Tissue Industry Trends in Europe
Consolidation is a clear trend in the European tissue industry; the large producers have been growing through sizeable acquisitions as well as by organic growth. The capacity share of the three largest players has grown from approximately 40% to 50% in the last some 15 years while the market has grown 1.5-fold over the same period.
Market consolidation has also increased due to expansion of middle size and smallish players that have strongly participated to the growth. An opposite trend to the industry consolidation is the entry of newcomers. The tissue growth is not only by expansion of existing players, but there is versatile motivation for new type of tissue paper producer entrants.The new entrants mostly increase the fragmentation of the industry as they often are relatively small players. Some new entrants are at least partially motivated by push or decline of their current businesses such as smaller pulp mills losing their competitiveness and integrating to tissue or graphic paper sites looking for new opportunity due to their declining market.
Tissue trends include also new geographic orientation; tissue in Europe has typically been relatively local or regional business, but along with the growth of the players the wider geographic spread has become a trend. Especially the private label players have earlier spread with their retailer clients all over in Europe.
Now they have also new geographic interests. There has been a tendency to follow the European retailers and look for opportunities especially in North America. SCA and Sofidel have made concrete moves in the North American soil through recent M&A and also through organic growth. In addition SCA has made focused expansion in China trimming at the same time some more marginal regions from its global footprint.
The product and quality trends move between North America and Europe together with the increasing European invasion to the new world. Outside Europe, in Turkey and other MENA area a clear trend is to reach more out from the local and regional markets for instance by increasing jumbo reel exports. This is caused by the strong growth of the local capacity that exceeds the demand growth. Jumbo reel export targets are especially the UK and from Turkey also Israel and Greece (Figure 1).
Tissue Hot Spots
By 2025 the tissue market in Europe is estimated to grow as an average some 2,1%/a, driven by Eastern European growth at annual rate of 4,4% while the Western European growth is estimated to continue at rather modest pace of 1,5%/a. (the numbers exclude Russia where the situation is still evening out after the impacts of the political turmoil). The activity in the markets follows to some extent the market growth – but there are some clear Hot Spots in Europe that for various reasons especially interest the different stakeholders (not necessarily directly related to the strongest market growth).
Regarding capacity increase and plans since 2014 there are two clear Hot Spots in Europe – most of the recent tissue capacity investments have taken place or are planned in Central Eastern Europe and in the Iberian Peninsula.
In the Iberian Peninsula the brisk investment activity is partially driven by the after the long recession finally improving economy. Some of the investments are new type of entrants motivated by the fiber integration related cost benefits and due to the smallish Euca pulp mills losing their competitiveness as market pulp mills. In Iberia there are also a few transactions related to the growth aspirations.
Regarding various tissue related acquisitions and deals there are two Hot Spots; in the last some four years eight transactions are recorded in Central Eastern Europe and seven have taken place in the UK.
The Central Eastern European consolidation and growth is boosted by various acquisitions where the new owners, often for instance financial buyers help to develop the industry. In the UK the transactions include several cases where the independent converters are being acquired by producers looking for market share or faster entry to the markets (Figure 2).
European and North American trends are mixed
Along with the new geographic orientation and the European players probing the North American markets, the product and quality trends are being exchanged between the regions. In both areas there is an increasing demand for premium quality (bulkiness, softness, absorbency).
Premium tissue share is largest in North America and not at the same level in Europe, but growing. In both markets this reflects in the popularity of improved quality paper machines, especially in North America, but also in Europe. North America has seen a new boom of TAD machines and interest in ATMOS/NTT, but also Europe is getting one new TAD machine that has not happened in decades, and a few NTT machines are coming on stream as well. Still; the share of the advanced machines in North America is some 35% while in Europe it is about 5%. Shares in new machines deviate from this. Typically in Europe the quality has been made more with converting than with the paper machine, while in North America the base paper has been determining the tissue quality and converting, number of plies, embossing etc. has had much less importance. The trend is changing the practices in North America rather than vice versa.
The multiply color-glue laminated decorative embossed products have existed in Europe longer and will maintain their position. Colored tissue is a relatively small portion of the market, but colored is more common in Europe than in North America. Napkins are the most typical category in web colored, especially when used in special occasions, but also Renova’s type of deep color in other categories is spreading from Europe. The increasing quality trend favors virgin fiber based premium products.
The virgin fiber based furnish is increasing also due to availability issues with high quality recovered fiber and deteriorating economic advantage of the recovered fiber content. It is not reasonable to build new DIP capacity for tissue. As tissue capacity increases while the DIP capacity remains stagnant the RCF share in tissue furnish is declining.
The European type of production makes it way to North America with the European players following the discounters, such as Aldi and Lidl, in their attempts to conquest America. With this development the private label share in North America is expected to grow.
From North America to Europe come the bulk packs and large rolls and other innovative product and packing types. Years ago especially P&G tried to conquer the European market with the American type of branded TAD products; it partially succeeded in the UK, and left some ‘American flavor’ to the UK markets.
However, European market stayed basically different and P&G decided to withdraw from Europe. However, the North American impact is still seen especially in the UK. The quality and product innovations are an important way to boost growth especially in the mature markets. Exchange between regions ensures the leverage of the best ideas (Figure 3, 4, 5).