What a blow! Kleenex pulling out of Canadian consumer market

Consumer facial tissue brand Kleenex will soon be no more in Canada, as the company that makes the iconic product has decided to exit a major part of its business in this country.

Kimberly-Clark, which makes many other paper product brands, including Cottonelle, Huggies, Poise and Depend, says it has made the decision to stop making the consumer-focused versions of Kleenex facial tissues in Canada, even as its other products will stay on the shelves.

“We have been operating in a highly constrained supply environment, and despite our best efforts we have been faced with some unique complexities on the Kleenex business,” said Todd Fisher, Kimberly-Clark’s Canadian vice-president and general manager, in an emailed statement.

“This decision is one that will allow us to shift our resources to better focus on other brands in Canada and meet the needs of our consumers with continued innovation and value,” he said.

While the company’s decision has been met with confusion among consumers, analyst Zachary Evershed with National Bank says the move didn’t come as a surprise to him.

“While this is breaking news to the financial community, we confirmed through our channel checks that industry players have been aware of the impending exit for a few months now, as [Kimberly-Clark’s] customers have been making inquiries to secure replacement supply,” he said in a note to clients.

Consumers choosing to go cheap

Evershed says the decision was likely made because profit margins on the product were thin to begin with, and inflation has consumers choosing cheaper options wherever they can.

“With the recent burst of inflation, consumers are trading down from branded labels to private label store brands,” he said in an interview with CBC News.

“It’s very difficult to ship tissue economically — you are moving a lot of air and you tend to [fill] a truck well before you hit weight limits. You definitely don’t want to be shipping it long distances.”

The company has just one manufacturing facility in Canada, in Huntsville, Ont., which serves a comparatively small local customer base by the standards of a multinational conglomerate — so he suspects the company is simply deciding to keep selling the product to markets where it can reach a greater number of people for the same or less shipping costs.

“With one manufacturing facility in Canada, they are definitely shipping from south of the border into Canada [and] the farther you move it the less profitable those products,” he said.

“It’s most likely a profitability play.”

Made in Canada options

He adds that the company’s departure creates opportunities for other companies to fill the void, including some Canadian ones.

He says Montreal-based KP Tissue Inc., a division of Kruger Products, which owns Embassy, White Swan, Scotties and other brands, makes up about 35 per cent of the facial tissue market in Canada, while Kleenex has about 16 per cent.

Kruger Products says it is more than ready to take advantage of Kleenex’s exit.

“There were rumours recently that they they were thinking of exiting the market so we just wanted to make sure that we were ready to service more demand in Canada, which we are,” said Michel Manseau, Kruger’s vice-president, in an interview with CBC News.

Manseau notes that Kruger’s main brand, Scotties, is the market leader in Canada, and each and every product the company sells in Canada is made by the Krugers 2,200 Canadian workers.

The company has no plans to give up that market dominance.

“We have eight plants in Canada and one in the U.S.,” he said, noting the company just spent $1 billion in Quebec to build two facilities and are planning to launch a new line of facial tissues “that is starting up at the beginning of 2024 — so our timing is good.”

Other companies, including New Brunswick-based Irving group of companies have about 16 per cent of the market, under brand names like Royale and others. Quebec-based Cascades Inc. is also a major player in paper products including facial tissues, although not under any well known brand names — they instead make private label versions.

Brand won’t completely disappear

Kleenex posted a goodbye message of sorts on its website, thanking Canadians for their loyalty over the decades.

While the familiar Kleenex tissues will soon disappear, the name will not completely go away. The company says its “professional facial products” and “consumer hand towel products” bearing the name will continue to be sold.

Evershed says the company is not a major player in the hand towel market, but may well be deciding to continue to serve the professional market because it’s a different customer base they can service within their existing supply chain.

“The decision was incredibly difficult for us to make, and we appreciate consumers allowing us into their homes over the decades, and to our retail partners for their support,” the company said.

Brand recognition

Lisa Elder, a brand strategist and marketing expert says Kleenex has an enviable position for any brand in terms of name recognition, but that doesn’t make them immune from the inflationary forces that are impacting how consumers are spending their money right now.

“Canadians are under immense financial pressure and consumers are finding new products that will fill their needs,” she told CBC News in an interview. “Kimberly-Clark is trying to find a better way for their numbers, and consumers are trying to find new solutions for their finances, too.”

The move makes Kleenex just the latest in a long line of well-known consumer products to pull out of Canada in one form or another in recent years, including Bugles snack chips, Skippy peanut butter and Delissio frozen pizza.

Erin Lash, an analyst with Morningstar, told CBC News in an emailed statement that while she has no first-hand knowledge of why the company has made the decision, it is in keeping with other ones they have made in the past.

In 2012, the company opted to exit the diaper market in Europe, a business where they had $500 million in sales annually “but negligible profit,” she said.

She added that she has been expecting the company might pull out of the facial tissue business in Europe for some time, given that “consumer tissue tends to be a category where consumers make purchase decisions based on price rather than brand. Steps like this afford the opportunity to focus on its iconic brands and ultimately free up resources to support its competitive edge over time.”