Kimberly-Clark Corp in Tissue and Hygiene (World )

Kimberly-Clark Corp in Tissue and Hygiene (World) AUGUST 2011 Downloaded from www.warc.com

Introduction Scope • All values expressed in this report are in US dollar terms, using a fixed exchange rate (2010). • 2010 figures are based on part-year estimates. • All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data are expressed in current terms; inflationary effects are taken into account. Market sizes 2010

Strategic Evaluation Competitive positioning Market assessment Geographic and category opportunities Brand strategy operations recommendations

Strategic Evaluation Key company facts • Kimberly-Clark divides its operations into four segments: Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. Of these operating segments, Personal Care and Consumer Tissue are responsible for the company’s activity in retail tissue and hygiene, in which it is the world’s second largest player, behind Procter & Gamble. • Kimberly-Clark has a wide-ranging offer in retail tissue and hygiene, with a global top three ranking in every category except for cotton wool/buds/pads. The company registers annual sales of more than US$1 billion in five categories – nappies/diapers/pants, toilet paper, tissues, sanitary protection and incontinence. • In geographic terms, Kimberly-Clark has established a global presence, ranking in the top three in every regional retail tissue and hygiene market. The company generates the majority of its sales in the Americas, with North and Latin America jointly accounting for 60% of its retail tissue and hygiene value sales in 2010. • The company returned to positive growth in 2010, with nappies/diapers/pants and sanitary protection sales bouncing back strongly in Latin America, and sanitary protection performing well in North America.

Strategic Evaluation Financial analysis • Kimberly-Clark saw net sales rise by over 3% in 2010, on the back of rising volumes, increased net selling prices and an improved product mix. • The Personal Care segment posted near 4% net sales growth during the year. Segment growth resulted from a 4% increase in North America and a 6% increase in the company’s K-C International division, driven primarily by Asia and Latin America, excluding Venezuela. Sales in Europe fell, however, as a result of unfavourable currency effects and falling net selling prices. • The Consumer Tissue segment saw an above 1% increase in net sales, despite a 2% fall in volumes. In North America, volumes declined by 4% as consumers continued to trade down to lower-priced offerings. Europe also saw falling volumes contribute to a decline in net sales. • However, K-C International registered an 8% increase in consumer tissue net sales, resulting from increased net selling prices (particularly in Latin America and Russia), favourable currency exchange rates and an improved product mix.

Strategic Evaluation Strong performance in first half 2011 • In the six months to 30 June 2011, Kimberly-Clark posted a 6% increase in net sales over the same period of the previous year. • The Personal Care segment saw sales grow by 5%, despite a 2% fall in sales in North America resulting from declining net sales prices due in part to increased promotional activity for the Huggies nappies/diapers/pants brand. • Personal Care growth was driven by increasing sales in the segment’s international operations in Asia, Latin America, Eastern Europe and the Middle East and Africa. • Growth resulted from favourable currency exchange rates, increased net selling prices and rising volume sales in markets such as China, South Korea and Brazil. • The Consumer Tissue segment posted 7% growth in the first half of 2011. Again, international operations were a key driver, thanks to increased prices, particularly in Latin America and Asia, and changes in product mix.

Strategic Evaluation SWOT - Kimberly-Clark Corp Broad offer Brand strength Domestic bias Off the pace in China • The company has developed a strong portfolio of brands with high levels of consumer recognition and trust. It has global top three brands in every product category except for cotton wool/buds/pads. • Kimberly-Clark has developed a wide-ranging offer spanning every retail tissue and hygiene category, which provides protection against downturns in particular product categories. • Kimberly-Clark has allowed Procter & Gamble to establish a strong lead in the nappies/diapers/pants category in China, creating a significant obstacle to its development in this increasingly important market. • While it has developed a global presence, Kimberly-Clark remains heavily reliant on the mature and intensely competitive US market, which accounted for 31% of company value sales in 2010. • The rise in consumer eco-consciousness is creating significant opportunities for major manufacturers to develop mainstream green brands and products. • Private label is adopting increasingly brand-orientated approaches to innovation and marketing, building on an already strong presence in retail tissue and hygiene. • In its expansion in emerging markets, Kimberly-Clark faces a significant challenge from major local players with local knowledge and production and extensive distribution networks. • With rising purchasing power, changing lifestyles and developing distribution systems, emerging markets are playing an increasingly important role in driving global growth in retail tissue and hygiene. Green demand Emerging markets Major locals Private label expansion

Strategic Evaluation Strategic objectives and challenges Green focus “Emotional affinity” Breaking taboos Expanding in emerging markets • With core developed markets afflicted by maturity, intense pricing competition and strong private label segments, Kimberly-Clark is working to expand its presence in fast-growing emerging markets. The process is involving establishing local production, including the opening of the company’s first manufacturing plant in Russia in 2010, as well as developing product offers tailored to local conditions. • Kimberly-Clark is seeking to expand its consumer base and build brand loyalty in incontinence and sanitary protection through marketing and brand development which erodes the stigma and embarrassment which continue to attach to incontinence and menstruation. Thus, the Poise incontinence brand has employed the humorous One In Three Like Me campaign, while the U by Kotex Tween brand extension seeks to promote conversation between mothers and daughters. • Kimberly-Clark is working to establish itself as the leading major retail tissue and hygiene manufacturer in terms of environmental issues. The company is developing its corporate image through engagement in green initiatives and partnerships with environmental organisations, as well as introducing a growing range of eco-focused products across its offer. • With private label increasingly mimicking major brands’ successful product innovations, Kimberly-Clark recognises the growing importance of creative marketing, as well as new product development, in developing distinctive brands. In particular, it works to encourage consumers to feel what it describes as “an emotional affinity” with its brands through activity that focuses on brands’ role in emotionally resonant areas of their lives and through interactive campaigns.

