MMR: Mass Market Retailers, January 11, 2021

NEWS Hall Delves Into Forces Impacting the O T C Drug Category Nicholas Hall is one of the worlds leading experts on consumer health care Hall executive chairman and creative solutions director at the Nicholas Hall Group of Cos recently spoke with Mass Market Retailers editor in chief Jeffrey Woldt about the trends shaping the O T C business The impact of e commerce sources of innovation and emerging growth categories are among the topics addressed This is an edited version of that conversation which is available in video form on massmarketretailers com WOLDT Were in the midst of a global pandemic How has that impacted the consumer health category HALL Well I feel Im a traitor to say it but COVID has been the best thing thats happened to the market for years And I say that and Ill now take the smile off my face Ill say that with the humility you need to in recognizing the high number of deaths the dislocation to families the incredible impact its had on the economy in a negative sense But when you look at consumer health consumer health has been one of three industry sectors that has done well Pharmaceuticals general health care and food are the three most dynamic sectors and consumer health care is in all three So its no surprise that weve done well as an industry This is a year which has confounded the experts And its not just that the sales are up I think its affected consumer attitudes I think its affected the structure of the market Its meant a very substantial shift over to e commerce Its meant a shift in the market toward prevention which was an underlying trend that was growing Its now much stronger with a new sub trend of immunity And treatment products are a little bit down WOLDT Nicholas you mentioned a couple of things that Id like to follow up on Maybe you could talk a little bit about e commerce how its performing now and where do you see it as a factor in the market going forward into the future HALL There are three main drivers for e commerce Theres information a category that needs or product category that needs a lot of information or product needs a lot of information E commerce does actually a better job than retail in giving detailed information Secondly sensitivity and intimacy Consumers dont want to say that theyve got a vaginal yeast infection or theyve got hemorrhoids in a busy pharmacy Its just not what you do So e commerce is better for that And thirdly I can paint you a picture that says e commerce is going to be 30 expensive products can be discounted And you can have subscription models You can have multi buyers which is very advantageous COVID brought in another factor which was availability If you cant leave the house if youre frightened to leave the house or in some countries like in France at one point needed a note from the police to allow you out Thats when consumers have turned to e commerce And before I get into some of the stats whats interesting is weve just seen some Eurostat data this applies to Europe but I think it would be Nicholas Hall global the over 55s and Im not going to call them the old theyre not but I mean thats an older demographic are the biggest single cohort for buying medicines online Now weve always said Internet equals youth It isnt true when it comes to medicines Every other category that you look at the younger age groups are the biggest cohort for buying online When it comes to medicines its the over 55s Now thats fascinating I think but its probably going to completely change the way we look at the product mix that we sell online the tone of voice Thats significant But the numbers Some of this is a forecast so I cant say you can read it in stone But we know that in the U S e commerce in 2019 took about a 12 share In 2020 we think that 12 will go to 14 We think that in the next couple of years it will go to 16 and 10 years out it will go to 18 That forecast is cautious I think it will be more What I dont think were seeing is the shaping of portfolio to fit that channel I think basically what were doing is were lifting out the top brands Were putting them online Were making a story There may be some discounting but so there is in chain drug I dont think were saying e pharmacy e commerce needs a different product mix and we ought to be doing that Secondly I dont think weve fully woken up to the fact that Amazon is both a platform and a competitor CVS Walgreens Walmart are outlets for us but theyre also our competitor through private label Were seeing very strong private label come into Amazon not yet in Alibaba and the rest of the world It will come So its going to be the same brand generic private label triangulation in ecommerce that we are so used to seeing in chain stores WOLDT You mentioned that in some respects the e commerce players are more effective in engaging consumers and meeting some of their desires What more can brick and mortar retailers do to reach out and work with the consumer help the consumer HALL So outside of the U S we expect the pharmacist to have a direct relationship with the customer And in independent pharmacy which is a very interesting segment of the health care market in the U S a very good family owned store where the pharmacist is the owner there is an incredible relationship with the customer There are towns in New Jersey We do a lot in New Jersey for obvious reasons But there are town center stores independent pharmacy which have taken almost all the business Well not all the business but a substantial amount of the business When you go to CVS when you go to Walgreens when you go to the dispensary in Walmart it used to be you could never talk to the pharmacist unless there was a problem with your prescription Now when the assistant hands the prescription over you will hear Is there anything youd like to discuss with a pharmacist But to me thats not in the culture that isnt something that a customer a self medicating customer in the U S expects to receive So they dont ask for it and they dont get it But if we look at the equivalent customer certainly in France Italy Germany Spain Poland thats a significant part of the process Its I have a cough What you recommend And seven times out of 10 the customer is going to buy what the pharmacist recommends And if they dont itll be because they dont like the price and theyll ask Have you something cheaper Or have you something that doesnt do this or does do that We call that pharmacy point of care Now its true that this business in the U S has been good If we just look at the retail sector bricks and mortar for the five years before COVID it was growing at 29 in dollars And in the 12 months to June it was 66 And we think in 2020 this is an estimate we think it will be 49 and its going to be between 4 and 5 every year after that So you could argue that compared with what weve had in the past you dont need to do anything else Consumers are coming COVID has made consumers even more interested in self medication So you could say why change anything But from a competitive point of view I think that the drug chain pharmacist needs to find a way to engage more with the customers Its good for the education Its good for loyalty And you sell more you just sell more because if you have an engagement you can say to the customer You know what I think you also need this And why dont you buy that over there Or I can give you something from here WOLDT The challenge of course at high volume stores is having time for those interactions But I guess the retailers will need to figure it out HALL Yes Let me put it this way Jeff what else is going to stop the customer from going to e commerce And weve seen some figures and I can paint you a picture that says e commerce is going to be 30 Now some of that will be net additional But it still means that at least 25 out of that 30 that you lose per 100 is business that youve lost for good Now its true that the pharmacist makes money by dispensing not by making a recommendation that ends up selling a 4 or a 10 O T C product But once the pharmacist has had that conversation with the customer that customer comes back time after time Even though they can get Tylenol or Vicks or whatever in the store next door they are loyal Consumers are inherently loyal And they love advice They like good advice and they will stick to a store that gives them good advice even though they dont need the advice subsequently WOLDT So youve touched a little bit on this that new products new ideas are critical to growing the category Where will that innovation come from going forward Will it continue to be primarily switch products Or do you see some of the changes regulatory changes here in the U S perhaps opening new avenues for innovation and growth HALL Sadly switch is almost dead Its just too expensive Im trying not to generalize and say To page 14 12 MMR January 11 2021