Towel and Tissue: A ‘Necessary Evil’

For the most part, towel and tissue products have never been a huge-profit product category for distributors. With demand almost unflinching and profit margins slim compared to many other products, this category seems first in line for the term “commodity.” And then there’s the shipping of the bulky, low-cost items. Still, a number of things can and do influence the jan/san paper market including consolidation among manufacturers, customer demand, preference and price. The question, then, is to what extent has the paper market been affected by industry trends — especially after years of tumult following erratic price fluctuation and near-daily mergers and acquisitions in the paper industry? Secondly, how can distributors get the most sales from their towel and tissue offerings?

Tougher economic times seem to be squeezing everyone nowadays. Budgets are tighter, and facility managers are looking for more and better ways to get the most for every dollar.

That said, most distributor executives have recognized only a slight change in customers’ buying habits resulting from the lagging economy, and pointed out that spending didn’t drop off too drastically, despite what some say have been fairly significant price increases.

“It’s a mature product line,” says Curtis Hathaway Jr., vice president of Hathaway Paper Co., Inc., Waynesboro, Va. “I don’t think they’re trying to cut their budget as much as they’re looking to maximize the dollars they spend.” End users are trying to keep towel and tissue costs as stable as possible, he says.

“After you go in and try and sell an increase, they’re more willing to look at a value-priced product,” Hathaway explains. Customers are willing to sacrifice optimal absorbency and the texture of the product.

“It’s far and away the lowest margin product we carry and it takes up more room,” says Nick Spallone, general manager of Lake Tahoe Supply Co. The Carson City, Nev., distributor services a number of casinos and hotels in the tourist area. “But it’s a necessary evil — and it is. Still, it opens doors and helps you get into markets where you can find some margins with other items. You can be pretty successful in doing that.”

“Demand has been at least steady,” says Daymon Duckett, sales manager for Precision Chemical and Paper Supply in Dalton, Ga. “I don’t feel there’s been a tremendous downturn of demand even though the economy is slowing.” Demand may have dipped slightly as people work fewer hours, but Duckett says that doesn’t usually cause facilities to change the type of product they buy.

“In a word I think functional is the key. If it’s not functional, it’s not practical, and if it’s not practical it won’t work,” Duckett says.

Larger dispensers and products that need less clean-up are in higher demand recently, says David Renard, president of Renard Paper, St. Louis. People are looking for ways to minimize the number of times they have to change out dispensers for towels. Bigger rolls save precious labor time. He says customers are cutting back in two ways.

“They want to save the labor that impacts the bottom line, and they want to spend the money more efficiently that they do have available,” he says.

Customers are steering away from folded towels and opting for roll towels because people aren’t as likely to take as much off the roll. Renard recalls a customer who put stacks of folded towels on the sink because the dispensers were often empty before they could be changed. A good idea, but the towels either walked off or got wet, Renard says, and had to be thrown out anyway.

Customers are still doing everything they can to maintain their facility’s appearance, despite slimmer budgets, says Renard.

“If there are scraps of paper all over the place it just looks unsightly. That’s one of their main concerns that they want to try and get rid of. When that goes away, there’s a much nicer appearance to the room.” Renard says customers that haven’t already switched over to big rolls are doing so now.

End users’ decision-making is based on the facility type, according to Bill O’Meara, president of Keene Industrial Paper Co., Keene, N.H. “There’s the motivation of cost savings,” he says, “and then there’s the other side that’s motivated by appearances — they’re willing to pay something extra.” A blue collar mill would buy less expensive products compared to a white collar office building, O’Meara says.

Prices On the Rise
Market turmoil created by the paper industry’s recent consolidation has left distributors, in general, somewhat confused about market structure and what it will mean for their businesses, says Don Kellermeyer, chair of the jan/san advisory committee for the National Paper Trade Association, based in Great Neck, N.Y.

“Clearly prices have just skyrocketed,” he says. There have been two or three prices increases in the past year, he says, without quoting an exact percentage.

Kellermeyer attributes price increases to a few factors. The first is the increasing cost of energy. Secondly, the raw source, wastepaper, became more expensive, and companies found they could make more money selling the parent rolls overseas. Then, of course, there is the consolidation among manufacturers. There simply isn’t as much competition among suppliers for market share.

“With the consolidation of the manufacturers, they are maximizing their profits because there is less competition from the producer’s side,” Kellermeyer says.

“Paper pricing in general has gone up over the past couple of years,” agrees Spallone. He says energy costs are probably a big factor, and he expects to see more increases in the next six months.

“But for the distributor,” he counters, “if everyone is on a level playing field it doesn’t have an overall negative affect.” It comes down to finessing customers somewhat, Spallone explains. Everybody is experiencing the cost hikes, but it is going to hurt the end user’s bottom line. “Places we service — casinos for instance — go through an enormous amount of paper products, so they’re stuck.”