Strategic evaluation Competitive positioning Market assessment Geographic and category opportunities Opportunities in key categories Brand strategy operations recommendations

Competitive Positioning Held back by developed markets A: (2007): Poor performances in the mature and economically-troubled North American and Western European markets lead to a deceleration in Kimberly-Clark’s growth, as emerging markets spur stronger growth in the global market. C: (2010): Weak performances in tissue-based products and nappies/diapers/pants in the key North American market keep Kimberly-Clark’s growth rate below that of the overall global market. B: (2009): Kimberly-Clark continues to lag behind the global market, as its tissue-based products suffer from price-conscious consumers trading down, with its Consumer Tissue segment registering falling volumes across its geographic range.

Competitive Positioning Hygiene and emerging markets driving growth • The world’s largest retail tissue and hygiene manufacturer, Procter & Gamble, maintained its share of global value sales in 2010, after three years of decline. • Kimberly-Clark, in contrast, continued to see its share fall, as it suffered from greater exposure to the retail tissue segment, which has been hit particularly hard by increased consumer budget-consciousness and competition from low-priced alternatives. • Georgia-Pacific was even more reliant on tissue products, as well as being heavily biased towards the intensely competitive markets of North America and Western Europe. As a result, it saw value sales fall by 1% in 2010. • The importance of emerging markets was underlined by the dynamism of Hengan International, the world’s fastest-growing major manufacturer in 2010 on the back of the rapid expansion of its domestic market, China. Having entered the top 10 in 2009, Hengan rose one place to seventh in 2010.

Competitive Positioning Leaders see share fall • The world’s top 10 retail tissue and hygiene manufacturers jointly accounted for 54% of global value sales in 2010. This represented a fall in combined share of nearly three percentage points since 2005. The decline in the leaders’ share resulted from two main factors – the expansion of the private label segment and the increasing importance of emerging markets. • Private label’s share rose over the 2005-2010 period, as difficult economic conditions bolstered demand for low-priced products and retailers developed more diverse and sophisticated product ranges. However, private label’s share fell in 2010, as the developed markets on which it founds its strength were significantly outpaced by emerging markets. • The dynamism of emerging markets brought major local players to increasing global prominence over the 2005-2010 period. The most striking example of this was Hengan International, which entered the top 10 in 2009 and rose to seventh in 2010, the year in which it also overtook Procter & Gamble to become China’s leading producer. Other major local manufacturers to benefit from emerging market expansion include Vinda Group, Asia Pulp & Paper Co and Papeles Venezolanos.

Strategic evaluation Competitive positioning Market assessment Geographic and category opportunities Brand strategy operations recommendations

Market Assessment Emerging markets driving global growth • Kimberly-Clark has established a truly global presence in retail tissue and hygiene, with a top three ranking in every regional market, and annual sales of more than US$1 billion in every region except Australasia and Eastern Europe. Kimberly-Clark is the leading player in two regions – Australasia and Latin America. The company ranks second behind Procter & Gamble in every other region, except Asia Pacific, where both companies rank behind Japanese manufacturer, Unicharm. • Emerging markets are set to become increasingly important drivers of global growth over 2010-2015. Middle East and Africa is expected to be the fastest-growing region, with a CAGR of 8%. Kimberly-Clark is well-placed in the region, with a leading position in the dynamic South African market. Meanwhile, Asia Pacific is projected to dominate absolute growth with a US$12 billion rise in sales over 2010-2015. • In contrast, developed markets are expected to see maturity and intense pricing competition, bolstered by strong private label segments, constrain growth over the forecast period, with Australasia, North America and Western Europe all set to see CAGRs of only 1%.

Market Assessment Extensive product offer • Kimberly-Clark has developed a wide-ranging retail tissue and hygiene offer. It has a top two ranking in every category except sanitary protection, in which it ranks third, and cotton wool/buds/pads, in which it is a lowly 18th. Nappies/diapers/pants and toilet paper constitute the company’s largest categories, accounting for 36% and 28% of its retail tissue and hygiene value sales, respectively, in 2010. Both categories are expected to post a CAGR of around 4% over 2010-2015, driven by rising sales in emerging markets. • Incontinence is forecast to be the most dynamic category over 2010-2015, with a CAGR of 6%, driven by the ageing of populations around the world. Moreover, incontinence stands out as offering notable growth even in otherwise sluggish developed markets, and is projected to be by far the fastest-growing category in North America, Western Europe and Australasia over the 2010-2015 period. • While demographic factors weigh against sanitary protection’s expansion in developed markets, Kimberly-Clark significantly strengthened its position in the category in North America in 2010 through the launch of U by Kotex. The company also saw strong growth in Latin America through value-adding product innovation.

