WILL THE PAPER TRAIL GO FULL CIRCLE?

RICHARD TURCSIK

ELMWOOD PARK, N.J. -- Supermarkets stand a good chance of retrieving market share in consumer paper products that they have lost to other retail formats, according to an executive of a leading paper mill.

"The supermarket share of the paper category is going to come back," Nicholas R. Marcalus, president and chief operating officer of Marcal Paper Mills here, told SN.

"I don't think that there is any question that supermarkets lost ground over the last three or four years to the alternative formats," Marcalus said. He estimated losses for the supermarket industry of 4% to 5% in sales over the last three years.

"But I don't see it being continually eroded. The supermarket environment is an excellent one for the paper manufacturers to sell their product, and I believe that Marcal can continue to grow in the supermarket environment," he said.

Marcalus said his optimism is based on a faith in grocers' ability to remain flexible with their merchandising and added that he has seen that flexibility at work recently within his own area of expertise.

"Grocery operators have proven to be remarkably skilled at adapting to new situations and new challenges," Marcalus said. "This is evident in the paper category, with the position they have taken by setting up aisles with large packs. The supermarket people have been very aggressive in merchandising large packs."

Supermarkets have been successful selling large packs that are distinct from those sold in membership warehouses, Marcalus explained.

"There is some very dynamic change going on in the bathroom tissue category," he said. "There has been a real move toward value pricing with a great emphasis on large packs; but the grocery retailer is merchandising packs that are somewhat different than the packs that would be found in these alternative formats."

Warehouse clubs sell truly larger-sized packages, with many more individual rolls, he explained. But Marcal and other paper manufacturers have also developed special "club packs" for supermarkets, which, while offering more rolls than normal, are not truly institutional-sized.

"At first grocery buyers were afraid that if they bought our large sizes they would be taking the consumer out of the market, but they came to realize that Sam's or BJ's were also taking the grocery consumer out of the market for an extended period. The grocery retailers now have the mind-set that if anybody is going to take the consumer out of the marketplace, then it ought to be them -- the grocery operators," Marcalus explained.

"It has been a good opportunity for paper manufacturers and grocery retailers to deliver toilet tissue packs that are giving value commensurate with the value that a consumer might get in a warehouse club," he said.

Marcalus added that the club packs may have seen their peak.

"We won't see a continuation of the increase in large packs. It has certainly become a major influence in the marketplace, but I don't think that those large packs satisfy every consumer's needs. I think that the grocery retailer has to have a mix of the large, medium size and even small sizes," he said.

In fact, one of Marcal's fastest growing sellers is a single, 1,000-sheet, paper-wrapped roll of toilet tissue that retails for 49 cents, and was introduced two years ago. In the metropolitan New York market, single rolls of toilet tissue "comprise a solid 25%" of all toilet tissue sales, Marcalus said.

"Those single rolls are examples of how small sizes can deliver value. It doesn't have to be a huge 16- or 20-roll pack to deliver value. Here is a lonely single roll of bath tissue that consumers buy because they view it as the paragon of value in the marketplace.

"If you look at what the consumer is getting for their dollar per pound of paper it is a terrific value, compared to some of the brands that have been positioned as premium brands and are now trying to price as value brands by fluffing and decreasing the number of sheets. Those products are delivering a lot of rolls, but they are not delivering value.

"Consumers today are becoming more perceptive of value. You just can't tell consumers that they are getting value, you have to demonstrate it. And you can't grow a brand based just on price promotion. That is a short-term solution," Marcalus said.

Marcalus said that the emphasis on value will help private label continue to increase its market share, although its growth in the paper category will be less dramatic than in some other consumer product categories.

"Paper is a category where brand has held and continues to hold a very strong and somewhat dominant position," he said. "Private label has made inroads. "Private label is a fact of life in the marketplace. It is a relatively small part of our overall sales, but it is important. We do not see any lack of growth opportunities with private label, nor do we see any lack of growth opportunities with our brand," Marcalus said. "At the same time our brand is growing we will work hard to offer private label products to our key customers and grow that business as well."

He said paper manufacturers have their work cut out for them in building brand loyalty.

"In the paper category, I think that brand loyalty, frankly, is somewhat tenuous," he said. "It is difficult, but we work hard at it. If it wasn't for some degree of brand loyalty, our brand or any brand wouldn't be growing."

Another perpetual challenge is finding new product niches with staying power, Marcalus said, citing the weak performance of microwavable paper towels.

"Manufacturers that introduced the microwave towels have not been that successful, and at least one of the major brand manufacturers that introduced a microwavable towel has withdrawn it from the marketplace," he said.