Paper

A joint survey by Sanitary Maintenance and the International Sanitary Supply Association revealed that paper and plastic products accounted for almost 43 percent of distributor sales volume in 2000 — roughly $8 billion. Towel and tissue alone made up $4 billion of that number. With numbers like that you’d expect paper products — towel and tissue in particular — to occupy a sacred spot in the hearts and minds of jan/san distributors. Or, at least in their pocketbooks and inventories.

Truth is, while customer demand for certain paper products has always been predictable, consistent and growing, distributors and suppliers have perennially struggled with — and debated — the best way to market and sell paper products.

Where else but in the sanitary supply industry can one hear disparate terms like “value-added” and “commodity” mentioned in the same breath during ongoing debates over paper sales strategies.

The Choice is Yours
“For the small people like us to survive — or the small distributor — we’ve got to sell quality and service, and quality and service still will enable a distributor to survive in today’s markets,” says John Cleaveland, national sales manager of EMJA Co., Inc., a paper manufacturer in Roswell, Ga.

“If [distributors] look at it as a commodity item, it’s their choice,” he continues. “A lot of my distributors look at it as a lead-in item.” The salespeople explain the need for dispensers to their customers. Once they get the dispensers in, they can continue to sell the account and provide quality and service, Cleaveland explains. Focusing on quality and service will help distributors attain higher margins on paper products.

Others’ opinions reflect how the industry has historically viewed paper. Don Kellermeyer, chair of the jan/san division of the National Paper Trade Association is candid about paper’s place in his product line.

“You’ve got to calculate ‘earn and turn.’ In our towel and tissue line, if we weren’t getting at least 40 turns a year out of it, that would be a real challenge,” Kellermeyer says of his own Kellermeyer Co., a distribution business based in Toledo, Ohio. No two ways about it, paper products offer lower margins than other parts of a janitorial business.

Other distributors may need at least 20 turns a year just to make the business profitable, Kellermeyer says. “If you’re not buying truckloads (two a month minimum) from someone you’re probably better off going into a redistribution mode and buying from a redistributor.”

Bill O’Meara, president of Keene Industrial Paper Co., Inc., saw the efficiency and savings that could be achieved by using a redistributor for his company’s paper offerings. O’Meara’s Keene, N.H., company turned to a wholesaler to handle the logistics.

“The earn-and-turn ratio compared to direct buying is favorable for my firm.” O’Meara’s company is also a member of the United Group, an affiliation which has helped him form buying relationships with some manufacturers.

“I think we’ll see more redistribution just because of the economies of scale and the logistics involved,” O’Meara predicts. “I think it’s a good thing because it allows specialization and, therefore, a more expert approach to the distribution channel.”

Cleaveland disagrees that redistribution is an attractive option when it comes to the small and mid-sized distributors. In fact, his company doesn’t sell to redistribution.

“One of the reasons I won’t sell to a wholesaler is that everyone can buy [paper] from a wholesaler and sell it, but they’re not doing themselves any good,” he says.

For What It’s Worth
Manufacturers should make an effort to provide incentive for distributors to sell paper in order to prevent it from becoming a commodity, says Paul Passanise, president of Royal Papers Inc., St. Louis. Incentives like attractive pricing, contracts and offers help make paper sales attractive to distributors, ensuring they’ll continue to actively sell the products.

“The competition for Georgia-Pacific is not just SCA, it’s SC Johnson and NSS Equipment. Instead of going out and selling towels and tissue at a lower margin, [distributors] will go out and sell chemicals first,” Passanise says.

He says prices are also driven down many times by “order-taker” salespeople who advertise price and don’t sell value. The way salespeople are trained and supervised determines whether towel and tissue becomes a commodity in their markets.

“It becomes what you make of it. If you work those niches, there’s still profitability.” Labor savings, product savings, and no-run-out options are what will appeal to customers who care about value-added services.

Predetermined Path?
Georgia-Pacific has recently stepped up its efforts on the commercial side of the towel and tissue market and is making a concerted effort to add value to its offerings, attempting to raise profit margins for both itself and its distributors.

“If you’re only selling commodity towel and tissue, your machines may be running but you’re not necessarily making money,” says Tom Banks, director, creative services, for Georgia-Pacific’s commercial business. Commodity products’ profit margins often average in the 5 to 7 percent range; producers can actually lose money on some. On the other hand, value-added dispensing systems and washroom products can achieve much higher margins.

“The value-added products that warrant the branding, positioning and that deliver the benefits can have profit margins as high as 20, 30, 40 percent — sometimes even higher.”

For instance, when Georgia-Pacific and Fort James merged, they both had similar systems with different names — each designed for value. “System Solutions,” as Georgia-Pacific’s were called, offer a number of features to limit the amount of product used and increase efficiency for the end user. The same is true for many of the former Fort James systems that the Georgia-Pacific NA Commercial business will continue to offer its customers.

“The distributor takes on the line and commits to having their sales force learn how to sell the benefits of that system to their end-buying customers. Although a case of towels may have a slightly higher unit cost compared to a commodity product, when you add up the labor savings, lower usage and savings from preventing theft, you actually end up with a much better deal,” Banks contends.

“Our job is to continue to innovate systems that help end buyers to have more efficient and professional operations no matter what market segment their business competes in. It is also to communicate that the cost of the towel or tissue is only part of the equation of making smart decisions,” he adds.

Chosen Path
Overall, demand for paper products is one thing that distributors and manufacturers can count on:

“Demand [for paper] increases slightly faster than population growth. Consumption is increasing at a 1 to 2 percent level,” says Andrew Battista, a senior economist with RISI, a Charlottesville, N.C., firm that provides analysis of the pulp, paper and forest products markets to various industries.

So while the market for towel and tissue will always be fairly consistent with population growth, distributors have important decisions to make: what products to sell, how to sell them and how to make those sales most successful.