Trend Talk

If ever a market segment in the janitorial supply industry has undergone dramatic change, it’s the towel and tissue sector. Extensive merger and acquisition activity in the past 10 years has created a new playing field and heated up already hot competition.

Three predominant trends characterize the towel and tissue industry, according to the six leading industry manufacturers SM interviewed: consolidation, increasing awareness of hygiene and the economy. These influences lead to a number of sub-trends that serve to drive product innovation, partnerships and service offerings.

Top Vote-Getter
As it has for the past decade, consolidation topped the list as the trend having the most impact on the towel and tissue market. While consolidation at the distributor and end-user levels certainly has changed the landscape, large-scale consolidation at the manufacturer level often is credited with causing the most dramatic change.

Manufacturer consolidation has been faulted with driving down quality and driving up price. Manufacturers, however, disagree with the assumption. They say opportunities for distributors have blossomed as a result of consolidation.

“I think it leads to greater stakes in partnerships,” says Major Hammell, director of marketing for Atlanta-based Georgia-Pacific North American Commercial Business. “As a result, those relationships generate greater efficiencies.”

The consolidation that created fewer, bigger companies has not allowed these giants to grow complacent. On the contrary, competition has prevented manufacturers from slacking on service, says John Drengler, senior segment manager for commercial and industrial markets for SCA Tissue, Neenah, Wis.

“Competition steps up from the standpoint of making sure that you have a complete line of products and their complements. It’s being able to offer a full range of support, and you need to be well-rounded in your offering.”

Consolidation also contributes to a series of sub-trends, such as vendor rationalization. This trend, and its effects, has become apparent at every level of the supply chain.

Vendor rationalization most often occurs at the distributor and end-user levels. Consolidated, larger companies often pare back the number of suppliers they use and invoke their newly acquired clout to negotiate better pricing, thus driving their margins upward.

“There are new opportunities for distributors to gather up their volumes and combine them and use it as leverage with manufacturers,” says Stephan Doyon, national director of sales, commercial and industrial divisions, for Cascades Tissue Group, headquartered in Waterford, N.Y. Manufacturer consolidation also creates opportunities for lesser-known manufacturers to develop relationships with distributors who’d like to take some of their eggs out of one basket, he says. This increases competition.

Other trends become apparent as end-user customers rationalize their suppliers. Distributors are struggling to keep business by expanding their product lines to become a one-stop shop. At the same time, non-traditional jan/san distributors are doing the same — they’re looking at carrying jan/san products as another way to appeal to customers.

“[End users are] trying to minimize the number of suppliers they have, so non-jan/san distributors are now offering paper, chemicals and cleaning supplies,” says Joseph Smith, national sales manager for Stefco Industries Inc., a Haines City, Fla.-based manufacturer of paper and towels. On the flip side, jan/san distributors have opportunities to look outside their traditional boundaries and explore new product offerings.

In With the Old
While consolidation may have stolen the spotlight in paper industry trends, there are some who have observed a return to a more traditional business demographic.

Consolidation, at least at the distributor level, has not been as extensive as many believed it would be, says Ernest J. Kelly, divisional sales manager for Merfin Systems Inc., King, N.C., a division of Buckeye Technologies Inc., Memphis, Tenn. One trend he’s noticed is the “reemergence” of the independently owned jan/san distributor.

“For the past 20 years we’ve been hearing that the jan/san industry would be completely dominated by chain distribution. The reality of the marketplace is that we’ve seen some of these chains falter, and we’ve seen the reemergence of strong regional and local independently owned jan/san paper houses.”

Big manufacturers, on the other hand, are here to stay. Consolidation among paper producers has spurred a shift to national manufacturing capabilities, de-emphasizing the regional reach many had in the recent past.

“One of the results of consolidation is you become more of a national marketplace, and to service that marketplace requires a consistency of purpose for distributors and manufacturers,” says Hammell.

Smith agrees that the ability to reach customers nationally has become more important.

“What we’re starting to see in the marketplace is paper companies are looking to strengthen brand names by going to national accounts to supply branded products,” he says. These can include restaurant chains, hotels, service stations and fast-food outlets.

While consolidation is predicted to continue in the paper industry, the unprecedented rate of the past 10 years is unlikely to continue.

“We at Merfin are predicting a slowing of the trend toward more acquisitions within the paper industry,” says Kelly. “It’s time for things to shake out.”

Economic Woes
Doug Sutton, director of segment marketing for Kimberly-Clark Professional, headquartered in Roswell, Ga., believes the economy has had the most significant impact on the marketplace. Robust periods, such as those of the 1990s, are able to “hide a lot of sins,” he says.

