4.3 bn merger to spark tissue wars

The staff at tissue manufacturers Fort Sterling and Jamont have been staring into ink-blots to see what kind of jobs they will have in two weeks’ time.

The two companies’ employees are being subjected to psychometric testing to examine their suitability for a new set of top posts. The jobs have been created as a result of the US owners of Fort Sterling and Jamont merging to create a new $7bn (4.3bn) global entity, Fort James (MW August 21).

But while the testing continues, of more significance is the possibility of a serious challenge to Kleenex’s position as the number-two brand in the UK.

Swedish paper giant Svenska Celluslosa Aktiebolaget (SCA), which operates the Kleenex brand in the UK, has admitted that the brand name will be disappearing in the near future (MW October 11 1996, MW June 26 1997). But the fact that the name change is coinciding with a merger which could produce a stronger rival will put immense pressure on whatever brand name replaces Kleenex.

The managing director for the UK Raymond Dinkin will be handing out roles in the organisation over the next few weeks. He has made no decisions yet, he says, but will appoint the executive team by early September. Job losses are likely, though Dinkin says they will be minimal.

At stake in the UK are Fort James’ two miniscule toilet tissue brands – Fort Sterling’s Nouvelle and Jamont’s Dixcel KittenSoft. While small in comparison with Britain’s market leader, the 100m Andrex brand, in the past year Nouvelle’s sales through supermarkets have doubled to 14m and Dixcel’s have nearly tripled to 6m, according to IRI Infoscan.

This growth may be evidence in support of the contentious proposition that advertising really does work. Both brands have had television exposure over the past two years, with Dixcel’s ads produced by Bates Dorland and Nouvelle’s by HHCL & Partners. Bates was appointed in April 1995 for a European campaign by Jamont’s office in Brussels.

But the merger raises the question of how Fort James will operate two competing brands. The company may be tempted either to give one precedence over the other, or axe both and come up with a single new brand.

Dinkin denies such suggestions: “It is not necessarily so. Plenty of companies have competing brands. Nouvelle is a good value, recycled product and KittenSoft is a premium product, competing on softness at the upper end of the market.”

Dixcel’s KittenSoft has already introduced the Lotus logo onto its packaging – the same branding as Jamont’s toilet tissue brand in France. And while some observers see this move as a sign that Fort James will opt to have one brand across Europe, rather than individual brands in different markets, the company denies this.

It says there is greater strength in having brands tailored to the different markets. But Jamont’s 40m European advertising through Bates Dorland uses the same ads redubbed and retitled for each market.

The merger creates the world’s second-largest tissue maker after Kimberly-Clark, owner of Andrex. Fort James’ share of the UK toilet tissue market may only be two per cent, but with the backing of the 4.3bn merged company, it could present a real threat to the UK’s second-largest player Kleenex.

Whatever happens to the brands, it appears Jamont and Fort Sterling are being brought together by international forces, rather than a need to unify their resources in the UK.

On an international level, the merger between Jamont’s parent James River and Fort Sterling’s parent Fort Howard seems to make sense.

Fort James’ US vice-president of communications Dick Elder says: “The consolidation worldwide, such as the merger between Kimberly-Clark and Scott, has raised the stakes. We have started a new company which is better able to compete.”

He claims that James River was strong in Europe with Jamont, and strong in the US with brands such as Brawney paper towels and Vanity Fair napkins. Fort Howard was an efficient low-cost producer in the US with own-label and industrial products, but was weak in Europe, with only its Nouvelle operation in the UK. The company says the merger will enable it to reap worldwide savings of some $150m (83m) in the first year, rising to $200m (123m) in subsequent years.

But in the UK, it can be argued that Fort Sterling and Jamont have been thrown together as pawns in an international game beyond their control. This is strongly denied by Dinkin: “The deal makes sense in the US and in the UK. We will have a stronger position in the market and will have economies of scale. We will be better able to afford to introduce new technology.”

But he also adds that not much will change in the UK in terms of brands – he suggests Dixcel and Nouvelle will exist side by side. He seems to want it both ways – to follow the US line stressing the advantages of the merger, but to then say it won’t make much difference in the UK anyway.

This is all part of a reshaping of the toilet tissue industry worldwide after the merger two years ago of Kimberly-Clark and Scott Paper. In Europe, KC was forced to get rid of its Kleenex brand to satisfy competition authorities. The brand was taken over by SCA, which has a ten-year licence to use the Kleenex brand on toilet tissue and kitchen towels.

Given that the two Fort James brands have doubled in size over the past year, the alarm bells must be ringing at SCA. Kleenex has a strong position as the nation’s number two toilet tissue, but the question is, for how long? According to IRI figures, Andrex has overtaken Kleenex in supermarkets and regained overall brand leadership.

There are suspicions that SCA has little commitment to branding in the UK. It would need to put significant resources behind any new brand launch if it were to be as successful as Kleenex. This may leave the way open for Fort James to build its brands into second place, and seriously challenge whatever replaces Kleenex.

Dinkin insists that no decisions have yet been taken on the future of the Fort James brands in the UK. However, it is likely he will have developed plans, given that he has been in the job since April in preparation for the merger. Neither Bates Dorland nor HHCL were prepared to comment on the implications of the merger for their accounts.

But Jamont’s head of marketing John Costigan said last week: “We have to decide whether we want two agencies or one, or even another one. Every element will be looked at.”