eCommerce expansion led by Amazon limits store-based growth

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Continuing our series of blogs on the 10 Infinity Zones for future CHC growth outlined by Nicholas Hall, in this edition we take a closer look at eCommerce, following the news that Amazon has become the world’s most valuable brand, according to the 2019 BrandZ Top 100 Most Valuable Global Brands ranking released by WPP and Kantar.

Commenting on the latest DB6 MAT Q1 2019 figures, which show that global bricks & mortar OTC growth decelerated to 3.7%, Nicholas Hall said that “Amazon goes from strength to strength, and takes a 75-90% share of all eCommerce sales of CHC products, depending on whom you listen to. These are the glory days for the so-called GAFAA companies (Google, Apple, Facebook, Amazon, Alibaba), but will it last?

Top 10 country MAT Q1 2019

The rise of eCommerce is one of the factors causing the slowdown in store-based OTC sales, which now total US$136.7bn. According to Celine Waller, VP, DB6, store-based sales account for 78% of the global OTC market, with direct sales generating 14%. Internet & mail order currently accounts for 9% of the “all channel” universe, with sales dominated heavily by VMS supplements in China and USA.

However, this channel has seen a CAGR of 20% since 2014 and will continue to increase dramatically in importance over the next decade. In China, Alibaba continues to prosper from the Chinese government’s attempts to promote eCommerce and regulate the so-called suitcase trade (daigou), while Amazon remains supreme in the US market.

To help keep our clients abreast of these changes, this year we have introduced an “all channels” version of the DB6 dataset, which reports on topline sales of direct sales (MLM), Internet & mail order plus key brands in selected leading markets. eCommerce will also be one of the key topics in our upcoming report, Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, written by Nicholas himself! Examine each aspect of the CHC industry in 20 chapters, with a focus on major issues including Regulation, Pharmacy Point-of-Care, M&A, Switch and much more. Nicholas will also unveil the “infinity zones” he has identified as being crucial to the future growth of the industry. In addition to this, you can upgrade your purchase to include a customised in-house presentation or webinar with Nicholas for an additional GB£10,000. To find out more or to place your order, please contact melissa.lee@NicholasHall.com.

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E-commerce shake-up in India

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India has been one of the major drivers of global OTC growth, with sales up 8.8% in the MAT Q3 2018 period, but there is now uncertainty over the country’s e-commerce sector after the government moved ahead with new rules that took effect last Friday (1st February 2019). The rules prohibit online retailers from selling products via companies or distributors in which they have an equity stake, so e-commerce giants like Amazon and Flipkart (owned by Walmart) have been most affected.

Amazon has now pulled various products from its Indian website, including some of its Amazon Basics line, while Walmart said it was “disappointed” at the government’s haste in implementing the new rules, which will create “significant work” for the company in overhauling its supply chains and systems. Political commentators see Prime Minister Narendra Modi’s decision to stand firm as a move intended to appease smaller Indian retailers ahead of a general election expected in May.

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Amazon saw its shares dip 4% on the day the rules were implemented and it has lowered its sales guidance for India in Q1 2019. Walmart shares also fell, down 2.4%. In the short-term, there will be huge disruption to supply chains and increasing compliance costs, which will inevitably affect the availability and price of products online, while also giving a boost to bricks & mortar retailers. Long-term, however, Amazon and Flipkart have invested huge sums in India’s e-commerce market and will no doubt recover share.

In the meantime, more disruption to the e-commerce sector might be on its way. India issued draft regulations on the sale of medicines by e-pharmacies in September 2018, including a requirement to register for a licence with the country’s pharma regulator, CDSCO, which should be renewed every 3 years. However, the move has drawn protests and petitions from pharmacists, and opposing views in different regions of India, making the future implementation of these regulations highly uncertain.

The latest edition of our bestselling annual OTC Yearbook 2019 is available to pre-order! Scheduled for publication this April, this report will include reviews of major OTC categories, leading companies and brands, Medical Devices, Switch and much more. Pre-order your copy before 31 March to take advantage of our pre-publication rate! To find out more, or to reserve your copy, please contact Melissa.Lee@NicholasHall.com.

Uncertain economic outlook in 2019

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As well as the ongoing uncertainty over Brexit, another cloud on the economic horizon for 2019 is the health of the US retail sector. According to a report over the weekend by the FT, shares in US retailers are set for their biggest quarterly sell-off since the financial crisis. This follows weak economic data in Asia-Pacific, especially China where retail sales hit a 15-year low in November 2018, and Europe, prompting concerns about a global economic slowdown.

Tariffs, and the threat of tariffs, have been one factor. Some US retailers are reportedly now having to offload surplus stock at a heavy discount, after accelerating imports in recent months to avoid planned higher tariffs (which are now on hold), while the fall in industrial output in China is partly linked to US tariffs that have been imposed. Also, concerns have resurfaced among investors about the ability of bricks & mortar retailers to navigate the e-commerce revolution. As a result, shares in various US retailers have fallen sharply, from high-end to mass market chains, like Target (down 23%).

