consistent price/performance niche recognised by the major retail outlets. Sustainability factors such as carbon emissions, fibre sourcing, and product design can be expected to play a more significant part in the future. The American tissue consumer could become much

Q&A: Marcal Paper

MARCAL MERGER WITH NITTANY ‘PATHWAY’ TO SAVING BRAND AFTER DEVASTATING FIRE

t the start of 2020, Marcal Paper announced it had returned to regular papermaking operations in New Jersey, America, less than one year after a 10-alarm fire destroyed its iconic manufacturing facilities and caused the immediate shutdown of the business. The fire had substantially destroyed sixteen acres of property, including twentyone paper converting lines. Here, Focus Report interviewed chief executive Rob Baron to get the latest on the company’s development.

Q/1: Following the fire, what do the next few months hold for you? “We are beginning by turning on one paper machine in New Jersey, welcoming back dozens of good people into full-time jobs, and working to restore customer confidence. “That is a significant set of tasks given how much was lost in the fire, but we are confident. We are beginning the long journey of creating a company from the ground up once again.”

Q/2: You've just finalised the merger with Nittany Paper. What does that mean for the company? “Nittany Paper is a converting operation in Pennsylvania. Merging with Nittany ensured that the paper rolls manufactured in New Jersey can be converted into final products for sale. The fire substantially destroyed sixteen acres of property, including twenty-one paper converting lines. “By merging with Nittany, we have secured the only viable pathway to restarting operations in Elmwood Park now, and saving the brand, while leaving open future opportunities for growth or redevelopment at our location in New Jersey, as well.”

Tissue World Magazine | Focus Report 2020

Q/3: What trends are you seeing in America's tissue market? “Following the devastating fire that destroyed our converting lines at our Elmwood Park, New Jersey facility, Marcal now concentrates on the AfH market, manufacturing tissue products for commercial office buildings, hotels, restaurants, hospitals, schools and operators of public facilities rather than private label or At-Home products.”

Q/4: What are the main opportunities in 2020? “We had our fair share of challenges in 2019 and are excited to close that chapter in this new year. We’re looking forward to getting back to work. Our focus is to return to normalcy and restore regular papermaking operations in New Jersey. One opportunity we see is the chance to partner with great customers who want to be part of the rebirth of a great recycled brand. Marcal was – and is now again – the only recycled tissue manufacturer in the State of New Jersey. We can meet the needs of many different types of customers and partners, including those who are facing severe challenges with waste removal, for example. So, we’re excited about the prospects for 2020 and beyond.”

Q/5: And the main challenges? “Starting any business over after the devastating losses we suffered is a challenge, to be sure, and that’s the main one. That said, we believe we have identified a winning pathway for the company. We did not want to just start up some machines and fail. From day one, we wanted to give ourselves a fighting chance to hire back as many people as we could, as fast as we could, while ensuring we had a viable, sustainable roadmap to thrive – in a very challenging market. Marcal has been producing recycled tissue products since 1932. We want our future to be as strong as our history.”

Q/6: How is the American economy impacting the local tissue market? “Simply put, people view tissue as a necessity rather than a luxury good. Marcal stands at-the-ready to fulfil this fundamental hygiene need for our commercial customers, distributors and wholesalers that require tissue products to service their properties.”

Q&A: South Florida Tissue Paper

AMBITIOUS MIAMI COMPANY NEEDS MORE POWER TO DRIVE 25% GROWTH

“We are working with Florida Power Line to restructure the electrical plans of the city,” says Juan Corzo Jr., vice president of South Florida Tissue Paper. The reason – to drive planned major expansions with a first venture into the retail industry, and extend its reach into international markets with South Florida Tissue Paper Company Dominican Republic (Inpaca). Key growth trends are expected in AfH, private label and higher quality grades. Juan Corzo Jr. spoke to Focus Report. We are working with FPL (Florida Power Line) to restructure the electrical plans of the city to accommodate us with more power. This will allow to start a footprint in the retail industry for towel and tissue.”

Q5: What efforts are you making in terms of environmentally-friendly products and production?

