Growth Strategy of Kimberly Clark

Growth Opportunities Strategy of Kimberly Clark

Ageing populations drive incontinence products growth

·         Incontinence products is forecast to be by far the fastest growing disposable paper products sector over the 2007-2012 period, with a projected global CAGR of 9%. The ageing of populations, resulting from improved healthcare, healthier lifestyles and the maturing of the baby-boomer generation, is leading to a significant increase in the incidence of age-related incontinence. Moreover, elderly consumers continue to be extremely active, leading to demand for discreet products that are compatible with on-the-go everyday lifestyles.

·         Kimberly-Clark is the leading player in the global incontinence products sector, accounting for 26% of world value sales in 2007. The company’s closest competitor is SCA, which increased its share of sector sales by 0.3 percentage points to 21.3% in 2007 as a result of aggressive marketing activity in support of its Tena brand, particularly in Western Europe, where SCA is the dominant manufacturer.

·         Sales of incontinence products are forecast to grow at a CAGR of 6% in North America over the 2007-2012 period. Kimberly-Clark is in a strong position to exploit this growth, dominating regional sales with a share of 55%. The company is also the leading player in Latin America, which is forecast to be the most dynamic regional market over the 2007-2012 period, with a CAGR of 20%.

·         In both North and Latin America, Kimberly-Clark’s considerable marketing resources will play an important role in raising consumers’ product awareness and eroding the stigma associated with purchasing incontinence products. In terms of innovation, increasing discretion and comfort will be significant trends, as consumers look to maintain active, public lifestyles.

Sanitary protection interests focus on emerging regions

·         Sanitary protection accounted for 9% of Kimberly-Clark’s disposable paper products value sales in 2007. The company, which ranked third in the global sector behind Procter & Gamble and Johnson & Johnson, saw sanitary protection sales increase by 5% in 2007. Kimberly-Clark’s sanitary protection operations are more focused on emerging markets than other areas of its activity, with Asia Pacific and Latin America each accounting for nearly 30% of its sales in the sector, while North America represented just over 20%.

·         The company’s focus on emerging regions stands it in good stead to develop its sanitary protection activity during the forecast period. North America and Western Europe are both set to see sanitary protection sales stagnate over the 2007-2012 period, as result of a shrinking consumer base due to several years of low birth rates, high levels of penetration and pricing competition from private label products. However, in emerging markets, urbanisation is creating new education and employment opportunities for women, raising their disposable incomes and making their lifestyles more public. As a result, female consumers are increasingly replacing less efficient and discreet traditional methods of sanitary protection with disposable paper products.

·         Kimberly-Clark is seeking to leverage successful strategies in its feminine care operations across emerging markets. The company’s product development teams in Latin America and Southeast Asia collaborated on the creation of an innovative ultra-thin product with greater absorbency and comfort that was launched in nine Latin American markets under brand names such as Kotex and Intimus, for example. Such activity should enable Kimberly-Clark to exploit the CAGR of around 5% projected for both Asia Pacific and Latin America over the forecast period.

Targeting emerging markets

·         Across its disposable paper products activity, Kimberly-Clark is looking to build its presence in emerging markets. With core developed markets constrained by maturity, pricing competition and strong private label segments, the dynamism of emerging markets is becoming increasingly appealing to major manufacturers. Regions such as Eastern Europe and Asia Pacific are seeing urbanisation change consumer lifestyles, boost spending power and drive the development of distribution systems, thus generating increasing demand for disposable paper products.

·         Kimberly-Clark has particularly identified Brazil, Russia, India, China, Indonesia and Turkey as important growth markets. In September 2007, the company began construction of its first manufacturing facility in Russia. The facility, which will be built in phases, will produce a range of disposable paper products under the Huggies and Kleenex brands and is scheduled to open in 2009.

·         Notably, Kimberly-Clark’s expansion strategy involves testing concepts and practices in its largest emerging market, Latin America, which it subsequently rolls out to other regions. In doing so, the company seeks to remain sensitive to the particular conditions that characterise emerging markets even as they undergo urbanisation and witness the expansion of modern retail systems.

Environmental consciousness

·         The rise in consumer environmental consciousness, spurred by dramatic meteorological events and an increasing government and media focus on climate change, is casting the disposability of paper products in a more problematic light. Ever busier consumers are unlikely to give up the convenience of disposable paper products. Moreover, deteriorating economic conditions are bolstering price-sensitivity. Indeed, in 2007, Kimberly-Clark found that consumers are not willing to spend significantly more for environmentally-friendly paper goods, nor are they willing to compromise on effectiveness for eco-friendliness.

