Newsletter Q2 2018

Newsletter Q2 2018

The Russian Tissue Market

Market trends

‘Tissue paper’ or simply ‘tissue’ refers to thin hygienic and sanitary paper products. The tissue market includes a wide variety of products: paper towels, facial tissues, toilet paper, tissues, and disposable tablecloths. The Russian tissue market has grown steadily in recent years: in the early 2000s, market behaviour was spasmodic (resulting in up to a 15% growth per year), then the growth rate dropped to 6% and has remained at that level until the present day.

   Tissue market in Russia 1.PNG

Tissue Market Structire 1.PNG

The main factor in this stable growth is low per capita consumption. Whilst in Russia the average tissue consumption currently fluctuates at around 3.8 kg per person per year, in Eastern Europe this figure is two times higher, at 8 kg per person per year. The Western European indicator of 15 kg per person per year seems anomalously high, whilst the consumption of tissue products in the United States significantly exceeds that seen in Russia, and is currently 25 kg per person per year. In other words, growth in the Russian market is organic and largely related to changes in Russian consumer behaviour.

Average per capita consumption of tissue products 1.PNG

The forecasts are optimistic: over the next 12 years the market will more than double, to reach 180 billion rubles in retail prices. Over the past 15 years the leading players have increased capacity to satisfy existing market demand. Competition has not been intense and even non-core companies have started to invest in tissue production.

Key tissue market players

Today just five companies account for 60% of the market: Essity (under Swedish holding SCA), Hayat Kimya, Syassky PPM, Syktyvkar Tissue Group, and Naberezhnochelninsky CPM. That said, Essity's market share amounts to about 20%. Another serious player is set to join the market soon: Arkhbum Tissue Group, a subsidiary of Arkhangelsk Pulp and Paper Mill, is scheduled to launch its production site in 2019. It anticipates a production capacity of 70,000 tons of finished product per year. This is the equivalent to 10% of the 2017 total production volume. Thus, market growth for the other players, especially for small players who comprise 40% of the market, may be diluted. Only the major market players carry out the first, most complex and capital-intensive stages in the process – producing base paper. Technological solutions and the reduction of production costs are both becoming increasingly important.

Tissue Market 2017 1.PNG

Stages of the Prod 1.PNG

Syktyvkar Tissue Group – built to last

Syktyvkar Tissue Group was launched as a toilet paper production site at Syktyvkar Forest Enterprise. In April 1987 a papermaking machine was launched into operation and in June 1987 the first batch of tissue product was made. A year later Syktyvkar paper had made a name for itself within the Soviet Union. In fact, the company created the first well-known Soviet brand of sanitary-hygienic product – “56 Meters”.

The reason for this success lay not in its marketing strategy or packaging design. This toilet paper owed its considerable success to the high-quality raw materials used in its production, and the fact that the production line used equipment produced by Fabio Perrini – the world's leading maker of production equipment for sanitary-hygienic products. Given these fundamentals, the product was almost inevitably a clear market leader in terms of quality.

By 2005 the company had taken on the name it holds today, Syktyvkar Tissue Group, and had cut its association with Syktyvkar Forest Enterprise, becoming fully independent. The new owners immediately started to invest in the modernization of the company and in that same year, 2005, a new production line for embossed toilet paper and paper towels was launched. This was followed in 2006 with a production line for two-ply paper. The company established its own brand “Veiro” that was quickly recognized as one of the 100 Best Goods of Russia – a prestigious award at that time. The tradition of working with Fabio Perini was preserved – both new lines were once again supplied by the Italian company. In 2007 a second papermaking machine was launched at the production site, which allowed the company to increase its capacity from 65 to 155 tons of product per day. In 2010 the first paper machine underwent a comprehensive restructuring and modernization process. .

Syktyvkar Tissue Group results 1.PNG

The company’s accumulated potential and extensive experience meant that in 2014 it became possible to implement an investment project that involved launching a second production site in Rostov District, Yaroslavl Region. The site's paper producing machine was, and remains, the fastest in Russia, it can produce 2,000 meters per minute. Modern converting lines, some of which are unparalleled in Russia, allowed for the production of paper for the “Away From Home” segment – and that is how the brand “Veiro Professional” was launched.

Today’s focus

Today Syktyvkar Tissue Group has three papermaking machines with a total capacity of 85,000 tons per year and 8 converting lines that produce sanitary-hygienic products from pulp and waste paper. STG holds a leading position with a market share of 9%. In addition, in just a few years the company has increased its share to more than 12% of output volume in the “Away From Home” segment and now ranks second in terms of its market share after the market leader Essity.

The company continues to pursue a policy of active and targeted domestic investment. In 2017-2018 the company introduced solutions that enable it to produce sanitary-hygienic products from cheaper types of waste paper without any reduction in quality. Work is underway to update the energy systems that will enable STG to further reduce its expenses. Paper production machines are being updated, including the introduction of the newest record-breaking machine that is expected to be 2% more effective after individual units have been modernised.

In addition, the company has created a special project office that focuses on adopting the best production practices: from IT to management and technological solutions. One example of this is moving towards waste-free production at the Rostov branch, where sludge (unprocessed waste paper) is not sent to a landfill site but is instead used in the production of bricks where sludge is used as a burning addition. In this way, STG reduces costs incurred in sludge disposal and creates an environmentally friendly practice. This is just one of the many examples of technological production solutions that bring us closer to the full implementation of our sustainable development strategy.

STG conducts market research and promotes its products via new distribution channels: online-retail, professional products for the HoReCa market, as well as pharmacy and drugstore segments. New, specialized products are being created that will occupy vacant niches in the market – for example, innovative wiping products.

Thoughtful and deliberate internal investments allow the company to develop steadily and meet the needs of a changing market.

Away From Home segment tons (2017).PNG