Major expansions: vice-president Juan Corzo Jr (left), and his father and company president, Juan Corzo Sr, next to their new and still-under-construction production line

Q1: What has been your growth strategy over the past few years? “Since 2017 we have grown an additional 25%. This is mostly due to the implementation of new automation equipment that has helped us become more efficient in our production, which in turn has helped us better service the increased demand we have been receiving. This equipment includes case packers, automatic plasticisers and stretch wraps. We have also expanded into two additional locations within our town of 20,000sq ft each, allowing us to make modifications and upgrades in our equipment to satisfy the new trends in proprietary products that are made for private label. Such products include specific core sizes, specific widths, coreless items, and special grades in tissue and towel. Our presence in the US market remains nation-wide, attending all 50 states with 18% in private label.”

Q2: How do you plan to continue this growth in 2020? “We plan on growing our line of products. We are also venturing into new sectors of the tissue and towel industry that include retail products and proprietary products that few manufactures are able to produce.

There is a lot of opportunity for us in these sectors as we are seeing a strong increase in demand for them.”

Q3: What growth do you expect to see generally in the American tissue market? “We see the most growth in the AfH industry. Proprietary products with new specifications are growing, as well as new grades of tissue and towel, private label and higher quality grades of paper. We are also in a state with rapid population growth which calls for more demand. We see tourism increasing every year as well, not only in South Florida but within the entire State.”

Q4: Do you plan to invest in new machinery, and if so, what is driving that demand? “We are going through a major project on a new line that will allow us to venture into the retail industry for the first time in our company. This will be our biggest and most modern line up to date and we will add an additional 4,000 - 5,000 tonnes per year thanks to this line. We are currently in the process of installing this new line and the biggest challenge we are facing is in adding additional electrical power to our building.

“The demand for environmentalfriendly products continues to grow and we have grown and adjusted to it. We have renovated our equipment to go from gasoperated to electrical, using paper grades that have a percentage in post-consumer use, implemented water based none toxic glues and continued recycling all of our waste. We see the tissue and towel industry shifting into plastic-free packaging to avoid using less plastic in wrapping of finished goods. And we are seeing major accounts demanding more paper packaging to eliminate plastic wrapping.”

Q6: What are the key challenges you face, and how are you dealing with them? “A major challenge we have been facing is with hiring and training staff. It has become very difficult to hire and maintain production staff. Our strategy to combat this challenge has been to continue upgrading our equipment to more modern and automatic equipment.”

Q7: And the key opportunities for you? “Our main focus right now in growing in the US market with the new line that we will be launching this year for the retail industry. We will also continue to focus our attention on growing in special demands in the proprietary market. This is a big opportunity for us as there are only a few manufacturers that are able to produce these products.” Tissue World Magazine | Focus Report 2020

Q&A: Bedford Paper

AS TECHNOLOGY ADVANCES, THE CHANGING DYNAMICS OF A QUALITY WORKFORCE BECOME MORE IMPORTANT

Bedford Paper is located in De Pere, Wisconsin, where it manufactures tissue paper products for the AfH and AtHome markets. Its product offering includes single roll bath products, household towel, jumbo bath, hardwound towel, centre pull towel, Multi-fold and C-fold towelling. We interviewed company manager Steve Peters to get the latest on the local market.

Q1: What key trends are you seeing in America's tissue market? the C-Fold towelling market, the low but stable volume that we have seen for many years has picked up in demand in late 2019. I have had a lot of requests for single-fold but feel they are mainly as a result of very few companies currently making this type of product. Overall kraft paper products have outpaced bleached products in all towelling. “We are a contract converter and do not market or produce a true private label of a brand for distribution or direct to retail. We support capacity shortfalls for other integrated tissue companies. Our business model is not set up for private label of a brand for distribution or direct to retail. As an independent company this would add complexity to operations for servicing direct retail products. "In the consumer market, consumer small bath and kitchen towel continue to be steady. Large pack retail display ready pallet requirements have grown. We believe this is a result of demand being driven by club pack knockoffs. We have seen a lot of interest in club pack type alternatives, but using less paper on the roll and slightly smaller rolls.”

Q2: What are the main opportunities for your business in 2020? “All of us in the industry are feeling the impact of the available work force and the changing dynamics of this workforce. Attracting and retaining people will become a more competitive battlefield. We need to stay aggressive not only in attracting people, but once you get qualified individuals you need a programme that keeps these people engaged in the company. While wages will be key to getting people, training, development, educating and making your company stand out as different will help retain them. 14

Tissue World Magazine | Focus Report 2020

“I feel that understanding and communicating productivity are also very important. We need to ensure people understand their purpose, company goals and the impact of not achieving them.”