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Amazon shares have also declined this quarter, though the e-commerce giant still looks on course to disrupt pharmaceutical distribution and reimbursement in 2019, a fact that hasn’t eluded many top pharma executives. J&J CEO, Alex Gorsky, in an interview with Fortune, said: “We have conversations at all levels going on with Amazon. I think Jeff (Bezos) and as importantly Amazon is a very innovative organisation, and they see this as an opportunity to make a difference. Just as we are partnering with them today in areas of our consumer products, we’ll look forward to partnering with them in the future in some of these other areas as well.”

Pfizer Chairman & CEO Ian Read also said late last year: “Any system of distribution that can cut costs and get a wide availability of products to patients is something that the whole industry would be interested in.” This disruption to pharma distribution, allied with the current economic uncertainty, looks set to make for a volatile year in 2019. According to Nicholas Hall, the “Big Beasts of Big Pharma are right. Amazon and Alibaba are today the most powerful disruptors of the healthcare industry. Some brand marketers will embrace this change, most will not … until it’s too late.” 

Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, our upcoming new Signature Report written by Nicholas, focuses on a range of important issues surrounding the CHC Market, including Innovation, Success Factors, Digital Engagement, Competition and much more. It is an essential read for all players striving to compete in this rapidly evolving marketplace. To find out more or to place your order, please contact melissa.lee@NicholasHall.com

Bangladesh: Amazon eyeing 2020 entry

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As today’s OTC DASHBOARD hot topic report shows, the e-commerce market in Asia-Pacific is undergoing rapid change, with China passing new e-commerce laws that will take effect in January 2019, while India has also just released draft rules for the online sale of medicines. Amazon also last week unveiled a new Hindi version of its website.

Yet all this upheaval is not isolated to the major markets of India and China. Amazon announced over the weekend that it is planning to begin operations in Bangladesh within the next couple of years, to compete with its arch e-commerce rival Alibaba, which is already present in the country via Daraz. With a population of just over 166mn, Bangladesh is an attractive and fast-developing market.

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According to local reports, however, resistance from local e-commerce players in Bangladesh is likely to be strong. Many are opposed to the government’s new Digital Commerce Policy, which allows foreign companies to have 100% shares in local e-commerce ventures (previously it was capped at 49%).

Key areas of sensitivity will be pricing and investment in the local economy. The e-Commerce Association of Bangladesh (e-Cab) is in favour of protection for local e-commerce companies and is reportedly working on a list of policy recommendations, including foreign firms having to host their websites locally, as well as ensuring 90% of staff are locals and that companies have a logistical presence in the country.

Explore the digital landscape at Nicholas Hall’s upcoming OTC.NewDirections Executive Conference. Other topics on the agenda include Medical Device Regulations, Medical Cannabis, Switch and Smart Probiotics. This will be an inspiring day on 12 September in London, focusing on Where Innovation Meets Regulation. For details of the full agenda or to reserve your place contact elizabeth.bernos@NicholasHall.com

E-commerce: Amazon picks up PillPack

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Amazon’s latest foray into the healthcare sector – a definitive agreement to acquire US online pharmacy, PillPack – has huge disruptive potential for the traditional drugstore pharmacy sector. A start-up founded in 2013, PillPack is licensed in 49 US states to offer pre-sorted doses of medications, coordinate refills and renewals, and ensure timely home delivery to customers. Financial terms of the deal were not revealed, but the transaction is expected to close during Q2 2018, subject to regulatory approvals and other customary closing conditions.

Walmart was rumoured to be interested in acquiring PillPack earlier this year, and the company lost US$3bn in market capitalisation after the Amazon deal was announced on Thursday 28th June. The two companies are now locked in an intense global rivalry, with Walmart coming out on top in India after acquiring a 77% stake in Flipkart in May 2018. Such huge M&A investments will advance e-commerce’s share of the pharmaceuticals market in key markets like India and the US, with the potential to revolutionise the consumer healthcare sector too.

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PillPack is currently a small operation, expected to post revenue of US$100mn this year, but Amazon’s existing customer base and shipping infrastructure could allow it to quickly scale up. Brick & mortar pharmacy chains are already seeing the consequences of the deal; as the news broke, shares in Rite Aid fell 11%, Walgreens Boots Alliance 9.9% and CVS Health 6.1%, a collective US$11bn in market value.

Though consumers in many markets remain hugely reliant on pharmacist advice when making OTC purchases, there’s no doubt that price is a very sensitive area that makes traditional brick & mortar retailers vulnerable in this evolving retail landscape. Certain OTC categories where there is a strong wellness or personal care element, such as VMS and dermatologicals, are most likely to see a significant rise in e-commerce sales.

