Price and Innovation: The Growth of Private Label in …•Private label saw the most growth in “safe” and less regulated categories. • Low-priced branded options in mature categories

Price and Innovation:The Growth of Private Label in 2010

OTC National, May 2010

© Euromonitor International

2

Industry: Consumer Health

AGENDA

Consumer Health Performance

Why Private Label?

Consumers

Retailers

Future of Private Label

http://www.euromonitor.com/



3


Consumer Health in 2009: A Steady Performer

Global Performance

• Preventative health measures against chronic diseases and concerns about the H1N1 virus

drove spending for OTC treatments and vitamins and dietary supplements.

• Consumers increased their use of herbal/traditional remedies to save money, to stay healthy

following a natural approach, and to cope with stress.

• Consumers and healthcare systems sought ways to reduce their cost burdens: price controls,

generics/private label or RX to OTC switches.

0

1

2

3

4

5

6

120,000

125,000

130,000

135,000

140,000

145,000

150,000

155,000

160,000

165,000

170,000

2004 2005 2006 2007 2008 2009

Consumer Health – Global Sales 2004-2009

Retail Value RSP - US$ mn - Fixed 2009 Exchange Rates Growth Rate %




4


OTC Healthcare Categories

Global Performance

0

2

4

6

8

2004-05 2005-06 2006-07 2007-08 2008-09

Ye

ar-

on

-Ye

ar

Gro

wth

(%

)

Fixed Exchange Rates 2009

Top Five OTC Categories – Retail Value RSP – US$ mn 2004-2009

Analgesics Cough, Cold and Allergy (Hay Fever) Remedies

Digestive Remedies Eye Care

Medicated Skin Care




5


OTC Healthcare Categories

Global Performance

-5

0

5

10

15

20

25

30

35

2004-5 2005-6 2006-7 2007-8 2008-9

Top Five OTC Categories: Private Label Growth 2004-09, Retail Value RSP in US$ mn

Analgesics Cough, Cold and Allergy (Hay Fever Remedies)

Digestive Remedies Eye Care

Medicated Skin Care




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Global market share for private label products increased from 5.3% in 2008 to 5.6% in 2009

Perrigo and Teva are pursuing aggressive acquisition

strategies in Latin America and Asia

Pacific

Consumers coping with a shrinking

wallet like paying lower prices for

“commodity” healthcare products

Retailers enjoy a higher profit margin from private label products and are

devoting more shelf space to them

Private Label Performance

Global Performance




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• Private label saw the most growth in “safe” and less regulated categories.

• Low-priced branded options in mature categories represent a competitive challenge.

• Acceptance of private label and generic products depends on consumer perceptions.

• The emerging market of OTC private label/generics is supported by recommendations by

doctors, health practitioners and pharmacists.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Reta

il V

alu

e R

SP

–U

S$

mn

–F

ixe

d E

xch

an

ge

Ra

tes

Private Label – Global Sales 2001-2009

Private Label Performance

Global Performance




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Private Label Global Growth

Global Performance




9


AGENDA


Why Private Label?

Consumers

Retailers





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• Multiple, contradictory concerns shaped consumer purchasing decisions:

• For critical healthcare concerns, like H1N1, consumers still turned to the OTC

industry because of general trust in the safety and quality of the products.

• Consumers also needed to remain healthy to be able to work. When they were

sick or injured, they used products that provided immediate relief.

• For products used often, consumers turned to private label to ease the burden on

their shrinking wallets.

Consumers Point of View

Why Private Label?

Consumer expenditure

comes under pressure

Consumers need to stay healthy to work or cannot afford to be ill

Private label is a major beneficiary of a shrinking

consumer wallet




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Consumers POV: Price

Why Private Label?




12


Product Brand Unit Price Private Label Unit

Price

Retailer

Ibuprofen 200 mg. $0.05 (Advil) $0.01 (Kirkland

Signature)

Costco

Proton Pump

Inhibitor

$0.75 (Prilosec

OTC)

$0.60 (Target

omeprazole)

Target

Cough Remedy $57.71 (Vicks

Formula 44-D)

$55.12 (Wal-

Tussin)

Drugstore.com,

Walgreen’s

Topical Allergy

Remedy

$44.03 (Caladryl) $29.34 (Walgreen’s

Calahist)

Walgreen’s

Liquid Bandages $236.36 (Skin

Shields)

$168.73

(Walgreen’s Liquid

Bandages)

Walgreen’s

Consumers POV: Price

Why Private Label?