“It buoys manufacturers and distributors alike that haven’t been very good at either of their core competencies,” he explains. The softer economy is both a curse and a blessing. While business in general is more difficult — there’s less to go around — those companies that have concentrated on business improvement and efficiency consistently will prosper, he says.

Nonetheless, awareness of market fluctuations promotes intelligent business decisions.

“Current economic conditions affect some end-user market segments differently than others,” explains Hammell, who says that understanding these market changes is crucial. He cites the overall decline in the lodging industry following 9/11 and the war in Iraq, but points to the relative stability within the food service industry.

Economic circumstances have also incited suppliers to go to greater lengths to respond to customers’ heightened cost pressure.

“Cost is first and foremost on everybody’s mind,” says John Drengler, senior segment manager for commercial and industrial markets for SCA Tissue, Neenah, Wis.

“We need to be able to, as suppliers, show and provide systems and services that meet our customers’ needs — to hit their budgets and drive their costs down.”

“It stands to reason that there will be continued stress on pricing throughout the marketplace as long as we’re in the current economic climate,” says Kelly. “When the economy begins to accelerate again, we’ll see less pressure on price.”

Economic conditions also call for more stringent inventory controls among distributors. Pressure is put upon suppliers to help alleviate some of the burden.

“Vendors that offer the products that can turn, and vendors that supply innovative ideas and programs — those are the vendors that are making out the best,” says Doyon.

Kelly says there are two things his company does for distributors: provide a realistic minimum order to accommodate their logistical needs, and work at attaining a seamless fill rate to prevent back orders.

Balancing market capacity with demand is always a challenge for manufacturers.

“We’ve learned to balance supply with demand,” says Hammell. “We have no desire to run our capacity out, then transfer our inventory to distributors.” G-P manages inventory by production, which is driven by demand, he adds.

Hygiene In High Demand
The marked trend toward hygiene awareness paves a smooth trail in selling these value-added products. Hands-free systems are not only hot, they’re profitable.

“[Customers] are looking at touchless to enhance the restroom experience,” says Doyon. “It means distributors can sell solutions more than selling goods or products. They can generate better margins by offering more consultative services.”

“Hands-free dispensing systems are one of the fastest growing segments of the towel market,” agrees Smith.

Many of the new products that meet hygiene needs offer higly prized selling opportunities.

“Now manufacturers are offering programs that generate value rather than the old price game,” Doyon adds.

“Within the industry there’s a heightened awareness around the need for hygienic solutions for personal care,” says Hammell. “As that need intensifies, distributors are under greater pressure to provide solutions, and manufacturers that deliver those solutions are going to be much more sought-after. The end-buyer market dictates the needs and trends that affect our industry.”

Hammel says the public is growing more conscious of the issues of cross contamination and the possibility of being exposed to harmful bacteria. In turn, customers will need to be increasingly sensitive to their patrons’ preferences.

As hygiene grows in importance for customers, manufacturers must also be able to meet cost needs with products that control consumption, says Drengler. Manufacturers who find the right balance will have an advantage.

Information For All
The dissemination of information and the computerization of the industry have a huge impact on the market, says Kelly. “The effects are a more rapid response to the needs of the marketplace and a broader understanding of the commercial world in which we live.” Kelly says this is a positive for the industry. Not only does it lead to connectivity, but also it creates opportunities to be more productive and efficient.

Drengler’s is one such company that is using technology to create efficiency for itself and its customers. Among other things, SCA is offering customers the ability to check order status. He says more and more distributors are coming on board, using the Internet to communicate.

“It’s all about speed to market,” Drengler says. “It’s about who can service customers more promptly.”

Technology has also helped alleviate some of the stress related to inventory management in tough economic times. As distributors attempt to reduce their inventories, information technology has helped them manage and track information more easily.

“E-commerce, Web-based ordering and electronic data interchange (EDI) — I think those technologies allow distributors to replenish inventories as needed as opposed to standard order patterns,” says Sutton.

Healthy Competition
All of the manufacturers interviewed firmly believe that the industry’s consolidation has not interfered with the competitive environment. Product innovation and pricing will not only be driven by the end user, but also by manufacturers’ desires to provide solutions to meet the market’s complex and changing needs.

“There is a keen competitive situation between all players in the marketplace,” says Kelly, “especially in light of the current economy.”

Smith agrees. “Competition among towel and tissue manufacturers has heightened as a result of consolidation. Market share and brand awareness appears to be the main focus of major paper companies.”

“Competition is as intense now as it has ever been, even though we have fewer competitors,” says Sutton.

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