Market Assessment Mainstream green potential Growing green demand • Growing consumer eco-consciousness, underpinned by an increasing emphasis on environmental issues by governments and media, provides an attractive focus for product innovation in a retail tissue and hygiene market characterised by high levels of commodification and increasingly intense private label competition. Until recently, eco-friendly products have been a niche area populated by small, specialist manufacturers with limited marketing and distribution capacities. Amongst the largest of these is Seventh Generation, which witnessed strong growth in the US nappies/diapers/pants category in 2010. Working to establish mainstream green positioning • Kimberly-Clark is working to establish itself as a green pioneer amongst the major manufacturers in terms of both its corporate image and the provision of a mainstream green product offer under strong, established brands. The company’s environmental initiatives led it to enter Newsweek’s Top 100 Greenest US Companies in 2010. In June 2011, Kimberly-Clark sought to further strengthen its corporate environmental credentials through the expansion of its participation in the Global Forest & Trade Network, a WWF initiative to eliminate illegal logging and conserve forests. The company’s participation in the initiative now includes all wood fibres sourced for all of its products sold globally in its Personal Care, Consumer Tissue and Kimberly-Clark Professional businesses. • In terms of its product offer, Kimberly-Clark has made significant green-influenced launches in both its tissue and hygiene operations. 2009 saw the company introduce super-premium Huggies Pure & Natural nappies/diapers, containing natural and organic materials and ingredients, and the Scott Naturals range of tissue products. Scott Naturals made significant headway in categories such a kitchen towels in 2010, and Kimberly-Clark continued to promote the brand strongly in 2011, challenging US consumers to try out the brand for four weeks and enter a sweepstake for a chance to win a new 2011 Ford Fusion hybrid sedan.

Geographic and Category Opportunities Brazil to drive Latin American growth • Expanding sales amongst such consumers and deepening penetration of less affluent regions, such as the northeast, will play an important part in driving growth in Brazil over the forecast period. Kimberly-Clark has established a strong platform for such expansion, though it is likely to face increasing competition as rivals look to emulate its success. • Latin America is Kimberly-Clark’s largest nappies/diapers/pants market, generating 35% of its value sales in the category in 2010. The company is the region’s largest manufacturer, with a share of 40%, well ahead of second-placed Procter & Gamble. Mexico is Kimberly-Clark’s largest market in the region, accounting for 43% of its Latin American nappies/diapers/pants sales. The company dominates category sales in the market, with a share of more than 70%. • However, while Mexico is expected to post a strong CAGR of 4% over 2010-2015, Brazil is set to be the key growth market over the period, with a CAGR of 8% leading to a US$1.1 billion rise in sales. Kimberly-Clark extended its lead over Procter & Gamble in 2010 with strong growth driven by its strategy of targeting lower-income consumers, whom it is successfully persuading to switch from cloth nappies/diapers to its inexpensive Turma da Mônica Magic Nappy, which is narrow and comes with a washable belt instead of adhesive tape.

Geographic and Category Opportunities Significant potential in China • China will be a key driver of global growth in nappies/diapers/pants over the 2010-2015 period, contributing absolute growth of US$2.6 billion to a global total of US$7.7 billion. Kimberly-Clark ranked only fourth in the Chinese market in 2010, having been overtaken by Unicharm. Procter & Gamble holds a strong lead in the market, with Hengan ranking second. Nonetheless, Kimberly-Clark gained share in 2010 at the expense of local players, which were hit by raw materials shortages. The company courted increasingly affluent young urban consumers with the launch of the premium-positioned Huggies Ultra-Soft Golden Package, spurring growth of 35% in 2010, second only to Unicharm among the market’s top 10 players. • The 2010-2015 period is set to see economic growth extend the demand for nappies/diapers significantly beyond first-tier cities to lower-tier cities, towns and villages. Developing distribution networks to meet this growing demand will be key to success. Competition to reach consumers in these areas will be intense, with major local player, Hengan, committed to developing its mid- to high-end offer through its extensive distribution system. Targeting the premium segment provides significant potential to generate value and differentiate Kimberly-Clark’s offer from local players. However, the company should also consider diversifying its product offer in order to build sales amongst lower-income consumers.

Geographic and Category Opportunities Expansion in Africa Focus on Africa • Middle East and Africa is expected to be the fastest-growing regional nappies/diapers/pants market in the world over the 2010-2015 period, with a CAGR of 9%, as urbanisation raises purchasing power and transforms consumer lifestyles. Africa features strongly in Kimberly-Clark’s plans to develop its international business. Top two invest in South Africa • In the short- to medium-term the company’s plans focus largely on South Africa, which is set to lead absolute growth in the region with a US$570 million rise in sales over 2010-2015. In 2011, the company invested R150 million (US$22 million) in a plant to produce disposable nappies/diapers in Cape Town. The move followed market-leader, Procter & Gamble’s R350 million (US$52 million) investment in a nappies/diapers manufacturing plant in Johannesburg, which officially opened in November 2010. • Kimberly-Clark consistently closed the gap on Procter & Gamble over 2005-2010 through an offer that spans a broad range of price points, from Huggies Dry Comfort, which is available in mini-packs that contain three nappies/diapers and retails at R10, to the premium and less-bulky Huggies Gold. Broader potential • In the longer term, Kimberly-Clark will look to growth opportunities in emerging African economies such as Nigeria, Ghana and Angola, which are all seeing rising levels of disposable income and growing urbanisation. Throughout Middle East and Africa, however, Kimberly-Clark will need to maintain its efforts to generate sales amongst low- and middle-income consumers, as even by 2020, average GDP levels will still be below the US$3,000 take-off point (income level at which nappies/diapers typically become affordable) across the region. With annual disposable incomes per capita in Africa amongst the lowest in the world, pricing will be key to developing a broad consumer base in the market.