·         While they may not be the main determinant of product choice, environmental concerns are a growing influence on consumers, and have the potential to tip the balance and to contribute to manufacturers’ efforts to generate an emotional bond between consumers and brands. Thus, manufacturers are increasingly striving to present themselves and their products in a more environmentally-friendly light. In 2008, for example, Kimberly-Clark’s Huggies brand joined with Envirocomp to offer a nappy-composting service in New Zealand.

·         In terms of developing more eco-friendly products, Kimberly-Clark expanded the trial line of Kleenex Naturals in facial tissues and Scott Naturals in toilet paper and kitchen towels in the US in October 2007. The company looked to increase the availability of these products, which contain a mix of high-quality, post-consumer recycled fibre and virgin fibre, after their successful introduction in selected Wal-Mart stores at the end of 2006. According to the company, Kleenex facial tissues contain 20% high-quality recycled fibre, while Scott Naturals toilet paper contains 40% and Scott kitchen towels contain 80%.

Limited Potential

Minor interests

·         Accounting for less than 2% of Kimberly-Clark’s disposable paper products sales, paper tableware is a minor interest for the company. Moreover, it does little to justify the diversion of significant investment away from the company’s core activities, offering weak prospects. In fact, paper tableware is forecast to be the most sluggish tissue-based sector over the 2007-2012 period, with a CAGR of only 1% at the global level. The sector is set to suffer as a result of consumers’ preference for reusable cloth alternatives as economic and environmental concerns increase.

·         Substitution by alternative products is set to make cotton wool/buds the slowest growing disposable paper products sector over the 2007-2012 period, with a CAGR of only nearly 1%. The sector has particularly suffered from the emergence of wipes, which have usurped several of its core functions in areas such as baby care and make-up removal. Cotton wool/buds has also proven to be incompatible with high levels of innovation. As a result, there is little motivation for Kimberly-Clark to develop its activity in the area, particularly as the company ranked only 12th in the global cotton wool/buds sector in 2007, with a share of nearly 1%, and cotton wool/buds was responsible for less than 0.1% of its disposable paper products sales during the year.

·         Such action will be important to Kimberly-Clark’s efforts to exploit a projected CAGR of 1% in North America over the forecast period, as it seeks to fend off increasing competition from second-placed Procter & Gamble, which eroded its lead in 2007 through the development of its Puffs brand, and an increasingly sophisticated private label segment.

·         Latin America and Asia Pacific are forecast to be the fastest growing regional tissues markets over the 2007-2012 period, with predicted CAGRs of nearly 4%. Kimberly-Clark is the leading player in both markets as a result of a broad ranging geographic coverage within each region. In Latin America, Mexico offers significant growth opportunities, as the company holds a dominant lead in the market which has a projected CAGR of 4%, though it is also increasing its share in the Brazilian market, with a predicted CAGR of 5%, thanks to its extensive distribution network.

·         In Asia Pacific, Kimberly-Clark entered the Indian retail tissues sector through its joint venture with Unilever in 2007 with the launch of Kleenex. Euromonitor International expects sales of tissues in India will grow at a CAGR of nearly 10% over the 2007-2012 period, driven by rising disposable incomes and an increasing amount of time spent outside the home.

Rising sales in kitchen towels

·         Kitchen towels accounted for around 5% of Kimberly-Clark’s disposable paper products value sales in 2007. The company registered growth of 4% in the sector in 2007, despite sales in its largest market, North America, growing by only 0.8% during the year. Growth in North America was constrained by maturity and the fact that increasingly budget-conscious consumers used products sparingly or replaced them with reusable cloths.

·         Kimberly-Clark ranks third in North American kitchen towels, behind the strong leader, Procter & Gamble, and Georgia-Pacific. Procter & Gamble’s aggressive development of the Bounty brand extended its sector lead in 2007, though Kimberly-Clark withstood its rival’s expansion significantly better than Georgia-Pacific, which saw its share fall by 1.3 percentage points.

·         Kimberly-Clark’s product improvements and innovative marketing, including a magazine insert that combined a marketing message with a product sample, helped its Viva brand to overtake Georgia-Pacific’s Brawny to become the second-ranked kitchen towels brand in the region, behind Procter & Gamble’s Bounty, in 2007. Innovative marketing will play an important role in the competition between the top three players and, indeed, the private label segment, in North America, over the forecast period, as manufacturers struggle for share in a mature market undermined by low consumer confidence.

·         Euromonitor International forecasts a global CAGR of 2% for kitchen towels over the 2007-2012 period. Eastern Europe is projected to be the fastest growing regional market over the forecast period, with a CAGR of nearly 9%, as rising disposable incomes, accelerated lifestyles and increasing hygiene-consciousness drive up relatively low levels of per capita consumption. This bodes well for Kimberly-Clark, which overtook Metsä Tissue Corp to become the leading player in the region in 2007, as it expanded its distribution in markets such as Romania.

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