E-commerce, as well as OTC adjacencies and digital health, are three of the hot topic areas that OTC DASHBOARD will be focusing on this year, in its weekly briefings, infographics and blogs. For a free trial of the service, please contact hannah.burke@nicholashall.com

How will Amazon’s Basic Care line impact OTC?

Amazon recently announced the launch its line of generic OTC medications named the Basic Care range. The line competes with large and established US generic brands including Giant Eagle’s TopCare, Target’s Up & Up and Walmart’s Equate.

The Basic Care line is comprised of 60 items and includes cough, cold & allergy, gastrointestinal, analgesic, hair growth and smoking control products. Technically, Amazon does not own these products, which are produced by private label manufacturer Perrigo, but it does put Amazon in a position to put the squeeze on other marketers. Amazon has taken a very simplistic approach to the branding of Basic Care but claims the products are of the same standard as established OTCs.

Amazon BC

Should OTC marketers worry?

The answer is yes and no. Amazon’s biggest competitive advantage will be on price. Basic Care offers much lower prices compared to established brands especially when buying in bulk. This will work well for consumers who like to stock up on OTC items so they have them to hand when needed. Also the convenience of being able to couple this with a dash button and Amazon Prime will be a winning combination for some.

In an interview with CNBC, retail analyst Scot Ciccarelli suggested some OTC marketers may need to become more willing to lower prices. A number of retailers such as Walgreen’ and Walmart have already had to sacrifice margins to become more of a threat to Amazon after the acquisition of Whole Foods Market.

However, Amazon will still struggle in terms of accessibility. For example when the first symptoms of a headache come on, most consumers will go to their local pharmacy or supermarket to get instant relief. Amazon will not be able to offer convenience by just selling products online.

Is this part of a bigger picture?

Amazon is yet to make its plans for the prescription drug market completely clear. However, reports suggest launching an OTC range could be a step closer to a broader healthcare business play.

Whether you want to find out more about the latest innovations, benchmark the competition or simply keep abreast of new launches, Nicholas Hall’s extensive OTC New Products Tracker is an essential competitive intelligence tool that you simply must trial. Subscribers can also benefit from a newsletter highlighting the key product innovations affecting the industry. Find out more or set up your free trial today by contacting david.redford@NicholasHall.com

Voice search: How will OTC adapt?

A recent Wall Street Journal video, exploring how the advent of voice-activated online shopping is forcing consumer goods companies to adapt their marketing models, has caused a lot of discussion internally here at Nicholas Hall & Company. In this week’s blog, we provide some context on this growing trend – a phenomenon some are calling “v-commerce”, with the “v” standing for voice – and look at the implications for the consumer healthcare industry.

According to an Accenture survey conducted in late 2017, ownership of voice-activated devices, or “smart speakers”, is rising sharply in many countries, up from 7% to 21% of Americans over the past year, and up from 4% to 14% in China. Whether it’s Apple’s Siri, Amazon’s Alexa or Google Home, this rising tide of “digital voice assistants” is expected to achieve penetration of 30-40% in many countries by the end of 2018.

50% of all searches will be done by voice within the next 5 years” – Sébastien Szczepaniak, Head of Sales & E-Business, Nestlé

If indeed half of all search queries are performed on voice-activated technologies by 2023, then this poses some stiff challenges for marketers. For example, at present, Amazon’s Alexa algorithm:

  1. Only provides two brand options in any product category
  2. Favours brands you’ve previously purchased, entrenching your preferences

Compared to retail outlets, where several brands are often on display, and e-commerce, where the brand options are even more extensive, voice search provides a very limited choice for consumers and this in turn could have a chilling effect on the brands and marketers that rank No.3 and below in certain categories.

When I tested Amazon Alexa, at home in the UK this past weekend, I was given two options when requesting a “stomach remedy” – Amazon’s first choice was Gaviscon Double Action (RB), followed by Andrews (GSK). When asking for a specific ingredient (“paracetamol”), Alexa was less reliable, with antacid Rennie (Bayer) offered as the top choice, followed by ibuprofen-based Nurofen Express (RB).

Of course, the technology remains in its infancy, so algorithms will evolve. One saving grace for OTC is that it will remain somewhat immune, compared to other consumer goods industries, given that medicines still require pharmacist intervention in many countries and that often the need to treat is so urgent that many people won’t be able to wait for their medicine to be delivered.

However, marketers of supplements – and other lifestyle and preventive remedies that are required less urgently – will need to start factoring this trend into their business plans immediately. With Amazon now starting to launch its own supplements and consumer healthcare remedies, the competition to be one of those Top 2 picks could get even more intense in the near future for OTC marketers.

Whether you want to find out more about the latest innovations, benchmark the competition or simply keep abreast of new launches, Nicholas Hall’s extensive OTC New Products Tracker is an essential competitive intelligence tool that you simply must trial. Subscribers can also benefit from a newsletter highlighting the key product innovations affecting the industry. Find out more or set up your free trial today by contacting david.redford@NicholasHall.com