Geographic and Category Opportunities Challenging conditions in core market • The US is Kimberly-Clark’s largest nappies/diapers/pants market, responsible for 17% of its sales in the category in 2010. Market-leader, Kimberly-Clark is locked in an intense struggle for supremacy with Procter & Gamble, with only 0.2 percentage points separating the two in 2010. Both players saw value decline during the year, as consumer budget-consciousness intensified pricing competition and drove up private label sales. In third place, green-focused manufacturer, Seventh Generation, posted dynamic growth, however, with its range of chlorine-free and petroleum-free organic products. • The US is expected to see nappies/diapers/pants sales stagnate over the 2010-2015 period, as a result of maturity, unfavourable demographics and pricing competition, placing growing pressure on innovation to generate value, differentiate brands and gain share. Technological improvements, such as increased absorbency, and greater convenience will play an important role. In 2011, Kimberly-Clark notably launched Huggies Little Movers Slip-On Diapers, which it claims to be the first and only disposable nappy/diaper in North America to slide on like underwear. The growing demand for green products also offers potential. While Kimberly-Clark launched Pure & Natural nappies/diapers with “natural, organic materials and ingredients” in 2009, neither it nor Procter & Gamble has made a successful appeal to consumers’ ecological concerns.

Geographic and Category Opportunities Outperforming US sanitary protection • Kimberly-Clark significantly outperformed the US sanitary protection market in 2010 registering growth of 17% through the successful introduction of its U by Kotex range. The new range of tampons, pads and liners targeted younger women with colourful packaging styles and a marketing campaign that included high-profile media advertising and the use of online viral videos and social media. • Kimberly-Clark was the only major manufacturer to post positive growth in 2010, thereby closing the gap on the category’s dominant player, Procter & Gamble. All of the company’s rivals suffered from growing competition from private label, which saw sales rise by 9% during the year. • Prospects are not bright in US sanitary protection, thanks to maturity, private label competition and unfavourable demographics. Kimberly-Clark’s assertive targeting of younger women offers a strong platform to gain share in a mature environment. • In 2011, the company looked to strengthen its base amongst younger women with the launch of U by Kotex Tween, a range of smaller-sized pads to fit the bodies of “tweens”, which also contains a booklet to facilitate conversations about menstruation between girls and their mothers.

Geographic and Category Opportunities Looking to emerging markets in sanitary protection • With sanitary protection value sales expected to stagnate in the developed markets of North America and Western Europe, there is considerable pressure on Kimberly-Clark to develop its presence in the category in emerging markets. • Several emerging markets offer significant growth potential, with markets such as India, Indonesia, Vietnam and South Africa expected to post CAGRs of more than 7% over 2010-2015, while Ukraine is expected to grow at a CAGR of more than 12%. • Meanwhile, India, Russia, Ukraine and Brazil are all predicted to see sales rise by more than US$100 million over 2010-2015. • However, once again, it is China that stands out, with a CAGR of 7% set to lead to absolute growth of US$2.5 billion over the forecast period. • Establishing a solid base amongst lower-income consumers will be an important factor in developing a presence in emerging markets. Kimberly-Clark notably improved its standing in Brazil in 2010 through the competitively-priced Intimus Gel brand in standard towels.

Geographic and Category Opportunities New brand strategy in Chinese sanitary protection • Kimberly-Clark lags behind the leaders in fifth place in the Chinese sanitary protection market. However, the sanitary protection category is relatively fragmented in China, with Hengan, the leading player, only accounting for 10% of total value. Looking to strengthen its base for expansion, Kimberly-Clark withdrew its Comfort & Beauty brand in order to integrate the range into its Kotex brand, which was relaunched in the market in 2010. • While Comfort & Beauty was Kimberly-Clark’s leading brand in China in 2009, Kotex has a modern image and a strong appeal to young women. It therefore offers significant potential for development, especially in the dynamic pantyliners and ultra-thin towels categories, which offer discretion that appeals to young women with public working and social lives. • As in other categories, extending distribution to lower-tier cities will be a key factor in brand development in China during the 2010-2015 period. Kimberly-Clark will face stiff competition for sales in lower-tier cities from Hengan and multinational rivals such as Johnson & Johnson and Unicharm, which are all looking to extend their reach beyond first-tier cities. Furthermore, smaller domestic companies are expected to step up competition as they invest more strongly in marketing to improve their brand images. China – Sanitary Protection Forecast by Category 2011-2015 (% Y-o-Y Growth)

Geographic and Category Opportunities Kimberly-Clark mounts share fight-back • Kimberly-Clark dominates incontinence sales in the US, which accounts for 65% of its total sales in the category, with a value share of 55% in 2010. Moreover, unlike nearest rival SCA, which saw value sales fall for the first time in the 2005-2010 period, Kimberly-Clark mounted a successful fight-back against the expanding private label in 2010. • Strong marketing and a broad product offer, featuring gender-specific products drove a share increase for the company’s market-leading Depend brand during the year. A high-profile advertising campaign featuring comedian and actress Whoopi Goldberg, aimed at eroding the stigma associated with incontinence amongst women, significantly boosted sales of the Depend Poise sub-brand. • The US market is set to become increasingly competitive over the 2010-2015 period, when a CAGR of 3% is set to lead to a US$242 million rise in sales. SCA and major Japanese manufacturer, Unicharm, joined forces in 2010 to make a concerted move on the US market. In August 2010, the companies completed a US$50 million expansion of SCA’s manufacturing facility at Bowling Green, Kentucky, and intend to market Unicharm’s proprietary nonwovens technology under SCA’s Tena brand in the US. In addition, the private label segment is set to continue growing, spurred by the development of retailers’ brands in health-orientated retail outlets, like drugstores.

