Kimberly-Clark faces trouble, big trouble, in Europe. The spectacular takeover of Scott Paper two years ago, far from shoring up the problems of an oversupplied market, has aggravated them. K-C has plunged from profit to a 64m loss in its European operations, as retailers and own-label production tighten the noose on its margins.
A nightmare indeed, but there’s worse to come. As we reveal in this week’s issue, Procter & Gamble is taking advantage of turbulent conditions in K-C’s core tissue paper market to launch its own blitz against K-C – and in its most profitable European market, the UK.
So grave is the situation that K-C has broken up its existing European management structure and parachuted in a top-flight trio of US executives, charged with turning operations around. They face a daunting task, only some of it of K-C’s own making.
Of course, no one can blame K-C for the savage market conditions prevailing. But it has not helped itself by engaging in a self-defeating strategy: on the one hand succumbing to the siren-temptations of own-label manufacturing; on the other, attempting to reinforce the position of its premium brands with a costly investment programme.
Own label production may cut overheads by keeping the factories running, but it makes a nonsense of manufacturers’ brand values. Not only that, K-C isn’t playing the own-label game very well: it is currently losing out to Italian competition.
So the logical thing for the new management to do is to pull out of own-label. But the alternative, brand-building, won’t come cheap or easy. Already K-C is being stretched by investment commitments in other key areas of its brands’ portfolio. Huggies, the nappies range, has created a few headaches for market leader P&G – but the required increase in production capacity is costing K-C dearly. Similarly, it has invested heavily in building its Kotex tampons brand into a world contender – although without conspicuous success so far.
Add P&G’s European tissue-paper offensive into the equation and things begin to look fairly grim for K-C. P&G has recently taken advantage of K-C’s plight to relieve it of excess paper-manufacturing plant in Orleans, France. In a classic wooden horse manoeuvre, this will provide the bridgehead for P&G’s assault on K-C’s dominance in the UK tissues market. Later, P&G is expected to consolidate its position with an extra 200m investment in the UK, the majority of it spent on a new tissue-manufacturing factory based in Manchester. Like everything P&G does, its approach to the European tissue market will be slow, methodical and potentially lethal to competitors.
It would be a shame for K-C if Andrex were to go the same way as Persil.
News, page 5; Cover story page 28