Sniffles, sneezes, coughs and wheezes, this is what private label over-the-counter products are made for. While nursery rhymes and fairy tales are clever and catchy, everyone knows that the morals behind the stories are the best takeaways. And in OTC medications, one of the most interesting tales around these days is the story of private label products.
If OTC products were a children’s tale, they would be the Little Engine That Could. As the economy went up and up and up, private label OTC products chugged along puffing out “I think I can! I think I can!” to keep up with national brand equivalents. And as the bottom dropped out of the economy in 2008, private label OTC products picked up steam, cheered along by consumers unwilling to pay higher prices but still seeking quality products. The private label OTC chant turned into, “I know I can! I know I can!” Over the past year, private label has kept that steam and mantra going, and grabbed more market share.
The recession “could be a double-edged sword for OTC cough/cold remedies, driving some [consumers] to the more affordable OTC aisle instead of seeing a physician, while driving others to home remedies or preventative measures instead of OTC remedies,” according to a 2009 report from Mintel International Group Ltd., Chicago.
Over the 52 weeks ending July 11, 2010, private label cold and allergy sinus liquids and powders gained 11.1 percent in dollar share, bringing the category to $156.9 million, according to Chicago-based SymphonyIRI Group. Private label internal analgesic liquids gained 54.9 percent in dollar share for the same time period, nabbing a whopping 36.5 percent of the category, and private label oral pain relief products saw a 9.2 percent increase in dollar sales, to $12.3 million.
“Private label has experienced growth in nearly all segments between 2006 and 2008,” the Mintel report says, “and is expected to continue growing as consumers realize value and results in store brands.”
SING A SONG OF SIXPENCE
Numbers are as nice as a pocket full of rye, but the change in consumers’ views on private label has been even better for the category, bringing in new consumers and keeping them as repeat buyers. As recently as a couple years ago, consumers were still wary of private label OTC products and favoring the national brands.
While consumers then may or may not have realized that in many cases private label OTCs and their name brand counterparts are comparable, they are certainly aware of it now.
“The economy has produced an excellent upside for private label in general,” notes Bob Haywood, director of sales and marketing for Ohm Laboratories, Princeton, N.J. “More customers are trying to save a few pennies which includes buying and trying private label products that are more economically and affordably priced as alternatives to national brand products. Today’s consumer is better educated and more informed, which allows them to turn to private label OTCs.
“Pricing is one of the initial factors driving a new customer to buy private label,” Haywood continues, “but, after that, the resale likely comes from their positive qualitative experience with the product.”
And positive experiences seem to abound in private label OTC products these days, due in large part to new product rollouts. More flavors, effervescent tablets for energy and bigger pack sizes are just a few of the products that private label OTC has rolled out from various companies during the last year. Additionally, shelf space has opened up because of national brand recalls, contributing to the private label OTC boom.
“I’ve heard from many of our retail business partners that, not only due to economic conditions that have led to consumer trial of private label but the absence of a few specific national brands on the shelf has also stimulated trial and sales. And it certainly didn’t hurt us when the FDA encouraged consumers to buy generics in the absence of national brands,” says Mary Aagesen, vice president of Triad Pharmaceuticals, Inc., Hartland, Wis.
“Accounts are promoting private label more, which is good,” says Len Smith, vice president of sales and marketing retail for St. George, Utah-based Deseret Labs. “They’re also asking for different sizes, which becomes a shelf space issue.”
Smith notes that private label accounts are seeking bigger and smaller count packages than what they normally would offer consumers.
“You’re seeing larger packs, and I think the consumer is well aware of the larger the size, the bigger the cost savings factor,” Smith explains.
HUFF AND PUFF
While the sales numbers and product rollouts tell a glorious tale for private label OTC products that point toward a happy ending, the category has faced its share of villains trying to thwart it. One of the biggest issues facing private label OTC products, says Lenny Luongo, vice president of new business development and marketing for Pittsburgh-based A&Z Pharmaceutical, Inc., is “keeping abreast with the national brand equivalent product changes. The NBE manufacturers have seen an erosion of their market share and are doing what they can to recoup their losses. This means changing their current delivery system, which can make it extremely difficult for private label suppliers to manufacture a national brand equivalent product.”
Additionally, Luongo notes, “Retailers continue to squeeze the private label manufacturers for lower costs. This is a major issue when start-up companies offer a low cost and can’t deliver; it sets a market price that the retailer is looking for. I do give credit to some retailers willing to pay extra for quality products and customer service such as delivering 100 percent complete and on time.”
Smith added that as accounts increase their promotion of private label OTC products, keeping up with demand meeting ever-increasing FDA standards is putting a strain on the industry.
“The FDA regulations are much more stringent, and a lot of contract manufacturers are having problems meeting the needs of their customers,” he says. “Best case scenario for some of our products, we won’t be getting them until December.”
FEE, FIE, FO, FUM
Jack - he of the beanstalk and fairy tale fame - may have lucked out with the magical harp and a bag of gold coins that he nipped from the giant, but private label OTC products won’t have to use any magic as they continue to take swipes at the market share that national brand giants have held onto for so long.
“Consumers have developed a comfortable buying habit and are spending their monies wiser,” says Luongo. “It’s our responsibility to keep retailers in stock with their private label brands.”
“Private label OTCs will hopefully always have new and innovative products that appeal to various customer types that will continue to fuel market growth,” Haywood adds.
“A lot of branded products are taking hits,” says Smith. “Private label is growing. The consumer is driving private label, because of the cost savings and the quality. I think you’ll see even more increase during the next cough and cold season.”
While the data tells glorious tales of numerical wonder, is there a happily ever after for private label over the counter products? Thanks to new and improved products, consumer appeal and more shelf space for store brands, it looks like private label will continue giving the big, bad wolf of national brands a run for its money. PLB
A Twice-told Tale of OTC Products
Once upon a time…
• Five to 20 percent of the American population gets the flu each year, and approximately 200,000 people are hospitalized with seasonal flu-related complications, according to the Centers for Disease Control and Prevention (CDC).
• Adults suffer two to four colds per year. That’s a good chunk of consumers who will seek relief from their various maladies, and that’s a good chunk of business that private label can - and has - tapped into, states a 2009 report from Chicago-based Mintel.
• The U.S. cold/cough/sore throat remedies market is worth $4.6 billion in sales in 2008, Mintel reports.
• The recession has driven people to seek home remedies and avoid doctor visits.
• Recalls of branded OTC offerings have opened more shelf space for private label.