Towel and Tissue Customers Buying with the Long-Run in Mind

Escalating paper prices over the past year may have created a headache for distributors; phone calls from customers questioning hikes or demanding lower prices might have become a daily occurrence. However, as a number of distributors have found, cost is becoming a secondary concern in lieu of customers’ decisions to purchase products that focus on clean environments — both indoors and out.

Over the past year, the price of paper has skyrocketed, then seemingly topped off. According to Andrew Battista, senior economist at RISI, the forecasting arm of the Paperloop Group, in the middle of 2003, the price per ton of paper-grade weighted U.S. converted tissue was about $1,675. During the latter half of 2004, prices began their speedy ascent to a high of about $1,850 per ton, and remained relatively stable throughout 2005.

Battista explains that between 2001 and 2003, tissue mills had difficulty raising prices because of capacity expansions, which caused downward pressure on operating rates and rapid deflation in pulp costs in 2001-02.
However, in 2003-04, increased pulp and energy costs eroded profit margins, causing an increase in prices. Though Battista says higher prices have stuck around and have been passed on to distributors, they are showing signs of falling once again.

Most distributors have their personal take on which market trend — from acquisitions, escalating prices of resources and the overall economic situation — they believe was the primary cause of the 2004-05 price boom. Still, most distributors say they were able to take the increases in stride.

Nick Spallone, general manger of Lake Tahoe Supply Co., Carson City, Nev., says increasing paper prices don’t affect his bottom line much as long as the market remains consistent. “The negative comes in when the market is fragmented and you have some manufacturers going up and others that are not,” explains Spallone.

Ronnie Kent, president of Associated Paper Inc., Conyers, Ga., agrees, and says that as long as all distributors are passing along increased prices to customers, it can actually be a boon to business. “If we pass through increases and we keep our margins the same, we make more dollars, so in a way, as long as everybody in the industry goes up, it’s a good thing for us because we make the same margin on higher dollars,” says Kent.

While some distributors see the increase in paper prices as market forces at work, Lisa Garrett, president of Garrett Paper Inc., St. Louis, says escalating prices typically follow an up-and-down cycle, but she believes the recent price hike was a little out of the ordinary.

She has noticed prices leveling off recently, however.

Garrett’s company has been trying to hold down prices by shopping around at smaller wholesalers. “We’re going to be very limited as to what we can purchase through a master distributor,” said Garrett.

Green Cleaning Grows Roots
While saving greenbacks will forever remain a focus in customers’ minds, new trends in towel and tissue show customers looking toward preserving another kind of green.

The use of Green Seal-certified products has been increasing in the jan/san industry over the past couple of years, and distributors say the trend is going beyond green purchasing that was predominantly related to chemicals and is now encompassing “green” towel and tissue products.

Spallone said his region’s market is attuned to environmental issues, so green paper has been popular with customers for years. “If they have the option, they will choose the recycled,” says Spallone. “I think it’s just going to continue to get stronger as people become more knowledgeable about what’s available.”

Green Seal-certified paper is not simply about recycling, Kent says. It also relates to where the recycled pulp comes from, how paper is boxed, what the cores are made of — basically anything that helps cut down on consumption of materials.

In the region he services, Kent says the green paper movement is gaining momentum — mainly because government agencies are generally expected, if not mandated, to make green purchases.

Governmental focus on green products is clearly helping spur sales of green paper, says Douglas Peterson, president/owner of Sanco Cleaning Supplies, Plymouth, Minn. “I think the Green Seal-paper movement will explode,” he says. “The whole sector is going toward recycling; you can’t turn around without seeing a recycled product because they want to keep the landfills empty, which I think is a good way to go.”

Other distributors are awaiting the day green-paper buying hits their part of the country. David Renard, president of Renard Paper Co. Inc., St. Louis, says the popularity of green paper has not yet taken off for his company. “I don’t know that anyone is specifically pushing it here as opposed to places like the Northwest where you have more of an environmental focus,” says Renard. “I feel it will eventually catch on and the customers will start wanting to buy it.”

