A look at the $4-billion towel and tissue industry today shows that it has undergone significant changes in recent years far beyond the introduction of new and innovative products. In recent years, industry consolidation has caused the big producers to get even bigger. Theres more emphasis on price, and the average distributor feels that pressure as well.
I think that assessment is partially accurate, says Mike Olthoff, CEO of Nichols Paper and Supply in Muskegon, Mich. But theres a lot of room and interest in the marketplace for people to sell on new ideas and innovation instead of price. The current economy is giving us more opportunities to do that because people are willing to entertain cost savings solutions whether its coreless tissue or C-fold towels. People are in cost-savings mode and many times you can save them money by switching them to a different style of product.
Olthoff believes that tissue and towel prices will remain depressed, but thinks the long-term trend is for prices to go up. Thats going to present a very difficult time for many distributors because theyre going to be caught between the customer that doesnt want any price increase under any circumstances and the suppliers that say they have to increase prices.
Although Olthoff hasnt seen any signs of this just yet, hes basing his prediction on 30 years of experience in the industry. Prices go up and prices go down. I know from reading the earnings reports of the major manufacturers that theyre going to need some price relief down the road.
Dick Cottingham, president of the 70-year-old Cottingham Paper Co., Columbus, Ohio, says that there has indeed been tremendous consolidation in recent years. Cottingham, a 32-year industry veteran, recalls when there were six major manufacturers in the industry about 10 years ago. Now, were down to three or four. So if youre not aligned with one of them, that makes it difficult over the long term because who knows what the future will bring. It will be tough to get product unless youre aligned.
Cottingham believes paper prices have stabilized over the past year and sees them staying level for awhile because of the economy. But as soon as things turn around, probably by the third or fourth quarter of this year, I anticipate that theyll go up.
Don Kellermeyer also has seen significant changes in the industry. Clearly there are some important trends. Every paper company is now trying to do something value-added, says Kellermeyer, president and CEO of Kellermeyer Co., Toledo, Ohio.
Kellermeyer, who also chairs the jan/san division of the National Paper Trade Association (NPTA), says prices today are stable. Prices had been way up but they came down as will normally happen in this market. With the economy the way it is, I wouldnt exactly say were coming out of it, but at least prices arent falling thats good.
Three of a Kind
Jack Durso, a 24-year industry veteran, hasnt seen any tissue and towel price increases for over a year. The senior sales representative for Eastern Bag and Paper Co.s janitorial division, Milford, Conn., says he has seen manufacturers now offering different levels of quality in their products. Theyre offering good, better and best systems because theyve determined that customers are buying differently. In the early and mid-1990s, everyone seemed to downgrade what they were buying. They pretty much were in to buying lower-cost items. Now the major manufacturers like Kimberly-Clark and Georgia-Pacific are in the process of selling value back to the end users.
Mark Elsesser, president and owner of Lewistown Paper Co. in Burnham, Penn., believes the towel and tissue market is very competitive but feels that prices have been stable for the past six months or so. I think manufacturers are going to try to push prices up in the near future, but as of now, theyre holding their own, he says.
As a company, were more cautious about what were doing and are aggressively looking for new business, says Elsesser. We have a niche where our sales reps are out there visiting our customers on a weekly or biweekly schedule and are building solid relationships. Were showing them new products and delivering on time. To overcome a customers attitude that were just selling commodities, we strongly focus on good service and offering alternatives.
Kellermeyers take on todays economy and its effect on customer preferences is that customers today are not switching to cheaper brands. Some companies buy on price people who want mid-range products, people who want higher-end products, he says. But I havent seen any volatility moving from one tier to the next. Schools, for instance, are predominantly low-end buyers, as are some municipalities. Midrange buyers are usually hospitals and nursing homes; and high-end buyers usually include office buildings.
More For Less
Nichols Olthoff, on the other hand, sees customers, in an economy like this, as willing to look at less expensive alternatives with any chance they get. Some of our customers are using brown towels where they were previously using white towels. But, there are many customers that dont want to change the quality of what theyre using, especially the office building segment and cleaning contractors. They dont want to make their customers unhappy.
Olthoff thinks that technology continues to play a very important role in keeping and getting new customers. Because of down-sizing, many of our customers are looking for ways to save money. Many times you can save on the supply chain function. That savings tends to multiply rapidly over the course of the year, he says.
Easterns Durso also believes that customers are starting to look at better quality products. In the mid-1990s, they were looking at cost per towel not at what they were buying. Now theyre looking at quality. Its a real issue, he says. Although a good part of the market is buying low-end products, the manufacturers have determined that better customers in their respective markets are looking at the benefits of better products. What theyve been able to find is they dont have to compromise on quality. They can get a better product that performs better in terms of what theyre looking for, and that works better in the dispensing system. And some customers are looking again at high-quality products and not realizing big increases in total costs. Thats a trend behind major manufacturers still offering high-quality products that they want their distributors to promote.
Cottingham, too, doesnt see people switching to cheaper brands. In fact, I see opportunity again to sell value-based on end-use cost, not on case cost. Im seeing people doing everything they can do to keep their employees on board, so they provide their people with the best products rather than the cheapest products. A better soap or a better towel in an employee bathroom is appreciated by the employees, especially women. So we try to sell that point.
Change of Heart
When it comes to changing a customers mind whos already buying on price, Olthoff says hes an eternal optimist. If a customer is really buying price, demonstrate cost-savings solutions. First, learn what their needs and desires are. If you havent done that, you havent made a good sales call. Just because youve had a chance to quote on a sale doesnt mean youre anywhere close to getting the business.
Durso recommends showing stubborn customers who are buying on price the financial benefits of purchasing for quality. People buy for different reasons, but the bottom line usually concerns budget. So you need to show them with pencil and paper what your product is going to do in the long run to save them money. And then you need to run a test and show them the numbers. According to Durso, thats the most effective way to change their minds.
Convince them not to look at price per case, but rather at price per use, says Cottingham. Then I suggest you provide them with a 90-day test. If the products costs more, give them free product. That works pretty well for us.
Margins have shrunk in recent years due to more competition, Durso says. Here in the east, average margins for commodity-type products usually range anywhere from 15 to18 percent. For premium products, its anywhere from 20 to 25 percent. But thats not always the case. Some customers are buying higher grade products at a lower margin. It really varies.
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