Duckett hasn’t seen tremendous price increases as of yet, but says that competition is not a bad thing.

“Consolidation eliminates competition, which gives tremendous amounts of power in the marketplace to several manufacturers,” he says. And distributors wind up with fewer options and ultimately, greater costs.

Renard agrees the Fort James and Georgia-Pacific pair-up could affect the marketplace, but hasn’t felt any pinch yet.

“There hasn’t been a lot of jumping around in our market lately. It’s been pretty steady. There have been increases but not an overabundance of them like in the past years.”

But be wary.

“I think it’s something everyone needs to be concerned about and keep an eye on. Definitely watch your pricing and see what the manufacturers are telling you,” Renard says.

“I think the prices are going to stabilize, although there was some talk of an increase,” says Kellermeyer. “With the extra capacity and weakening economy, it should weaken or go down slightly.”

Kellermeyer’s advice for distributors is simple:

“If they’re going to be in the business, they need to have at least two suppliers of the product so that you can competitively bid one against the other. If you don’t, you have no leverage in your buying.”

To Each His Own
Generally, distributors can make fairly accurate assumptions about a facility’s towel and tissue needs based on the type of facility. If it’s a school, it usually wants the least expensive alternative, often sacrificing quality for quantity. Schools also want options that keep the amount of cleaning and refilling to a minimum. Places such as offices, hotels and some businesses often require items of a higher grade.

“School systems have gone almost 100 percent to a bid system. Though they ask for samples, I don’t think quality has much to do with it,” says Hathaway.

“The end user varies,” says Kellermeyer. “Some want extremely high quality product — like doctors’ offices and hotels and motels — because they want the image. Some want the least expensive paper available in the marketplace.”

Hands Off
According to the distributors SM interviewed, little has changed in the tissue and towel market in recent years.

“The market has been stagnant for 15 years as far as new products,” says Hathaway.

Spallone agrees, but in his environmentally sensitive area, he sees a trend toward natural-colored towels, tissue, napkins and other paper products. He says it’s not necessarily that they’re the cheapest. Rather, it’s the image the area’s businesses are attempting to portray. “It gives the appearance that they’re concerned with ecology,” he says.

Unlike the jumbo roll tissue of a decade ago, innovative new products are hard to come by these days, distributors say. The move to touch-free washrooms for many facilities is probably the biggest trend in recent years.

With the possibility of contracting a communicable disease a fear in the back of everyone’s mind, entirely touch-free washrooms are desirable to facility managers and washroom users. Users love the prospect of never having to touch any surface in a washroom and still being able to walk away with clean, dry hands. Distributors are ready and able to satisfy that need and are doing so at an increasing pace.

“There’s a definite trend towards that,” says Spallone. “Of the dispensers that we’re putting in probably 80 percent are touchless. When they’re given the option of a touch-free, hands down the customers want to deal with something more sanitary.”

A person can now use the bathroom without ever touching a surface, O’Meara says. “Consumers think that’s a good thing based on the reemphasis on health and a few of the communicable diseases.”

Selling Big
Finding ways to reduce usage for customers is what will help distributors sell the most and best towel and tissue products, says Spallone. “It’s a value-add for the customer,” Spallone says, though he feels usage has probably been fairly consistent. “There’s growth in paper but it’s because of all the new facilities, so it’s growing, but on a customer-by-customer basis it’s consistent year in and year out.”

“Obviously you need to listen to what the customer wants and what he’s trying to say to you,” Duckett says. “It’s our job as salespeople to give them the best information that we have about brand and the particulars and then let that customer make a choice based on what’s best for him or her.” Again, a customer’s choice will depend on factors unique to that facility. “Maybe it’s a cost issue for one place and quality for another. It’s an individual deal.”

“We try to find out what’s important to the buyer, then match that product selection to what they’re trying to accomplish,” says O’Meara. “They realize they’re all trying to dry their hands. It’s the aesthetics and the other intangibles that a good salesperson will find out and figure out the best product.”

“We sell the system approach,” says Hathaway. “We’re trying to sell the soap and towel and tissue, the toilet seat covers and the air freshening, deodorants and screens — we try to sell a system approach so you can do one-stop shopping. And we coordinate so that all their dispensers can be the same.”

Hathaway says pricing increases have actually helped his company to align itself with a two-tiered approach to its towel and tissue products. He leads with a more expensive, higher-quality brand that’s mainly sold to customers who understand that they are paying for certain services. “Then we have the value line, or second tier supplier for a more price-sensitive customer. You have to satisfy both those types of customers.”

“Know the expectations of your customer,” says Kellermeyer. “Number two, look for a better, more economical way to solve their hand towel and toilet tissue needs. There are many ways to do it without sacrificing quality.”