COVID-19’s impact on consumers around the world has dramatically changed both their behavior and their demand. Many of these changes—for instance, the unprecedented growth of online shopping over the past year and shifts in brand loyalty—have critical implications for the tissue industry. Meanwhile, supply-side adjustments have limited new-product introductions. As the industry starts to emerge from the pandemic, the big questions now are which behavioral changes will stick and how tissue players should accommodate the new customer requirements.
To succeed in the next normal, the tissue industry must respond proactively in five strategic areas. First, ensure that your products are ready for e-commerce (for example, with optimized pack sizes and ship-ready packaging). Second, embrace sustainability, looking beyond materials and packaging to encompass the entire value chain: supply chain and production. Third, strengthen your customer relationships to maintain shelf space: retailers are designing future retail-store layouts, and brands must adjust to widening aisles, decluttered shelves for efficient browsing, and click-and-collect models. Fourth, ensure that the organization is more flexible, responsive, and entrepreneurial—capable both of adapting quickly and efficiently to market changes and customer demands before its peers do and of maintaining a competitive advantage. Fifth, develop new partnerships where needed to balance the consumer’s evolving channel preferences, including direct-to-consumer sales.
COVID-19’s impact on consumer behavior
COVID-19 jolted consumer demand in a way that sets it apart from past downturns because of the decline’s speed and scale, as well as rapidly changing market behavior:
Strongly accelerating online shopping for tissue products. In the United States, online spending has grown to an unprecedented degree: a 35 percent overall year-on-year rise over the 12 months to January 2021 through credit- and debit-card spending. Demand for tissues reflected this transformation: a dramatic shift toward at-home consumption at the expense of away-from-home consumption (Exhibit 1), along with the strong expansion of online shopping. Among distribution channels for retail toilet paper and paper towels, e-commerce levels rose by 47 and 34 percent, respectively (Exhibit 2).
Shifts in brand loyalty. Three-quarters of Americans claim to have changed their shopping behavior since the COVID-19 pandemic began. Of these, around 40 percent say they have switched brands. Similar changes have played out in Europe.1 Value is the main driver for switching. In keeping with this trend, consumers have turned to smaller tissue brands: in 2020, their sales rose by 102 percent over 2019 levels in retail sales prices, while retail sales of paper towels from smaller brands rose by 38 percent.2
A slowdown of new-product introductions.
The pandemic made global brands pause new-product launches in several large tissue categories, such as health and hygiene products and household products. Meanwhile, the industry’s concerns moved toward assuring the availability of products for consumers. Companies shifted their priorities for the products they did launch to ensure that those products stood out on shelves and were more relevant to changing consumer preferences. In the US paper-products market, the number of new packaging launches rose by about 11 percent as the industry moved to address the rising consumer preference for sustainable and premium products.3
Consumer behavior in a postpandemic world
As the tissue industry begins to emerge from the pandemic, behavioral trends that first appeared during the lockdown are combining with some preexisting trends that are now accelerating as well (Exhibit 3). These trends are shaping the global tissue industry in five key ways:
The spending recovery. Although consumers are opening their wallets, the beneficiaries have tended to be purveyors of discretionary items, such as travel and cars—things consumers went without during the pandemic. Spending behavior for nondiscretionary, lower-priced products will therefore stick, especially with rising inflation. These developments are expected to fuel further demand for private-label tissue products and for lower-cost products in general.
The online-shopping boom. After the pandemic, the increase in levels of online shopping for tissue (and other) products is expected to be extremely persistent. Going forward, we expect this trend to affect pack sizes and packaging profiles for tissues—such as more ship-ready packaging to ensure that tissue products can be sent with no need for secondary packaging.
An uneven recovery. Despite growth in overall consumer spending, different sectors are performing on different levels. A spectrum of winners and losers has clearly emerged, ranging from sectors of continued decline (for instance, theaters and amusement parks) to sectors experiencing sustained elevated growth (such as products for the home). As the market readjusts to a more normal state, and leisure travel, in-person dining, and entertainment return, some of this disruption will fade. Demand for away-from-home tissue products will start to rise. But will it ever return to prepandemic levels?
The loyalty shake-up continues. During the pandemic, consumers have switched brands at an unprecedented rate, and these shifts—including those in tissue markets—are expected to continue. In addition, consumers are increasingly concerned about the environmental impact of the products they buy, including the circularity of those products. These concerns apply to tissue products as well. Younger consumers (such as Gen Z and millennials) in particular have high expectations and therefore continue to seek new brands that emphasize values, organic products, and quality.
The homebody economy persists. As the pandemic led many consumers to work remotely, homes became the new coffee shop, restaurant, and entertainment venue. For the tissue sector, the direct consequence has of course been a strong shift to at-home consumption. After the pandemic, this trend of home nesting is likely to stick and to go on bolstering at-home demand. However, the policies of employers will influence its degree of persistence.
Five strategic areas for tissue players to address
To navigate successfully through an immediate future characterized by changing consumer behavior, tissue players will have to deal with its implications:
Set up products to fit online. It will be important for tissue players to address the key trend: the shift to online sales. Responses should include adapting product offerings with optimized pack sizes and ship-ready packaging.
Proactively drive sustainability. Consumers demand that retailers and brand owners become more focused on creating and supporting sustainable products. That will drive behavioral shifts by brands. Tissue players need to think about their entire footprint, including the supply chain, recycled materials, and packaging.
Strengthen customer relationships to maintain shelf space. New groups of consumers guided by their values are buying different brands just as retailers face increasing demand for shelf space. Tissue companies need to ensure that they remain a top choice for their retail partners. It will be important to anchor brand building around relevance to consumers while ensuring that operating models are geared toward understanding and adapting to changing local consumer sentiment.
Further enhance productivity. To address the changing market promptly and stay ahead of competitors, tissue players will have to be agile: accelerating and increasing their innovations, investing in next-generation designs, using data and analytics to improve operating performance, and building smart, resilient supply chains. These investments will be crucial to safeguard value in the event of unexpected margin compression. Core capabilities should include the ability to speed up the pace of innovation by managing agile sprints, to develop next-generation designs, to use data and analytics to improve operating performance, and to build intelligent, resilient supply chains. These processes and skills will be required to safeguard value in the event of pricing and inflation adjustments.
Develop new partnerships where needed. With the increase in the popularity of e-commerce and changing customer preferences, tissue players must consider the range of partners they need. In particular, they should think about how to work with large e-commerce retailers as consumers move online and how to balance online demand with potential direct-to-consumer sales and marketing.
Changing consumer behavior will have significant ramifications for tissue players. The time is right to address the trends head on by becoming a strategic partner for customers. The reward of these moves will be significant opportunities to capture value.