Geographic and Category Opportunities Widespread growth forecast for incontinence • Incontinence is predicted to be the fastest-growing retail tissue and hygiene category in every regional market, except Eastern Europe, where it is set to come second to kitchen towels, over the 2010-2015 period. Growth will be driven by the increasing incidence of incontinence as a result of the ageing of populations, with manufacturers boosting demand through marketing that raises product awareness and erodes the stigma surrounding the subject. • With its experience and potential brand power, Kimberly-Clark should, therefore, work to build its presence in the category beyond the US. Kimberly-Clark has established a global presence in the category and holds a leading position in North America, Latin America and Middle East and Africa, as well as second place in Australasia. However, the company lags some way behind the leaders in the large Asia Pacific and Western European markets, as well as Eastern Europe.

Geographic and Category Opportunities Opportunities in incontinence Brazil to be a key market • Brazil should be a key focus for development. The Brazilian incontinence market is set to show the world’s second strongest absolute growth over the 2010-2015 period, behind Japan, which is dominated by domestic manufacturers. Kimberly-Clark ranks second in Brazil behind Hypermarcas, with an 18% share. The market is expected to grow at a CAGR of 14%, bolstered by the inclusion of incontinence products in the Brazilian government’s healthcare subsidy scheme. Expanding capabilities in Australia • Incontinence also offers significant growth potential in otherwise troubled developed markets. Kimberly-Clark is well-placed in Australia, which is predicted to post a CAGR of 8% over the 2010-2015 period, ranking second with a share of 38%. • However, SCA is pulling away in the market, as it has benefited from the use of Tena across light and heavy/moderate products, thereby maximising the impact of marketing activity and making both categories more accessible to consumers, while Kimberly-Clark has used Poise in light incontinence and Depend in heavy/moderate. Kimberly-Clark should consider merging the Poise and Depend brands, as it has in the US in order to bring greater coherence and effectiveness to its marketing. • Kimberly-Clark underlined its commitment to expansion in the Australian incontinence category with the investment of US$28 million to start production of disposable pants at its Ingleburn plant. Increasing competition in Western Europe • Several Western European markets offer opportunities, but Kimberly-Clark faces significant competition from both SCA, which largely took the initiative and is dictating the conversation surrounding incontinence in many markets outside the US, and the expansion of Procter & Gamble in the category.

Geographic and Category Opportunities Strong branding required in Western Europe • The UK is Western Europe’s stand-out market, with a projected CAGR of 12% set to lead to absolute growth of US$128 million over the 2010-2015 period. • Market-leader, SCA, has responded more strongly to the entry of Procter & Gamble than Kimberly-Clark. Having been pushed into third place by Procter & Gamble in 2008, Kimberly-Clark continued to experience share erosion in 2010. • Kimberly-Clark’s already small share was also eroded by the entry of Procter & Gamble (in 2009) in the German market. Meanwhile, Kimberly-Clark is not a significant presence in the growing French and Italian markets. • Building a stronger presence in an increasingly competitive Western European incontinence category, will require Kimberly-Clark to commit to significant investment in brand development. • The company notably launched the One In Three Like Me campaign featuring Whoopi Goldberg, its largest campaign in support of the Poise brand, in the UK in 2011.

Geographic and Category Opportunities Challenging conditions in toilet paper Intense pricing competition • Kimberly-Clark is the world’s largest toilet paper manufacturer, having established a strong global presence with a leading position in five regions and a second-placed ranking in Australasia and Eastern Europe. The widespread economic difficulties prevailing in 2010 intensified pricing competition in an already highly commodified category and encouraged consumers to trade down to low-priced alternatives in many markets, including the US, which accounted for 31% of the company’s toilet paper value sales in 2010. As a result, Kimberly-Clark witnessed growth of more than 1% in only two regional markets, Latin America and Middle East and Africa, during the year. Emerging markets drive global growth • A strong performance in Latin America, underpinned by a double-digit increase in sales in Brazil, drove company growth of 2% at the global level in 2010. Kimberly-Clark drove growth in Brazil through the launch of two new 30-metre double-ply products, NeveCompacto, sold in large 24-unit packs in a compressed format, and NeveNaturale, made from 100% recycled paper that is green in colour and sold under an exclusive agreement only through Wal-Mart hypermarkets. The company also posted strong growth in Middle East and Africa as a result of dynamic expansion in South Africa driven by strong marketing support behind the premium-orientated Kleenex Baby Soft brand. China to dominate predicted growth • Brazil and South Africa will continue to be important growth markets over the 2010-2015 period. However, China is expected to be the stand-out toilet paper market over the forecast period, with a CAGR of 10% leading to a US$4 billion rise in sales in the context of global absolute growth of less than US$8 billion. Kimberly-Clark ranks fourth in the Chinese toilet paper category, and has struggled to keep pace with the major local players leading the market.

Geographic and Category Opportunities Stronger distribution required in China • Kimberly-Clark needs to improve its competitive standing in the Chinese market, which is set to drive global growth in toilet paper over the 2010-2015 period. The company saw its share eroded annually from 2007 to 2010, as it posted growth well below that of the overall market. • Market-leader, Hengan, was particularly dynamic in 2010, with a 45% increase in sales. The company extended its lead during the year as it benefited from a strong and expanding distribution network for its Hearttex brand, which is present in kitchen towels, napkins and tissues, as well as toilet paper. Hearttex, which targets middle-income consumers, has established a comprehensive distribution network including first-tier and lower-tier cities and even many small towns. • If it is to develop its position in the market, Kimberly-Clark will need to work to expand its own distribution network. Not only is growth increasingly being driven by lower-tier cities, but the smaller local players that have established themselves in these markets are likely to be forced to exit by stricter environmental regulations governing production, leaving room for larger players. Kimberly-Clark should be aided in its efforts to expand beyond first-tier cities through the expansion of leading grocery retailers such as Wal-Mart, Carrefour and Tesco, with which it has strong relationships.