Distributors say customers interested in purchasing green paper products don’t fit a certain mold, mainly because the cost is equivalent to, or less than, regular towel and tissue, so the appeal is universal.

Though the price may be the same, green paper speaks to personal values of the green-minded and has prompted some higher-end resorts in Spallone’s region to deal mainly in the eco-friendly. “The image that they want to portray is that they are paying attention to the environment,” says Spallone. “When you go to places like Starbucks that have the unbleached, brown paper towels, your perception isn’t necessarily that it is cheap, but rather that it is environmentally safe.”

Hands-Free Future
While green paper is just catching on in some places and already has established roots in others, distributors say sales of hands-free dispensers are on fire. While the technology isn’t necessarily new, the popularity of these systems is fueling the market’s continued growth.

The biggest reason for the success of hands-free systems, according to Renard, is end-users’ attention to health and sanitation. “People do not want to wash their hands and then touch a dirty dispenser,” says Renard.

Peterson also believes the hands-free push is being influenced by customer preference. “You go into a convenience store and there’s multi-fold towels all over the floor because people just do not want to touch the handles,” Peterson says.

And customers will pay the price to keep building occupants happy — at least to a certain extent. Spallone says his company once filled an order to install hundreds of battery-operated hands-free towel dispensers into a manufacturing facility in spite of the fact the batteries alone cost somewhere between $700 and $800.

However, Spallone is quick to point out that most customers also weigh the inclination toward hands-free against their organization’s budget; he once had a customer who installed hands-free units only to realize the cost of the batteries and maintenance of the dispensers was more than he bargained for and had them removed.

Individual decisions on whether to invest in hands-free vary widely, but Kent feels these systems may become the future standard in washrooms. “I do see it becoming much more commonplace,” says Kent. “People are seeing them out in the marketplace a lot more and knowing what they are, where before you had to explain it to them.”

Hands-free technology may look a bit different in the future and Peterson believes that is a good thing. “The first ones were horrible,” he says. “We didn’t get into them because they broke all the time, but now they’re better and have good guarantees.”

One example of technological improvement in hands-free are toilets and sinks that do not need a battery; instead, heat from the human body will set it off. “Get within two inches of that sensor and the human body will activate it,” Peterson says.

Improving hands-free technology doesn’t always result in more functional equipment, but the flow of ideas does serve a valuable function. For example, Spallone says a tissue dispenser featuring a built-in television caught his eye at a recent trade show, and while extra features like this don’t improve the machine’s utility, at least it shows a proactive spirit on manufacturers’ parts.

“Anything that can get a dispenser on the wall that will beat the competitors’ product is where they’re going,” says Spallone. “Manufacturers are always looking at ways to build the better mousetrap.”

While price will always be of concern to customers, distributors in general feel that customers are beginning to place greater importance on their total investment instead of concentrating on the width of their wallets.

Kent believes customers are looking more at the desired product before factoring in price versus budgeting, then settling for less. “I think people overall don’t mind paying a little more if they are going to get something more valuable,” says Kent. “Our biggest growth has been in the higher-end products.”

Products that provide greater value, and perhaps a higher price tag, are more sought after, Kent says, because people can’t count on the lower-end paper to serve them sufficiently day after day. He also says the customers looking to “save a nickel any way they can” will drop distributor after distributor in search for the lowest price, which is not the loyal business most companies prize.

In addition to the inherent worth of costlier products, Peterson believes people’s personal values are inciting them to spend more.

“I think price is going to lose its luster,” said Peterson. “People like looking out and seeing green and clean lakes. If you say to a customer that this will cost a little more but it is recycled, they will accept it.”

Though willing to spend more, Spallone sees a growing contingent of customers looking at their purchases in the long-term. “I think the end user is becoming more aware of the true cost,” says Spallone. “They’re really looking at what the total cost will be for the life of that product. The consumer is definitely more intelligent and making better buying decisions.”