Unit Price Comparison of Popular OTC Products

Note: Prices were obtained during Euromonitor Fall 2009 Storecheck. Pack sizes and units are the same for each pair of

products.




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• Consumers and medical professionals

no longer perceive private label/store

brand/generic products as being

inferior in quality or innovation.

• Caveat: consumers in developing

countries trust multinational or

international brands more than local

private label products.

• Generics manufacturers are arguably

more innovative – as a strategy to

convince retailers to add private

label products.

• New product innovation in the form

of customisation, dosing devices and

flavours can easily be done by both

branded and generic manufacturers.

Consumers POV: Quality and Innovation

Why Private Label?




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AGENDA


Why Private Label?

Consumers

Retailers





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• Channel Redistribution

•SKU Reduction

•Importance of the Grocery Channel

•Expansion of Western/Developed Country-Style Retailing

Retail Distribution Changes

Why Private Label?




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• Project Impact set out to change

“the shopping experience in the

stores”, including stripping out

brands that were not generating

volume sell-through.

• Walmart has created more room

for its private label products.

• During the economic downturn Wal-

Mart itself has been concentrating

on the efficiency gains brought by

Project Impact and on rejuvenating

its Great Value range.

• The moves together have enabled

Walmart to hold less stock, which

among other things has helped to

boost margins.

Why Private Label?

SKU Reduction: Walmart’s Project Impact

Note: Graphs are taken from Walmart

presentations as part of its 16th Annual Meeting for

the Investment Community (21st October 2009)




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Channel Redistribution for Consumer Health

Why Private Label?

0

20

40

60

80

100

2004 2005 2006 2007 2008 2009

Re

tail

Va

lue

RS

P -

% b

rea

kd

ow

n

Evolution of Distribution Channels 2004-09

Internet Retailing

Other Non-Grocery Retailers

Mass Merchandisers

Healthfood shops

Parapharmacies/Drugstores

Chemists/Pharmacies

Grocery Retailers




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• Private label requires modern

grocery channels to exist in a

country.

• As modern grocery channels

have expanded out from

Western markets, they have

taken their private label ranges

with them.

• Faced with the arrival of foreign

competitors and spurred on by

the positive effects that private

label can bring, retailers

operating in emerging

markets within modern grocery

channels have adopted similar

strategies.

Why Private Label?

Importance of the Grocery Channel




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• The expansion of modern

grocery channels across all

markets is set to continue in the

forecast period.

• The modernisation of grocery

retailing brings chains into

consumers’ lives and buying

decisions.

• The development of private label

will not be solely due to Western

retailers importing successful

strategies from their home markets.

• The rise of modern grocery

channels across all markets will

likely cause problems for brand

manufacturers world-wide.

• As the pace of modernisation

quickens, private label is likely to

be adopted earlier and across a

greater range of product areas.

Why Private label?

Expansion of the Grocery Channel




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• The arrival and expansion of

Western retailers in emerging

markets will help develop private label

in these countries.

• Western retailers have grown their

share of value sales across the

regions.

• Consumers are moving towards

private label products due to

education about benefits and lower

prices.

• Retailers still have to overcome

consumers’ negative perception of

private label in some countries.

• While brands are central to consumers’

buying decisions at the moment, with

effective advertising and marketing in

the future it could be private label.

Why Private label?

Expansion of Western-Style Retailing




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AGENDA


Why Private Label?

Consumers

Retailers





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The longer that consumers are “forced” to buy private label by economic factors,

the more likely that such patterns will become engrained.


Macroeconomics Should Support Growth in the Short Term




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Private Label:

The Positives

Private Label:

The Challenges

The Private Label Balancing Act


Consumer perception of private

label is rising as they are forced or

are encouraged to purchase them




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Strengths

• Commoditisation of products

• Successful ranges become very popular

Weaknesses

• Consumer perception differs markedly globally

• Growth requires modern grocery retailing

Opportunities

• Low global penetration

• Product areas determines success

Threats

• Retailers take private label penetration too far

• Internet retailing limits growth opportunities

Private Label SWOT





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Disclaimer

Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors

Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader discretion is advised

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Thank you.

Q&A

Samantha Chmelik, Head of Global Consumer Health

Research, Euromonitor International

[email protected]




mailto:[email protected]

Documents

Price and Innovation: The Growth of Private Label in …•Private label saw the most growth in “safe” and less regulated categories. • Low-priced branded options in mature categories