Paper Industry Giants Face Growth and Profitability Challenges

Challenges in the Paper Industry: Major Players Struggle to Grow

Competition in the paper industry is intensifying. Although brand upgrading and overseas expansion can alleviate growth pressures to some extent, the core challenge for paper giants lies in continuously innovating their product portfolios and shaping unique brand identities. This is currently their primary task.

During lunch break, several colleagues enthusiastically discussed their recent online shopping experiences. Tina particularly expressed her passion for paper products, having purchased large quantities of facial tissues, toilet rolls, pocket tissues, and even wet wipes, kitchen wipes, and moist toilet tissues. “These paper products are daily necessities; life would be difficult without any one of them,” she laughed.

Meanwhile, the “2023 China Shopper Report,” jointly published by Bain & Company and Kantar Worldpanel, revealed that consumers continue the habit of stocking daily essentials, with sustained attention to health and hygiene. This trend has further driven growth in household care categories, especially daily necessities like toilet paper and tissue paper. Among these, facial tissue has shown particularly significant growth, increasing its market share by 16.9%, while wet wipes also emerged strongly with a 14.9% growth rate. Additionally, statistics indicate that per capita annual tissue consumption in advanced countries such as the United States and Sweden continues to rise above 20 kg, while Japan and South Korea remain stable above 15 kg. In contrast, China’s per capita annual tissue consumption is only 6.2 kg, clearly indicating enormous potential in the Chinese tissue market.

Table 1: Market Trends & Consumer Behavior

Surprisingly, however, many tissue paper product brands have not fully capitalized on this market opportunity. Take Vinda as an example: its financial reports show that its net profit attributable to shareholders in 2020 did not meet expectations. From 2020 to 2023, Vinda recorded negative net profit growth rates, indicating no profit growth but rather a significant decline over these four years. Specifically, Vinda’s net profit dropped dramatically from HK$1.874 billion in 2020 to HK$253 million in 2023. Despite the vast potential of China’s tissue market, paper product brands like Vinda have failed to seize market opportunities effectively.

Vinda’s net profit growth rates over the past four years were 64.66%, -12.59%, -56.91%, and -64.16%, respectively. Clearly, Vinda is not alone in facing these difficulties. Why are so many paper product brands struggling in such a promising market?

Table 2: Financial Performance of Major Brands

In an increasingly competitive yet promising paper market, how should domestic brands respond to seize opportunities and achieve steady profit growth?

Are Companies Like Vinda Facing Difficulties?

When discussing China’s paper industry, four leading brands—Vinda, Hearttex (Hengan), Breeze (APP), and C&S Paper—undoubtedly occupy prominent positions. Their parent companies—Vinda International, Hengan International, Gold Hongye, and C&S Paper—each hold significant market shares. Hengan International and Vinda International went public in 1998 and 2007, respectively. C&S Paper, listed on China’s A-share market in 2010, was once referred to as the “Maotai of paper.”

However, in recent years, these paper giants have experienced significant declines in their stock prices. Although Vinda International’s decline was relatively modest at 2.25%, Hengan International and C&S Paper saw sharper declines of 28% and 31% respectively over the past year. A deeper look into financial data reveals that in the first half of 2023, Vinda International’s net profit dropped by over 80%, C&S Paper’s net profit fell by 62.88%, and Hengan International saw a 4% decline.

This downturn is closely linked to the continuous rise in tissue paper raw material prices. Despite China being the birthplace of papermaking, domestic timber resources suitable for pulp production are relatively scarce due to environmental regulations and technical limitations. As a result, paper giants rely heavily on imported wood pulp. Over the past one or two years, international raw material prices have surged, with imported pulp prices skyrocketing by about 50%. This increase has significantly raised costs for domestic paper producers. For example, Vinda International’s operating costs rose sharply by 15.4% in the first half of 2023, far exceeding its revenue growth of 4.1%. C&S Paper also faced similar cost pressures, with pulp costs accounting for a substantial portion of production expenses.

Despite rising upstream costs, paper giants find it challenging to fully transfer these increased costs to consumers. Tissue paper products, as daily necessities, rely heavily on cost-effectiveness and volume sales strategies, leaving limited room for price increases. Consequently, paper companies’ profit margins have declined. Vinda International’s net profit margin dropped from 6.59% in the first half of 2022 to 1.2% in the first half of 2023. Similarly, C&S Paper’s net profit margin decreased from 5.21% to 1.79%.

Are Giants Like Vinda and C&S Losing Consumer Favor?

In today’s tissue market, consumers increasingly value personalization and experience, driving further market segmentation. Specialized products such as moist toilet tissues, beauty tissues, tissues specifically for rhinitis sufferers, cotton tissues, and kitchen towels have emerged to meet diverse needs. The trend toward consumption upgrading has popularized the concept of “specialized tissues for specialized uses.” However, despite increased segmentation and consumer choice, the four major brands still dominate overall market share. According to China Industry Research Network, Vinda, Breeze, C&S, and Hearttex lead the facial tissue market with market shares of 17%, 14.4%, 14%, and 11%, respectively.

Table 3: Market Dynamics

However, these brands are facing growth challenges due to the emergence of new competitors. Newcomers such as PurCotton, Miniso, Babycare, and Deyou are rapidly gaining ground. The entry barriers to the paper industry are relatively low, with product quality largely dependent on equipment, raw materials, and supply chain stability. Moreover, internet marketing and e-commerce channels have enabled new brands to reach consumers directly.

Euromonitor data indicates that in the first half of 2023, Deyou topped the sales charts for moist toilet tissues, while emerging brands like Kexinrou, Anmous (a German brand), and Unifree stood out in the soft tissue category. In wet wipes, Hearttex ranked first, followed by JD.com’s Jingzao and Babycare. Brands like ZhiHu have quickly dominated online natural-color tissue markets, achieving impressive growth rates of around 50%.

How Can Giants Seek Breakthroughs?

Historically, the success of paper giants, like other FMCG brands, largely depended on robust distribution networks. They leveraged extensive retail channels such as supermarkets and convenience stores to reduce transportation costs and stay close to consumers.

However, with the transformation of the retail sector, these traditional channel advantages are diminishing. Emerging brands like Miniso and PurCotton, with direct factory-to-consumer models, are entering the market at lower costs. Brands like Deeyeo and Babycare have already established strong user bases online, simplifying their entry into the paper market.

Facing the erosion of offline channel advantages and changing consumer trends, paper giants have begun focusing on higher-margin personal care segments and premiumization strategies. For instance, Hengan launched the premium feminine care brand Space7 in 2016, followed by C&S Paper’s introduction of the mid-to-high-end brand Doremi in 2019. Vinda also joined the competition with Libresse in 2019.

Table 4: Cost Pressures

Vinda International’s annual report emphasizes its premiumization strategy and ongoing innovation. Concurrently, the internationalization of China’s paper market has become a new industry hotspot. Customs data shows significant export growth, with leading companies like Gold Hongye, Hengan International, Vinda International, and Chenming Paper actively expanding overseas.

However, merely expanding internationally is insufficient. Paper giants must continually innovate their product matrices and build distinctive brand identities to adapt to shortened FMCG product lifecycles and increasingly rational consumer behaviors. In the era of Consumer 4.0, value-for-money and rational consumption have become mainstream, requiring paper giants to abandon past successes and adapt to the evolving market environment.

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