Geographic and Category Opportunities Opportunities in developed markets Widespread revival • Toilet paper is set to see a widespread revival in its performance over the 2010-2015 period, with even developed markets offering notable opportunities to generate value growth. The US, Kimberly-Clark’s largest market, is set to see a CAGR of 2% lead to absolute growth of US$830 million over the forecast period. Green growth in the US • While the US is expected to see standard toilet paper drive growth, spurred by the ongoing expansion of the private label segment, recycled toilet paper is also set to see strong growth from its low base. Kimberly-Clark should be a key player in the category’s expansion, through the further development of the Scott Naturals brand, which was launched in April 2009. Luxury products to drive Western European growth • In the key Western European markets of France, Germany and Spain, however, luxury toilet paper is expected to display the greatest dynamism over the 2010-2015 period. This trend towards premiumisation bodes well for major brand manufacturers with significant resources to invest in new product development and strong marketing activity. Premiumisation also offers hope in the face of intense competition from private label, which has had a significant impact on the company’s performance in some markets, including Germany, where the erosion of share by discounters has led to rumours that Kimberly-Clark would withdraw from tissue products in the market. However, it should be noted that private label is expanding its own offer in upmarket segments and adopting a brand-orientated approach to innovation and marketing. • Such competition is also placing growing pressure on innovation and marketing in the standard segment, which is set to drive UK growth over the 2010-2015 period. Kimberly-Clark established a strong platform for such brand development in the UK in October 2010 with the relaunch of its market-leading Andrex brand.

Geographic and Category Opportunities Strong private label threat in tissues • Although Kimberly-Clark is the world leader in tissues, ranking number one in every region except Middle East and Africa, where it ranks second, the company’s tissues sales are heavily biased towards developed markets. • With consumers still relying on alternatives, such as cloths or other tissue products, to perform the functions of tissues in emerging markets, North America, Western Europe, Australasia and Japan jointly accounted for 79% of the company’s value sales in the category in 2010. • As a result, Kimberly-Clark is heavily exposed to private label competition in the highly commodified tissues category. Private label is particularly strong in Western Europe, where it accounted for 47% of category sales in 2010, having added nearly one percentage point during the year through increased consumer price-consciousness and an expanding product range. Meanwhile, Kimberly-Clark saw its region-leading share eroded slightly. • Private label’s expansion and competition from smaller players had a greater impact on Kimberly-Clark’s share in North America, where the company witnessed a share fall of 1.4 percentage points in 2010.

Geographic and Category Opportunities Limited prospects in tissues • Kimberly-Clark is working to enhance the standing of its Kleenex brand in the face of increasing private label competition and budget-conscious consumers’ growing willingness to use products such as toilet paper in place of tissues. Innovation has included aesthetic developments such as new packaging designs for the brand in the US. The UK has seen several significant initiatives, including the launches of Kleenex Ultra Soft and Kleenex Balsam Fresh, which is infused with menthol, in 2010, and a poster campaign on the London Underground in support of its Kleenex Slimline pocket handkerchiefs, which target men, in 2011. • There will be considerable pressure on innovation to drive growth and gain share in key markets over 2010-2015, with North America, Western Europe, Australasia and Japan all expected to see tissues sales stagnate or decline, as a result of consumers employing alternatives (both through budget-consciousness and environmental concerns) and intense pricing competition, bolstered by private label expansion. • Innovation and strong branding will also be important in building a consumer base in emerging markets. Although emerging markets are expected to post significantly stronger growth, tissues is expected to continue to see uptake constrained by consumer reluctance to spend on products that have a variety of existing alternatives which are perceived to be perfectly adequate. However, some national markets stand out, with China and India both set to see double-digit CAGRs from a low base over the 2010-2015 period.

Geographic and Category Opportunities Kleenex creates home hand towels category • March 2010 saw Kimberly-Clark address the issue of the maturity of tissue-based products in core developed markets through the creation of a new product category. The introduction of Kleenex Hand Towels, single-use, disposable bathroom hand towels, in the US was preceded by the successful testing on the TV shopping channel, QVC. The product looks to tap into growing consumer concerns about hygiene bolstered by high-profile health stories. The 2009 H1N1 outbreak, in particular, led to an increased focus on hand-washing, also resulting in the emergence of other new products, such as hand sanitisers. • While a new product, Kleenex Hand Towels aims to build on existing consumer familiarity with paper hand towels in public washrooms. It is also looking to build on existing consumer familiarity with Kleenex. The world’s leading tissues brand, Kleenex is responsible for a quarter of global sales in the category, and is virtually synonymous with tissues in the US. • Furthermore, Kleenex has increasingly worked to position itself in terms of hygiene through innovations such as anti-viral tissues. It has notably been aided in this respect by public health messages that promoted products such as tissues by urging people to dispose immediately of used products. Such messages have also worked to increase consumer awareness of the potential for germs to build up on reusable hand towels. • With a strong brand, rising consumer hygiene-awareness and the promise of offering enough absorbency to deal with quick bathroom clean-ups too, Kleenex Hand Towels is in a strong position to generate sales amongst groups such as mothers concerned about children’s health. It also has significant potential to be rolled out beyond the US. However, while it utilises the brand’s proprietary Dry-Touch fibres, the product is vulnerable to copycat developments, including by private label. Moreover, increasing environmental awareness means that a growing number of consumers are likely to baulk at the addition of a new disposable product to their regular shopping lists.

