Addressing Challenges In The Paper Industry

By Mark Kirchgasser, Vice President of Sales – Away from Home, Sofidel America

The outlook for the remainder of 2024 in the North American away-from-home (AFH) paper business appears challenging, as the sector continues to deal with the aftermath of the COVID-19 pandemic. Across various industries such as food service and office sector, demand remains unstable, with the office sector notably sluggish in its recovery. With end-users searching for products that better meet their demands, the paper industry needs to embrace innovation to stay relevant.

Sluggish Commercial Real Estate And Older Machines

A major concern for many distributors is the slow recovery of the office sector post-pandemic. Office occupancy rates are only 50% of pre-pandemic levels, destabilizing this once-dominant market[1]. Consequently, many distributors have transitioned away from office products to focus more heavily on the janitorial and sanitation market. Despite the slower commercial real estate market, the overall demand for paper products has remained relatively stable, with AFH shipments down just under 2% overall for the year.

Aging paper-making assets remains a challenge for the AFH paper industry as age is limiting capacity of, or forcing the closure of, machines. Also, older machines are not as efficient, making it harder to fulfill market demands. Closure of these assets (from 2021), when weighed against new machines planned or online, has reduced available conventional tissue-making capabilities by over 9%. The resulting utilization rates of these assets have increased to approximately near 96%[2]. This helps offset the shortfall in the industry caused by machine breakdowns and mill closures.

Changing Paper Demands

Both distributors and end-users now seek products that address specific challenges. For example, schools dealing with toilet clogs caused by paper towels being flushed down toilets require solutions that mitigate such issues. Standard paper towels fall short in this regard, requiring alternatives that help prevent clogs. End-users are increasingly willing to pay a premium for products that offer effective solutions.

A younger generation of corporate buyers is also helping to shift demand for product types. Today’s buyers are more environmentally conscious and are prioritizing purchasing third-party certified products[3]. Previously, such certifications were merely a bonus. Now there is a growing demand for products certified by reputable organizations such as the Forest Stewardship Council® (FSC®).

Trends In The Janitorial And Sanitation Industry

The paper industry continues to see a consolidation of distributors for scale and cost considerations. Aggregators and smaller, independent distributors are proactively managing inventory costs by optimizing their assortments to meet the expanding and diverse needs of customers. Rather than attempting to cater to every possible need, many distributors are focusing on cost-effective strategies including streamlining assortments. Their goal is to maximize efficiency and inventory control while still offering a comprehensive range of products.

Meeting Demands Through Innovation

A pivotal approach to addressing heightened demands involves listening to end-users, acting as problem solvers, and offering tailored solutions rather than just product assortments.

Innovation and product development are key drivers of value differentiation in the AFH paper industry. By offering problem-solving products tailored to specific needs, stakeholders can move away from commoditization while adding nominal pricing for the service. We see end-users are willing to pay 5%-10% premiums for problem-solving products that offset more expensive remedies such as plumbers, benefiting the entire industry.[4] Embracing change and staying ahead of the curve are essential for navigating through uncertainties and seizing opportunities in this changing industry.

Staying Relevant

In an industry rapidly evolving toward a focus on quality and sustainability, it’s important to not cling to outdated thinking patterns. Embracing change and innovation is essential for staying relevant and competitive in a landscape where product capabilities and sustainability credentials increasingly influence market dynamics.

Mark Kirchgasser is Vice President of Sales – Away from Home, at Sofidel America. He is a 30-year veteran of the tissue industry. Sofidel is a world leader in the manufacture of paper for hygienic and domestic use, including its Papernet brand of sustainable hygiene solutions. For more information, visit www.papernet.com/am.

1. https://www.washingtonpost.com/business/2023/02/04/return-to-office-occupancy-status/
2. RISI Fastmarkets (2024).
3. https://hbr.org/2023/09/research-consumers-sustainability-demands-are-rising
4. https://www.mckinsey.com/industries/packaging-and-paper/our-insights/sustainability-in-packaging-us-survey-insights