Cure for the Common Product

September 5, 2008
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The current state of the economy likely is creating one big collective headache among North American consumers. Perhaps that is one reason sales of store brand over-the-counter (OTC) medicines are fairing particularly well.

The current state of the economy likely is creating one big collective headache among North American consumers. Perhaps that is one reason sales of store brand over-the-counter (OTC) medicines are fairing particularly well.

According to a new study by Kalorama Information, Rockville, Md., OTC medicines generated $68.4 billion worldwide in 2007, growing 3.9 percent on a compound annual growth rate since 2005. The company predicts that OTC products will exceed $84 billion in sales worldwide by 2012. Longer consumer lifespans, an increase in self-medicating and improved availability of OTC products resulting from recent prescription-to-OTC switches/ easier access will help drive these sales, the report says.

“Consumers are taking an active role in self-medication, due to rising healthcare costs, a large uninsured population and ever more choices in OTC products,” the study states. “Purchasing OTC drugs is also more convenient, and money is saved avoiding doctor’s visits. Recent studies have uncovered that up to 40 percent of consumers do not fill a doctor’s prescription, rather substituting with an OTC alternative.”

This is excellent news for store brand OTC. If the overall category is poised for growth, the private label segment is already right in step with it.

As consumers tighten their belts - and gas prices continue to rise along with the price of seemingly everything else, there might be no a better time to be in the private label business. With everyone looking to save a penny where they can, private label products are the first and obvious answer to doing just that. They are typically priced well below national brands, yet match them - and often exceed them - in quality.

“In general, private label quality has increased tremendously over the past year,” says Christine Lee, product development manager of Chemolee Labs, Irving, Texas. “These days, especially more and more not only in food but in pharmacies, retailers have increased their private label offerings, and customers are seeing that these private label brands are of equal, if not better, quality than national brands, and at a lower price, too.”

Diverse Delight

The consumer healthcare market is highly fragmented, incorporating a range of large and small competitors, the Kalorama study says.

“Although hundreds of companies compete in the world OTC drug market, a handful of companies secure leading positions,” the study says. “Many leading companies are taking advantage of new opportunities in developing regions, which is adding to the competitive landscape of the OTC market.”

For private label OTC products, as the category heats up, the key factor for success in such a competitive landscape lies in differentiating a retailer’s store brand from its national brand equivalent.

“There are many retailers looking to differentiate themselves with new packaging concepts and unique formulations or dosage forms as an alternative to the “me-too” look [of] a traditional store brand item,” says Wade Ambler, vice president of sales and marketing for Ft. Lauderdale, Fla.-based Kirk Pharmaceuticals.

Package upgrades have been one of the top ways retailers have been doing the differentiation dance over the last few years.

“The national brand always had a lot of color and contemporary art,” explains Robert Haywood, senior director of sales and marketing for Ohm Laboratories, Princeton, N.J. “And then you’d see the private label, and it would pretty much just have the name of the store and the name of the product on it, but there wasn’t a lot to it.”

Haywood adds, however, that private label has stepped up packaging efforts to better compete with national brands.

“Everybody now wants to show off their private label and make sure that their packaging pops,” he says. “It’s attractive and it reminds the consumer that this product is a lot like the national brand [not only in product similarities], but also in the packaging. It’s a selling point for private label.”

Besides packaging, new products and custom, niche products also are a way for private label OTC products to distinguish themselves on the shelf. In the past six months, for example, Ohm Laboratories launched its cetirizine 10-mg tablets and cetirizine syrup, adding increased visibility to the already booming popularity of products in the allergy category, Haywood says.

“Staying competitive is a function of how smart we as suppliers play in this arena,” he says, “and looking for products that are unique that not too many people have. If you’re going to play in this arena, you’ve got to know going in that you’ve got to look for products that may be a little different, that not everybody can come out with, because otherwise you’re just going to be competing with quite a few people, and that just doesn’t keep you in business.”

Companies such as Walgreens and Wal-Mart are looking for some of the very-good-growth niche product categories out there that are not commoditized, explains Ned Becker, vice president of sales and marketing for National Laboratories International, Missoula, Mont.

