Paper 360
Italian tissue producer Sofidel is one of the shining stars of the global tissue industry. With 17 operations in 12 countries, including two new mills in the US, the company prides itself on its environmental ambitions, and its implementation of the latest in digital technology. Tissue360° caught up with Luigi Lazzareschi, CEO of Sofidel Group.
T360°: First of all, would you give us an overview of how things are going currently and how Covid-19 has impacted both the industry and Sofidel over the last couple of years?
Lazzareschi: I think the entire tissue sector has proven itself during the pandemic emergency in continuing production safely, even during lockdowns, of those products that have been considered essential commodities in almost every country. With the exception of initial distribution problems in some circumstances, also due to panic buying phenomena, consumer demand for hygiene has been met and continuity of supply to customers has been guaranteed. I see this as a major accomplishment for the entire industry. In terms of market trends, 2020 was characterized by high peaks in the consumer segment and a slowdown in AfH (Away-from-Home). In a way, there was a shift. In this context, as Sofidel’s turnover has a relatively low share of AfH, in proportion we were affected less. 2021 showed a trend to return to balance, particularly during the second half of the year. However, this process proved to be slower than expected, and 2021 was marked by a sharp rise in raw material, energy, and transport prices that heavily impacted the cost structure of our industry. It is a difficult situation.
As the pandemic comes to an end (sort of), what lasting effects will it have on the future of the tissue industry? And specifically, will there be any on Sofidel?
The COVID experience has helped billions of people to understand the immediacy of the choices the world must make in order to address the ecological transition and to make our communities more equitable and resilient. It also highlighted how important people consider tissue products to be for personal and environmental hygiene. For Sofidel, this has meant confirming its decision to make sustainability a strategic lever for development and its commitment to offering innovative products that are capable of addressing and satisfying new, more specific, hygiene demands. Our purpose embraces these very aspects. “Clean living, for everyday needs, for a healthier planet, for integrity and respect” immediately clarifies how we intend to offer our contribution to the enormous transformation that is currently underway. With our products, which are designed to play an essential role in ensuring hygiene and in improving people’s quality of life; attention to the environment, through sustainable production that aims to reduce our impact on natural capital; and respect for people, with a way of doing business and building relationships based on the values of expertise, honesty, collaboration and transparency. Today, more than ever, we feel it is our duty to continue along this path.
Would you comment on your operations in the US, in Circleville and Oklahoma? How are things going? Are there any challenges to speak of? How does operating in the US differ from your European operations? Are there any other plans for expansion in the US?
After that of the Circleville, Ohio, facility, the full commissioning of our second major plant in Inola, Oklahoma, a greenfield investment, has significantly increased our production capacity and improved our geographic coverage. The fact that we can count on updated technological assets, as well as on a belief in sustainability, has increased our competitiveness and has allowed us to initiate or strengthen commercial relationships with important operators in the large- scale retail trade, which we are very proud of. In today’s U.S. market—which for us, in terms of turnover, is already our primary market—there are conditions for further growth. Significant growth. So, what we are experiencing is a development phase. It’s no secret that the US market is where we expect the largest growth and where we are certainly continuing to evaluate other possible investments.
In the past, you said you would concentrate on private labels in the US, is this still the case?
It is true that we expect the largest share of our growth to be in private labels/store brands, but it is also true that increased production capacity and better geographical and logistical coverage has created conditions for broadening our scope. That’s why, in 2021, with Nicky, we launched the first Sofidel consumer brand in the United States. We debuted two products: the Nicky Elite kitchen towels and toilet paper, with paper packaging, both made in the United States from FSC-certified pulp.
Are there any plans for further expansion in Europe?
While in the US we are working in a growth phase, in Europe, where the average growth rate for the tissue market in Western countries is just over 1 percent per year and overall there is overproduction, we are concentrating on consolidating our market share through organic growth—as we have done in Poland and Spain—and technology renewal. Among the last few years’ qualifying points, there has been the constant strengthening of our relationship with the large-scale retail trade in order to offer not just the best price, but the best value, as well as the efforts to develop the presence of our brands in countries such as Spain, France, Germany and Belgium. We also have our eyes on AfH where, with our Papernet brand, we aim to grow.
Sustainability is a major bedrock of the Sofidel Group. Would you tell us about any major initiatives/partnerships or any other factors related to environmental leadership within the group?
