Packaging / Advertising & Office

The retail tissue market in Türkiye, including toilet paper, paper tableware and tissue paper, has grown rapidly in the past decade despite a relatively low base. In 2021, the per capita expenditure of each household on retail tissue will be slightly more than US $28, which makes Türkiye similar to Brazil and Colombia, but slightly lower than the world average of US $39 in the same year, Huacheng Import and Export Data Observation reported.

Although the scale of market growth is amazing - sales value more than doubled in just five years (2016-2021) - this is also a symptom of Türkiye's domestic economy under the background of sustained inflation. From a constant point of view, this growth rate is relatively moderate, with a compound annual growth rate of 4% in the same period.

The economic pressure in 2022 will be closely related to a more radical inflation surge, which will have a far greater impact on consumer activities than paper towels and sanitary products. For some enterprises in the retail tissue field, this means a blow to the profitability and competition of their own brands, especially with the rise of discount stores.

01 Inflation pressure challenges profitability

The retail toilet paper market in Türkiye has been affected by "multiple strikes". First, the Turkish lira will continue to depreciate in 2021, so the cost of imported raw materials, processing and distribution of toilet paper industry will rise. Then global inflation in 2022 further affected this situation. As a result, the country's currency fell and food and energy prices soared, pushing inflation to a 20-year high.

According to economists' prediction, Türkiye's average deflation rate may reach 70% by 2022. For an economy that imports 1 billion US pulp products in 2021 and relies on imports to meet its demand for processing products, this cost has actually doubled from the second quarter of 2021 to the second quarter of 2022, becoming an unbearable burden for the toilet paper industry. Huacheng Import and Export Data Observation Report.

The government is also trying to reduce consumer costs. The price of baby diapers/diapers, paper towels and other daily necessities has been adjusted in April 2022. Under the condition that Türkiye relies more on imports to meet customer needs, the value-added tax will be reduced from 18% to 8%. Similarly, in February 2022, 25% of the VAT on baby diapers/diapers, cleaning towels and other sanitary products will also be abolished.

Looking carefully at the growth and decomposition of toilet paper operation, the medium-term outlook is dominated by deflation, but the mechanism of the toilet paper market has a great impact, because the impact of inflation on consumption concept and affordability actually affects all parts of the economy. In response, more and more toilet paper manufacturers have to give up some of their original profits to maximize their business competitiveness.

In particular, brand equipment manufacturers have to repeatedly promote and discount packaging in order to compete with low prices provided by their own enterprises. Private brands account for more than 40% of the value of retail tissue.

Therefore, considering the economic situation, brand retail tissue products will not achieve the same successful performance as expected in the third quarter of 2021 in the long run. The price rising pressure experienced by the tissue industry has been affected to varying degrees by raw materials, transportation and processing processes. Due to the high inflation rate in Türkiye, the market of fast moving consumer goods will soar in 2021 and early 2022, even if the government considers regulation to reduce the value-added tax on some products to limit the price inflation rate.

02 Rapid changes in channel distribution

In addition to the impact of inflation on retail tissue products, Türkiye's retail grocery industry has also undergone significant changes in the past decade. The rapid expansion of discount stores such as BIM and A101, which are eroded by traditional grocery retailers, benefits from the fast store expansion strategy. This retail transformation has also produced the effect of embedding private brands into Türkiye's consumers.

As a major brand, it is cost-effective and usually a high-quality alternative. In addition, Türkiye is no exception in e-commerce. After an increase of 40% over last year in 2021, Türkiye's retail tissue e-commerce sales are expected to further increase, mainly due to the impact of the popular blockade, making this channel account for 7% of the total retail tissue sales in that year.

Euromonitor estimates that e-commerce in Türkiye is one of the fastest growing e-commerce in Europe, and its proportion of fast moving consumer goods purchased through online channels. It is expected to further expand due to consumer demand for pricing and availability. Euromonitor's latest consumer voice in 2022: According to the lifestyle survey, Türkiye's consumers' main motivations for online purchase include the most favorable price (43%) and various brands (41%), as well as ordering anytime, anywhere (38%) and free delivery (33%).

03 The share of private brands increased

Based on the disposable income and expenditure destination in 2021, food, beverage and transportation account for 60% of Türkiye's "normal" expenditure. Customers will not only be driven to buy commercialized food, but also be promoted to other categories, such as retail and institutional (away from home) tissue markets. Inflationary consumer goods, because consumers have decreased, even withdrew from some retail industries.

Because of the pressure Türkiye's families are now facing, they are doing their best to reduce spending. Even for necessities, it is expected that their brands will benefit from sacrificing the cost and benefits of brand products. With the rise of prices, a larger share of the toilet paper market has shifted to the form of private brand sales. By 2021, private brands will account for 47% of the market share value. However, this does not mark a huge change in behavior, because label tissue products have been widely used in Türkiye for many years before the private popularity, and enjoy a high reputation in terms of reasonable price and quality.

In 2022, the price of toilet paper has been recovered from BIM, and the price of A101 and SOK large discount stores and grocery chain Migros has been greatly reduced.

04 HayaKimya consolidates its position in a challenging market

So, how can brand manufacturers compete in such a challenging environment? One of the main successful cases in the past decade is HayatKimya, which is the market leader in Türkiye and ranks second in the national FMCG industry: in the fields of hygiene, home care and toilet paper.

Its success is partly due to its investment in local production. According to Huacheng Import and Export Data Observation, in 2019, the company said it would invest 450 million Türkiye lire to build a new toilet paper manufacturing facility, and a total of 2 billion Türkiye lire would be invested in Türkiye in the next five years. The annual production capacity of the new factory is 70000 tons, ensuring the company's leading position as the second largest toilet paper manufacturer in Türkiye. This will enable the company's total capacity in Türkiye to reach 28000 tons Mersin's total capacity of 14000 tons. The facility will also be used to produce roll paper, toilet paper, paper towels, napkins and wet wipes for the company's distribution centers and retail stores.

HayatKimya, the most water-saving toilet paper manufacturer in Türkiye, is a leader in the R&D of retail toilet paper industry. This will enable product innovation and keep the price at a competitive level.

According to Huacheng Import and Export Data Observation, Türkiye's toilet paper retail industry is expected to face major challenges in the next few years, especially considering the inflationary forces that affect the economy. Growth opportunities will be driven mainly by their own brands or value for money products, as shoppers will cut prices, compromise or turn to discount stores during inflation.

Euromonitor predicts that sales of kitchen towels, paper tableware and other products will decline, because consumers only need to reduce necessities, even though the population of Türkiye has increased. Therefore, brand manufacturers need to pay attention to local production and promotion activities to maintain their price competitiveness, Huacheng Import and Export Data Observation Report.