“Retailers can differentiate their private label offerings by offering a custom formula, versus a commodity lettered vitamin or typical OTC item, for that matter,” Becker says. “More customization and functional products are being developed for the private label market that a retailer can own exclusively for their own brand.”

Alternative delivery forms of products also are helping to drive the private label OTC category. Effervescent products, for example, might not be new, but they are gaining ground in consumer acceptance.

People now are familiar with a couple of popular effervescent products on the market and are more comfortable taking their multivitamin, for example, in that format, says Joe Montgomery, business development director for Plymouth, Minn.-based Amerilab Technologies.

“We know there are certain advantages with that [delivery form] and use that as one way to get people interested [in the product],” he says. “It’s a growing trend, and I think you’ll probably see more prevalence of it in the next five to 10 years.”

In the homeopathic world, Becker points to a growing trend toward oral-dissolving tablets or fast-melt tablets that don’t require the consumer to take the product with water.

“It is something that is more convenient,” he says. “Anything that [has] either a rapid-release or a timed-release function is increasing. You see that in OTCs quite a bit, and there has been some growth in the delivery form of liquid-filled capsules. But at the same time, there are challenges - meaning efficacy and the amount of dosage that can be delivered in those forms - too.”

Facing Challenges Head-on

OTC products might be growing at an extraordinary rate and have a sunny future, but a hefty bundle of challenges also comes along with the positives.

Although most consumable products sold in stores have rules, regulations and restrictions attached to them, OTC products face some of the most visible government scrutiny. Government oversight applies to the production of products to ensure correct ingredients or dosages, to ward off interactions with other drugs, and more. Although this is done with consumer safety in mind, it also means manufacturers of OTC products have to be alert and on their toes.

To remain compliant with U.S. Food and Drug Administration (FDA) regulations, companies must make any required changes the agency deems necessary, Becker explains.

Last year, for example, FDA released new Good Manufacturing Practices (GMPs) for the manufacturing of dietary supplement products. As stated in a 2007 article from Natural Products Insider following FDA’s ruling, the practices were put into place to establish “requirements to ensure products are made in a consistent, quality manner and are accurately labeled and free from impurities.” The ruling applies to companies that manufacture, package or store dietary supplements.

The final rule is one of many actions related to dietary supplements to promote and protect the public health. Large companies (those with more than 500 employees) had to be compliant with the new practices as of June 24, 2008, while mid-sized companies have until June 24, 2009.

For those companies that manufacture dietary and other OTC products, new FDA rules might change how you do business. But such rules also level the playing field, in a way, between private label products and national brands.

“In the OTC arena, since we’re highly regulated, you really have to conform to regulations that are in place by the FDA or you’re not compliant,” Haywood says. “You can’t create something that is more convenient but that is not compliant. In that respect, everybody has to follow the same standards and rules - the national brands and the private label OTC players.”

FDA’s involvement in OTC products is steady as new products roll out. Most recently, Chemolee Labs’ Lee notes, FDA proposed a rule for topical products that contain aloe as a pain reliever. The rule calls for such products to be listed as a drug.

Because pain relievers with aloe vera have been around for years, Lee believes the industry is going to fight the proposal.

“But I think the FDA is trying to follow the rest of the world,” she says. “In Europe, for example, topical products that contain aloe vera as a pain reliever are already considered drugs.”

Not a Category to Sneeze At

As consumers, retailers and manufacturers continue to face uncertain economic times, sales of private label OTC products should continue to thrive.

“The categories will continue to grow as the consumers become more aware and comfortable with the quality of store brand products,” Kirk Pharmaceutical’s Ambler adds.

Ohm Laboratories’ Haywood agrees, saying that more consumers are becoming comfortable with private label products - “over and above” new products, the “lifeblood of growth” - and are becoming educated about them, especially in today’s tough economy.

“They’re looking to cut costs, and [are] more willing to try private label,” Haywood says. “That in and of itself could increase private label’s popularity.”

Haywood also adds that the category could see more growth as more prescription drugs go OTC.

With a predicted rise in dollar sales, and new products constantly hitting the market, the OTC category has nowhere to go but up. And within this multibillion dollar category, private label is carving out its place solidly. PLB

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