Q3: And the main challenges and how are you responding to them? “For any given situation you need to develop a plan that is specific to your needs. I believe the view of what any company needs may be similar but also different; much of what you need to do is going to be unique to your company based on whatever your internal factors are, such as available human resources, management mindset, priorities or where you may be in your own growth. There is no one answer that fits all other than perseverance and communication.”

Q4: Do you forecast more and more private label products in America? “Private label in America has been growing for years and demand will continue to be there in almost any market segment, whether it be clothing, chemicals or toilet paper. I believe the challenge will be - who wants to make private label products and at what volume does it make sense for a company? Private label does not always equate to large volume, small volume does not equate to profitability.”

Q5: How is automation enabling your business and the tissue industry to grow? “Our facility is highly automated and we have partnered with a company on an electronic initiative to help us understand our operations. We have the ability now to see our converting asset in operation online with a dash board at any hour by the minute. We are collecting and can view operating data while operating to better

understand our operating assets live on site or live remotely. The ability is there to look back on records by day, by shift over a period of days/time. Also in development is a tool that can send us information and data through a notification that something on the converting line is occurring that may be abnormal. This is experimental at this time.”

Q6: How is the American economy impacting the local tissue market? “Business is strong.”

Q7: Are environmentally-friendly tissue products becoming more popular? “We are not seeing a major shift in tissue paper sub-straight products. High quality virgin sub-straights continue to lead the consumer market. Our AfH business continues to be primarily recycled. However, I do see a growing interest in environmentally-friendly packaging.”

Q8: What trends are you seeing in terms of innovation in the tissue industry? “Technology and automation will be the driving force for those that can take advantage of it. Knowledge and understanding of your converting assets while in operation will only improve productivity and of course profitability.”

Euromonitor International

FACING THE ‘DISRUPTORS’ IN A US MARKET GOING THROUGH FUNDAMENTAL CHANGE

Focus Report: Euromonitor

Svetlana Uduslivaia Head of research, home & technology, Euromonitor International

he USA remains one of the world’s two largest retail consumer tissue markets, accounting for close to 17% of the global consumer tissue volume (tonnes) sales in 2019. The country’s share of global sales, however, continues to drop, as growth in demand in developing markets outweighs the growth in the USA. With already one of the highest per capita retail consumer tissue consumption rates in the world, mainly key macrofundamentals shape demand and retail sales in the country. Subsequently, concerns over economic growth and persistent low levels of population growth will continue to impact the industry in the US. Major structural challenges aside, leading brands are also facing a number of disruptors in the long term. In the premium segment – a highly contested area due to better margins – expanding insurgent premium brands are drawing the attention of consumers willing to spend more on household staples, potentially disrupting long-term growth of the established brands and their efforts to strengthen their premium portfolios of consumer tissue products. Additionally, for the industry as a whole, the rising popularity of bidets in the USA can further undermine the already weak organic volume growth of the key product category – toilet paper.

Battle for premium consumers While the majority of consumers in the USA are price sensitive when it comes to household staples like consumer tissue, there is a consumer group willing to spend more on quality and pay a premium. This is the consumer segment many niche directto-consumer (DTC) premium positioned brands are betting on. In recent years, the USA saw the appearance and growth of DTC brands that use subscription-based models to reach consumers, examples being Peach

Goods, Who Gives a Crap and a number of others. Usually featuring young teams, these companies seek to also appeal to a younger consumer base – millennials first and foremost – with the messages of quality, sustainability, mindful consumerism, ethics and community involvement. Free of big brands’ “legacy”, these startups provide a fresh look at consumer tissue staples. The messaging is hitting a sweet spot with some American millennials. Euromonitor Lifestyle surveys released in 2019 indicate that 24% of millennials would rather buy fewer but higher quality products, 21% seek unique brands, and 18% look for personalised tailored experiences. Furthermore, 21% of American millennials indicate that buying eco-or ethically-conscious products make them feel good. Not surprisingly, the proportion of millennials in high income households looking for quality products and more tailored experience is even higher, compared to the average millennial. The subscription model used by most startup brands works well, too. It allows the brands to target a specific consumer audience with more tailored product selection and delivery schedules, convey the unique features of their products and companies’ positioning, and avoid direct competition for shelf space and attention at mass retail. Moreover, it allows for data-driven innovation and marketing strategies, as the brands are able to communicate with consumers directly and gain valuable insights into consumer preferences, likes, dislikes, and expectations. Subscription services have been on the rise in the US, with more Americans using subscription in 2019 than a few years back. Subscription service use among millennials remains high. Euromonitor Lifestyle surveys indicated that 34% of millennials have used Tissue World Magazine | Focus Report 2020