For Sofidel, promoting well-being means taking care of people completely, paying the utmost attention to the natural balance of the planet and to the values of ethics, social inclusion, collaboration, and transparency. This is a process that we have developed over the years through numerous collaborations with partners such as WWF and the United Nations Global Compact. But it also means an aptitude for market comparison, to be evaluated by “third parties” that we care about greatly. Measuring performance and evaluating the actual impact of sustainability activities on the company’s value creation process is key. Among recent achievements, I would like to mention the addition of Sofidel on the CDP 2021 A List for our commitment to the fight against climate change and the Platinum recognition received from EcoVadis for our approach to sustainability. Regardless, we will continue to invest in ESG ratings. As for partnerships, Sofidel America recently launched a partnership with Ocean Conservancy to protect ocean ecosystems.
How important is reducing the carbon footprint to the Sofidel Group? Would you comment on the importance of the latest technology when it comes to reducing the company’s carbon footprint? What specific areas is Sofidel working on when it comes to reducing its environmental impact.
Fighting climate change is one of the pillars of our sustainability strategy. Our 2030 target of a 40 percent reduction in CO2 emissions compared to 2018 has been endorsed by the Science Based Targets initiative (SBTi) as being consistent with those reductions required to limit global warming to well below 2°C under the Paris Agreement. To achieve this, we are primarily focusing on increasing the use of energy from renewable sources. This is the nature of the agreements we have already signed in Italy with RWE Renewables for the supply of wind energy; and in Sweden at the Kisa production site with Meva Energy for the construction of a renewable gas production plant (syngas produced from woody biomass from the local supply chain), probably the first plant of this type in the world in the paper industry. We intend to implement the same strategy in other countries. Our goal for 2030 is for 84 percent of the electricity used in our plants to come from renewable sources.
Further on the subject of the environment: are you working on any specific R&D to produce even more environmentally friendly products?
We pay constant attention to the possibilities offered by research in making our purchasing and production processes more efficient and sustainable. We continue to work to reduce the presence of plastics throughout our production cycle. We follow with interest the possibilities offered by the use of fibers other than those from trees. And, of course, we follow what is happening in the field of energy supply. This is a sector in which we adopt, as I said, a multi-option strategy (the purchasing of green energy, self-production from biomass, etc.), keeping an eye on developments in relation to the generation or purchase of energy produced from hydrogen.
Do you have any specific comments about digital technology within the Sofidel Group? Are you implementing digitalization in production areas? If so, would you explain where and how?
The real-time supervision of our production processes is already very good. In terms of further development, we are now interested in all new applications that can get us inside our production processes. We are also doing this for sustainability reasons, with the aim of minimizing the use of natural resources. Meanwhile, in terms of quality, “successful the first time around” allows us to quickly guarantee the quality our customers require and also to produce less waste, thus wasting fewer resources.
Would you tell us about any results you are achieving by implementing digital technology?
Digitalization, together with the strategy of proximity to markets, technological innovation, and sustainability, has become one of the drivers for our development. In addition to the digitizing of processes, we are working to make information from production available in real-time and easy to read, so that we can rely on quick decision-making based on updated data. This will also be accomplished with the implementation of the new version of Sap S4 Hana. Other investments we are making are in cyber security, predictive and remote maintenance, demand forecasting, marketing automation and optimization of all of our digital touchpoints, ie, all of the points of contact on the network with our stakeholders, starting with customers and consumers.
And what about tissue technology in general—are you satisfied with the technology suppliers are providing? Are there any areas that could be improved?
We believe very strongly in engaging and supporting our suppliers. It’s part of our DNA, our history. I’m thinking, for example, of the collaborative relationship established over the years with a company like Fabio Perini. And that relationship, of course, is not the only one. In many other cases, we have been able to develop solutions that have enabled us to make significant progress, thanks to the support and dedication of our partners. Today, we expect our suppliers to help us develop processes and products that perform better in functional terms using fewer natural resources (raw materials, energy, packaging, etc.) as we pursue the idea of “less is more” that we are so fond of. Among other things, we recently held the fourth edition of the Sofidel Sustainability Award (3SAward), the recognition we give to partners who have distinguished themselves for their commitment to environmental and social sustainability: today, 81 percent of our purchases come from sustainable suppliers that are classified as excellent. We are satisfied in this regard, too.
When looking at the industry as a whole, what are the major opportunities and challenges you see for the industry going forward?
In the medium to long term, I see two major challenges for the industry. The first concerns ecological transition, which for energy-intensive companies like ours, with medium to long investment cycles, will not be easy. Secondly, the additional work that needs to be done in order to de-commoditize our products and create shared value. Regarding opportunities, undoubtedly there are those in relation to the growing attention to issues relating to hygiene, and the ongoing processes of digitalization that are profoundly changing our ways of living, informing ourselves and our consumption. I think we still have work to do. A great deal of work. And at Sofidel, we don’t mind.