Geographic and Category Opportunities Scott provides positive signs in US kitchen towels • The US is responsible for 48% of Kimberly-Clark’s kitchen towels value sales. The company ranks third in the market behind Procter & Gamble and Georgia-Pacific. Over the 2005-2010 period, both Kimberly-Clark and Georgia-Pacific witnessed significant share erosion as Procter & Gamble exerted an ever tighter grip on the category through aggressive marketing support behind its Bounty brand. • Bounty benefited from being the sole focus of Procter & Gamble’s kitchen towels activity, while both Georgia-Pacific and Kimberly-Clark targeted specific segments with distinct brands. • However, this strategy was not without some positive impact for Kimberly-Clark. Although the company’s Viva, which was repositioned to target food-loving women in 2009, continued to lose share in 2010, the Scott brand’s emphasis on the Naturals range of eco-focused products delivered significant growth in terms of both share and value sales. This reversed a trend of annual share decline for the brand dating back to 2005. • The US kitchen towels category is expected to post a CAGR of 2% over the 2010-2015 period. Brands are expected to continue to reduce packaging sizes, trimming the size of both sheets and the finished rolls in order to maintain profitability in the face of intense competition from private label.

Geographic and Category Opportunities Kitchen towels potential in Brazil Growth opportunities • While kitchen towels growth is threatened in many markets by competition from reusable alternatives and rival products such as wipes, as well as growing private label sales, growth opportunities remain. In Western Europe, Italy, the Netherlands and Turkey are all predicted to post absolute growth of more than US$30 million over the 2010-2015 period, with Spain expected to see sales rise by US$60 million. Strong growth expected in Brazil • The most significant potential, however, lies in the Brazilian market, which is projected to post a CAGR of 8% lead to a US$145 million increase in kitchen towels sales over 2010-2015. Kimberly-Clark ranks second in the market, behind domestic manufacturer, Santher. Kimberly-Clark registered 9% value growth in the Brazilian kitchen towels category in 2010, spurred by the introduction of Sugamax technology, claimed to increase absorption by 20%, into Scott Multiuso kitchen towels. Increasing competition • Nonetheless, it was outperformed by its closest rivals. Chilean company, CMPC, ranked third, proved particularly dynamic providing increased financial strength for MelhoramentosPapéis, which it acquired in 2009. As a result, the Brazilian subsidiary was able to expand and modernise its production facilities, as well as purchasing its own eucalyptus plantation to secure a reliable and affordable supply of cellulose. MelhoramentosPapéisalso rationalised its product portfolio, launched new value-added products and increased its advertising budget. Brazil is set to see growth driven by rising disposable incomes and growing demand for convenience over the forecast period. Kimberly-Clark will need to invest in value-adding new product and packaging development and strong marketing to remain competitive. Price will remain a key factor in the Brazilian market, however, especially as smaller local producers and private label look to expand, pushing major manufacturers to look to greater operational efficiencies to reduce costs.

Brand Strategy Growing emphasis on brand development • Economic difficulties and the expansion of the private label segment have exacerbated the impact of maturity and high levels of commodification in Kimberly-Clark’s key product categories, and placed a severe pressure on the development of distinctive brands. • Product innovation, providing increasingly technologically sophisticated and efficient products, is an important element of this brand development. However, it is not enough in itself, as it has the potential to be rapidly undermined by private label’s brand-orientated development, which is leading private label to mimic even brands’ more premium-focused new product developments. • As a result, Kimberly-Clark also has to place a strong emphasis on the emotional resonance it can generate in its marketing activity, in order to develop a loyalty to brands that goes beyond faith in products’ efficiency. If successful, this also enhances the potential for product innovation, with familiar brands encouraging consumers to experiment with novel products. This is the thinking behind the use of Kleenex to brand the company’s ground-breaking introduction of paper hand towels for the home.

Brand Strategy Building a bond with consumers Playing on emotion • Brand development aimed at the creation of emotional affinity with consumers is most obvious in Kimberly-Clark’s marketing support for its core tissues brand, Kleenex. The Let It Out campaign looked to encourage consumers to share their emotional experiences, focusing on the use of tissues to wipe away the resulting tears. Eroding stigma • However, the generation of a strong emotional resonance is also an important feature of the company’s marketing in in retail hygiene categories, such as sanitary protection and incontinence, which are characterised by stigma and consumer embarrassment. • Kimberly-Clark is looking to gain consumer trust and loyalty by eroding the stigma associated with subjects such as incontinence and menstruation through marketing activity such as the One In Three Like Me campaign for Poise incontinence products. Encouraging involvement • A key element of this approach is the use of campaigns which encourage consumer involvement through the use of interactive technologies. The internet is, therefore, playing a growing role in the company’s brand development. Kleenex’s Let It Out campaign, the development of U by Kotex, and particularly U by Kotex Tween, and the redesign of the depend.com website have all encouraged consumer input and sought to cultivate discussion.