FR Focus Report: Euromonitor

US shopping preferences, millennials, % of re2019 spondents 0

% of respondents I would rather buy fewer, but higher quality things

I would rather buy fewer, but higher quality things Buying eco- or ethically-conscious products makes me feel good Buying eco- or ethically-conscious products makes me feel good I seek niche brands that are hard-to-find or unique I seek niche brands that are hard-to-find or unique I am looking for personalized and tailored shopping experiences I am looking for personalized and tailored shopping experiences % of total respondents

Households with incomes USD80,000-100,000

Households with incomes USD100,101-150,000

Source; Euromonitor International Lifestyle Surveys, 2019

% of total respondents Households with incomes USD80,000-100,000 a subscription service in 2019. Furthermore, while convenience is a key motivator behind the choice of subscription service, brand uniqueness and tailored experiences do play a role in consumer choice of subscription vs other shopping options.

While not very popular a few years back, bidets are making inroads in the USA. The options vary from luxury full installations to more affordable low-cost toilet attachments for existing toilets. According to trend reports by, for instance, Realtor.com, Professional Builder and the National Kitchen & Bath Association, bidets were among the hot bathroom trends in 2019 in the US. The companies operating in the space, such as Tushy and BidetKing, have reported double-digit revenue growth over the past 2-3 years, turning bidets into a multi-million dollar segment in the US, with consumer reviews generally positive and commenting on cost-savings and the environmental benefits with respect to the use of toilet paper and wipes. If the trend continues, it is likely to pose a further challenge to demand for toilet paper in the USA, thus reducing long-term revenues in the category that generated nearly USD10bn in retail in 2019 and remains a key category for the consumer tissue industry. To sum up, in an already difficult operating environment, key consumer tissue brands need to prepare for further potential 16

Tissue World Magazine | Focus Report 2020

EUROMONITOR LIFESTYLE SURVEYS RELEASED IN 2019 INDICATE THAT 24% OF MILLENNIALS WOULD RATHER BUY FEWER BUT HIGHER QUALITY PRODUCTS, 21% SEEK UNIQUE BRANDS, AND 18% LOOK FOR PERSONALISED TAILORED EXPERIENCES. FURTHERMORE, 21% OF AMERICAN MILLENNIALS INDICATE THAT BUYING ECO-OR ETHICALLY-CONSCIOUS PRODUCTS MAKE THEM FEEL GOOD. NOT SURPRISINGLY, THE PROPORTION OF MILLENNIALS IN HIGH INCOME HOUSEHOLDS LOOKING FOR QUALITY PRODUCTS AND MORE TAILORED EXPERIENCE IS EVEN HIGHER, COMPARED TO THE AVERAGE MILLENNIAL. disruption to demand, stemming from insurgent brands competing for the share of spending in the premium segment as well as shifting consumer preferences when it comes to home features and hygiene

practices. Knowing and understanding these disruptors, changing consumer preferences and consumer segmentation will help to sharpen future growth strategies and innovation focus.

USA, retail tissue, % CAGR growth, volume and value, 2019-2024

2 1.5 % CAGR growth

Rise of bidets

Households with incomes USD100,101-150,000

1 0.5 0 -0.5 -1 -1.5 -2 -2.5 Paper Towels

Paper Tableware

Volume (tonnes)

Facial Tissues

Value rsp

Toilet Paper

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Tissue World Focus Report: USA

Articles inside

Q&A: Bedford Paper

will see three times the volume of new capacity entering the market

Q&A: South Florida Tissue Paper

Q&A: Marcal Paper

US tissue: still leading the race, but pedalling harder to keep ahead

News