OTC Gets A Good Prognosis

While the economy remains on sick leave, the store brand OTC market is the picture of health. Innovative packaging and proper planning will see this segment through for at least the next few years.

In the highly competitive over-the-counter (OTC) medicine market, health certainly equals wealth. But each of the market's largest players enjoys only a single-digit dollar share of the multibillion-dollar industry worldwide.

On the other hand, the collective store brand OTC segment is proving to be a formidable presence, controlling as much as a third or more of market share in various subsegments, especially in the United States. And the prognosis remains excellent for the foreseeable future.

According to "Private Label OTC Healthcare - US," a September 2010 report from global market researcher Mintel International, U.S. OTC remedy sales overall have continued to climb despite — or perhaps because of — the economic downturn, growing 20 percent between 2005 and 2010. But in terms of sales gains, private label OTC sales in food, drug and mass merchandiser outlets jumped a staggering 56 percent from 2007 to 2010, gaining eight share points to claim 29 percent of the total OTC market.

Consumers know that store brand OTC medicines are effective and provide a good value when it comes to treating what ails them. But the overall OTC market has seen its share of shakeups in recent years, and 2010 was no different.

Recalls and other events have heavily impacted some of the biggest national brand manufacturers and are changing the market landscape. With change comes new opportunities, and store brand OTC remedies are in the enviable position to benefit from these changes. But as the national brands prepare to adjust their formulas, packaging and focus, store brands will have to keep up to maintain their position and pave the way for future growth.

Do ensure store brands have the opening price point within each OTC subcategory.

Pain relief

In 2011, the first wave of baby boomers will reach official retirement age. As they face the run-of-the-mill aches and pains associated with aging, many will turn to private label OTC remedies to save themselves a trip to the doctor. This growing population likely will further boost a category that already saw a sharp rise in store brand share over the last year.

In fact, dollar sales of store brand pain remedies grew 16 percent to reach the $1 billion mark during the 52 weeks ending Oct. 30, 2010, according to data from The Nielsen Co., New York (see the table, p. 39). Unit sales, meanwhile, rose 11.4 percent.

Most of store brand's gains have come at the expense of segment leader Tylenol. The brand was most severely affected by Johnson & Johnson's recalls during 2010.

At the start of 2010, the company issued a voluntary recall after complaints of a moldy smell that made people sick. The brands affected included, among others, extra-strength Tylenol, Tylenol PM, Motrin and St. Joseph's aspirin.

A few months later, the health-care company took another hit when 40 OTC infant and children's liquid medications were recalled because they didn't meet quality standards. In this instance, some of the products, which included children's versions of Tylenol, Zyrtec and Benadryl, had a higher concentration of an active ingredient, contained particles or had inactive ingredients that do not meet internal testing requirements.

The sheer size and scope of the recalls have left gaping holes on store shelves, says Jim Medford, president and CEO of Aaron Industries, Clinton, S.C.

"Store brands have helped fill the void on the shelf, as well as with consumer purchases," he says. "We believe this unavailability of the leading national brand will continue through mid-year of 2011. Store brands should continue to experience increased market share gains with increased consumer purchases in [the infant and children's pain relief and cough and cold] categories."

Kid stuff

Changes are on the horizon for the infant and children's pain relief and cough and cold categories — changes that will impact both formulations and overall packaging.

"In the infant pain relief category, the current concentrated acetaminophen formula will be reformulated," Medford says, "with a hard conversion planned for this summer to match the regular current children's acetaminophen pain relief formula, resulting in only one retail formulation available."

He goes on to add that the packaging and dosage form for the infant products will change as well, shifting from "the current concentrated acetaminophen with a regular child-resistant cap and bottles with droppers to a new bottle with a flow restrictor and a syringe."

These changes are all in the name of safety, as they will help parents and caregivers avoid overdoses.

In the children's pain and cough/ cold categories, also expect to see changes in packaging with new dosage forms.

Do work with suppliers to plan a yearly promotional calendar to meet store brand profit goals.

"The new changes may vary by manufacturer," Medford says, "however, some will most likely include new squeezable bottles with flow restrictors so that a parent can simply squeeze the children's pain and cough/cold products into a dosage cup instead of pouring to help prevent the possibility of overdosing."

Corner drugstore

Not surprisingly, drugstores are the primary destination for OTC store brand purchases, the Mintel report notes, accounting for nearly two-thirds of total FDM private label OTC sales. Their intrinsic emphasis on health and wellness bolsters their credibility in the marketing of their own private label OTC remedies. Also, many major drug chains offer added incentives for the purchase of their versions of national brand OTC remedies.

Typically, store brand OTC alternatives are positioned adjacent to their national brand equivalent on drugstore shelves. This strategy is key to overall competitive pricing.

"It is important that store brands have the opening price point within each subcategory," says Vinima Kerof, director of marketing for PL Developments in Westbury, N.Y., "so that consumers can easily identify the savings in purchasing a store brand." Kerof goes on to say retailers should "review their pricing within each segment to ensure their store brands are competing effectively and they have the right mix of product sizes and prices."

This tactic is especially helpful to consumers when new products leave their prescription-only realm and join the OTC marketplace. For example, the 2008 expiration of marketing exclusivity for Prilosec has continued to generate a steady flow of lower-priced store brand gastrointestinal alternatives. Also, MiraLAX, a successful OTC conversion in 2007, saw its first direct private label competition in 2010.

Store brand sales have advanced faster than the total category in all OTC subsegments that Mintel tracked for its report. But one area that has seen minimal growth is the cough and throat remedies segment. Private label products still are facing stiff competition from national brands such as Delsym and Ricola.

Keep up

Just as OTC products offer value and convenience versus prescription medications, store brand OTC medicines offer excellent value over their name brand counterparts. And private label OTC products often are carbon copies of their national brand equivalents (NBEs), so when the brand changes, so does the private label alternative.

"NBE companies are constantly looking for new product delivery systems," says Lenny Luongo, vice president of new business development and marketing for Hauppauge, N.Y.-based A&Z Pharmaceutical Inc., "from tablets/ caplets to fast melts, soft gels, time release, flavored taste, etc."

Changes such as these complicate a private label manufacturer's ability to supply NBE products to retailers, he adds. Nevertheless, retailers and suppliers need to work together to be competitive. Planning a yearly promotional calendar is one way retailers can meet their store brand profit goals.

"As suppliers, it is our responsibility to provide [retailers] with the merchandising tools to [be competitive]," Luongo states.

"Promotions such as bonus sizes, value packs, buy-one-get-one-free and displays help the retailer compete with the NBE promotions."

Room for individuality

Finally, competition might be intense in the OTC game, but store brands are not necessarily limited to copying the name brands. Differentiation, especially in packaging, is possible — and one way a retailer could target its own customers' needs.

"Packaging has become more 'brand like,"' Kerof says, "where retailers are spending more time understanding their consumers and tailoring their packaging to their needs."

Uniqueness and innovation in the form of easy-open caps, foil packaging, inserts, couponing and cross-merchandising are some of the ways in which store brand OTCs can stand out, she adds.

Don't discount packaging differentiation as a way to target your own customers' needs.

Don't discount packaging differentiation as a way to target your own customers' needs.

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