Brand Strategy Huggies locked in intense competition with Pampers Head-to-head battle • Huggies is Kimberly-Clark’s largest retail tissue and hygiene brand, accounting for 32% of its value sales in 2010. The brand is primarily focused on nappies/diapers/pants, though it has been extended into the related baby wipes category. It ranks second globally behind Procter & Gamble’s Pampers in both categories. • Pampers and Huggies rank first and second, respectively, in nappies/diapers/pants in Eastern Europe, Latin America, Middle East and Africa, and Western Europe, with the positions being reversed in North America. While Pampers also leads in Asia Pacific, Huggies ranks third behind Unicharm’s Moony in the region. Meanwhile, Huggies leads in Australasia, where Pampers is not present. Falling behind Pampers • Pampers extended its lead at the global level in 2010, as it outperformed Huggies in every region in which both brands are present, except Middle East and Africa and Western Europe. Much of the competition between the brands takes the form of promotion and pricing battles, though Procter & Gamble’s performance in 2010 was bolstered by heavily advertised product innovations including the launch of its Dry-Max technology in the US and the Pampers Premium Care product in Russia. Innovation in 2011 • Huggies has itself looked to generate interest in the brand through new product developments in 2011, including the introduction of HuggiesNewborn UCC (Umbilical Cord Cut-out), which is designed to help newborn babies’ navels heal. The new product replaces HuggiesNewborn stage 1 nappy/diaper. Kimberly-Clark also introduced Huggies Little Movers Slip-On nappy/diaper, which slides on like underwear, aiming to make nappy-changing easier. In addition, the brand brought back the successful limited-edition Huggies Jeans Diaper in summer 2011.

Brand Strategy Kleenex suffering in developed markets • Kleenex is the world’s leading tissues and toilet paper brand, as well as ranking in the top 10 in kitchen towels and paper tableware. The brand also has a globally significant presence in the wipes and cotton wool/buds/pads retail hygiene categories. Moreover, its breadth and strong levels of consumer recognition provide a framework for innovation that extends beyond established products categories, as with the launch of domestic paper hand towels under the brand in the US in 2010. • The strength of the brand is particularly impressive and important given the high levels of commodification in the categories in which Kleenex operates, providing a solid platform for responding to the considerable competitive challenge represented by the expansion of the private label segment. As a result, Kleenex is a key focus for Kimberly-Clark’s efforts to develop marketing activity aimed at generating an emotional affinity with consumers, most notably through the Let It Out campaign. • Despite such efforts, Kleenex struggled to compete with private label in key developed markets, experiencing decline in North America and Western Europe, as a difficult economic environment led to increased consumer price-sensitivity. However, the brand’s global sales were flat, as this decline was offset by expansion in emerging markets, most notably in Asia Pacific and Middle East and Africa.

Operations Production and distribution Production • Looking to reduce costs and bring its production operations closer to target growth markets, Kimberly-Clark is focusing the development of its production infrastructure on emerging markets. This shift in geographic emphasis is being magnified by the streamlining of operations in developed markets in North America and Western Europe. In these markets, investment in the production infrastructure has primarily focused on the introduction of more efficient technology allowing the company to consolidate production at fewer locations. • This strategy saw Kimberly-Clark open its first manufacturing plant in Russia in June 2010. The new facility, located in Stupino near Moscow, features two Huggies/nappy/diaper lines. It employs a workforce of around 200, mostly from around the Stupino area, with specialists involved in the operations process receiving extensive training in company facilities in the US, Europe and South Korea. The opening of the plant marked an important step in the development of Kimberly-Clark’s position in Russia and provides a platform for expansion in the Commonwealth of Independent States (CIS) countries. The facility has notably been constructed in such a way as to allow for the addition of further capacity as conditions demand. • In 2008, Kimberly-Clark also began construction of two plants in Peru, which the company aims to make the hub of its South American operations. Distribution • Kimberly-Clark sells its consumer products directly and through wholesalers to a wide variety of retail outlets, including supermarkets, mass merchandisers, drugstores, warehouse clubs and department stores. Its largest single customer is Wal-Mart, which accounted for 13% of the company’s sales in 2010 and 2009, and 14% in 2008. While Kimberly-Clark’s reliance on Wal-Mart is likely to be reduced by its expansion in emerging markets. The company’s relationship with the world’s largest retailer should also facilitate its expansion beyond North America.

Recommendations Green development and international expansion Develop green offer Expand incontinence beyond the US Strengthen position in China Build sales amongst low-to-mid income consumers • Even as they see growth driven by rising purchasing power, emerging markets continue to be characterised by low levels of disposable income. As it builds its presence in emerging markets, such as Brazil and South Africa, Kimberly-Clark needs to work to develop a strong base amongst low-to-mid income consumers through the provision of an affordable offer and the use of appropriate distribution channels. • China is set to be a key growth driver in several retail tissue and hygiene categories, including nappies/diapers/pants, sanitary protection and toilet paper. Kimberly-Clark is in danger of falling even further behind key multinational rival Procter & Gamble and rapidly expanding domestic player, Hengan International. The company needs to work to expand its distribution in the market, with a particular focus on lower-tier cities. • Rising consumer environmental-awareness represents a significant opportunity for manufacturers to develop distinctive brands and value-added new products in the context of mature developed markets with strong private label segments. Kimberly-Clark should step up its efforts to establish itself as the mainstream green choice for consumers who continue to look to familiar brands to provide product quality. • Kimberly-Clark needs to work to develop its incontinence presence beyond the US. The ageing of populations is driving significant growth in incontinence across a wide range of markets. The company needs to build on its domestic strength in incontinence and its wide-ranging international operations in other categories to establish itself while incontinence is still in an emergent phase and before SCA and Procter & Gamble seize too much of the initiative.

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Kimberly-Clark Corp in Tissue and Hygiene (World )