How will CHC supply chains evolve in Covid-19’s wake?

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Supply chain issues are high on the agenda of consumer healthcare marketers in the wake of the Covid-19 pandemic. Bayer said in its Q1 results that its Consumer Health division was able to respond very flexibly to significantly higher volumes and shifts in the product mix thanks to its supply chain operation. In addition, RB last week appointed Sami Naffakh as Chief Supply Officer and member of the Executive Committee, effective 1st July 2020. RB CEO, Laxman Narasimhan, said: “Throughout the Covid-19 pandemic, the global supply chain teams have worked tirelessly to step up for our consumers and our customers. As we continue to ‘navigate our new normal’, we must also start to focus on our medium-to-longer-term supply needs across the entire, diverse portfolio.”

Novartis’ supply chain has also coped well during the pandemic, thanks to the extraordinary efforts of its staff – as outlined in this report – but some companies have been harder hit. In February 2020, Blackmores downgraded its FY2020 forecast saying that, while the outbreak has increased demand for key immunity products, this has been countered by supply chain disruptions that the company expected would continue to affect China sales for at least 2-3 months.

As our graphic below shows, China is a key producer of active ingredients (APIs), and absolutely vital to the world supply of ascorbic acid (vitamin C), for example. India, which imports most of its APIs from China, has been hit hard by disruptions in the supply chain, and in March 2020 the Government banned the export of 20+ APIs to protect the supply of essential medicines in the domestic market. This had knock-on effects around the globe, however last week India’s Directorate General of Foreign Trade lifted restrictions on the export of active pharmaceutical ingredients of paracetamol.

China, IndiaIn a recent report by the Economist Intelligence Unit (EIU), called “The Great Unwinding”, more and more companies are said to be moving parts of their supply chains away from China, a trend accelerated by Covid-19, with multinationals seeking to build “quasi-independent regional supply chains in the Americas and Europe”, to ensure future resilience. In addition, the report indicates that another long-lasting impact of Covid-19 will be companies looking to store inventory in “strategic locations from where it can be easily accessed and delivered to customers”.

The pharmaceutical industry is also facing rising prices of raw material. According to data from India’s Pharmaceutical Export Promotion Council (Pharmexcil), the cost of paracetamol went up up 50-60% at the start of the Covid-19 pandemic, and the prices of vitamins increased by 40-50%. As the EIU report indicates, companies will need to think strategically about pricing models, given that “both the regionalisation of supply chains and the build-up of strategic inventories will push up final goods prices, denting a product’s competitiveness”. However, one of the upsides to this change is that “a more regionalised supply chain will offer opportunities for companies to focus more on local tastes amid a greater capacity for product differentiation”.

Very soon we will be publishing the second edition of our hot topic review, Coronavirus 2020 and its potential impact on CHCThis report from our Competitive Intelligence & Market Analysis (CIMA) division explores the response to the pandemic from CHC brands and marketers as well as the overall impact on CHC to date. You will also be able to read about trends observed so far (key categories impacted, how consumer behaviour has changed etc), how key CHC players performed in Q1 and projections for the near and longer-term.  If you have purchased the original Coronavirus 2020 Review, you will receive the 2nd edition free of charge. For more information, or to purchase your copy, please contact Melissa.Lee@NicholasHall.com

How will India’s CHC market perform in 2020?

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In its Q1 results, GSK cited the impact of retailer shutdowns in India on its Consumer performance, and the outlook for India’s CHC market in 2020 remains uncertain. Even before the Covid-19 pandemic, India reported slower growth for its consumer healthcare market in 2019 (+8.2%) compared to previous years, owing to India’s macro-economic weakness leading to slowing consumption. This has resulted in some marketers, such as Emami, to rethink launch plans and spurred others, including Dabur, to implement strategies to overcome the slump.

Two weeks ago, it was also reported that Blackmores has paused plans to enter India pending clarity about Covid-19 in the country. CEO Alastair Symington announced the decision at the Macquarie Australia Investment conference. He also stated that Australian sales of immunity products – such as vitamin C supplements and practitioner-only BioCeuticals ArmaForce – have boomed since the beginning of the pandemic, with Google analytics showing an upturn in online searches for information on boosting immunity as Australian households focus on maintaining good health.

blackmores-logo-pngWith India in the grip of the Covid-19 outbreak, Dabur has brought forward the launch of a range of Ayurveda-backed preventive healthcare and personal hygiene products. These include Tulsi Drops, a mix of five types of rare Tulsi leaves. With antimicrobial and antioxidant properties, the product claims to help boost immunity, relieve cough & cold symptoms and build respiratory health. In an interview with BusinessLine, CEO Mohit Malhotra said he believes the importance of personal hygiene and healthcare products for boosting immunity will grow in the global consumer mindspace, even post-pandemic.

In addition, several marketers have diversified existing derma brands into hand sanitisers to cater to increased demand. Emami has extended its flagship skin care brand BoroPlus with the launch of BoroPlus Advanced Anti-Germ Hand Sanitiser, the company’s first foray into that segment. Along with immunity supplements, antiseptics & disinfectants is clearly among the CHC categories in India achieving accelerating growth, with RB reporting in its Q1 results that Dettol was growing strongly in both Developed and Emerging Markets in Q1, with Covid-19 demand fuelling greater product penetration in UK, Australia, India and China.

Whether growth in Covid-fuelled categories like immunity supplements and antiseptics & disinfectants is enough to offset wider macroeconomic trends in India and supply issues caused by retailer shutdowns remains an issue of great interest for marketers active in India’s CHC market. At present, however, we’re forecasting a further moderate slowdown in the market in 2020.

Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon includes chapters on How to Innovate, Rx-to-OTC Switch, e-Commerce and Digital Engagement, to name just a few of the key trends explored in the report. Written by Nicholas himself, you can also upgrade your purchase to include a customised webinar. To find out more or to purchase your copy, please contact melissa.lee@NicholasHall.com.

Assessing Covid-19’s impact on the VMS industry

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Despite various countries going into lockdown, governments are still allowing “essential” services and businesses to remain operational, putting the role of the dietary supplements industry in the spotlight. In some countries, like New Zealand, supplement marketers are allowed to maintain their operations as long as they are supplying “essential” businesses, such as pharmacies and supermarkets. However, according to the guidance provided by New Zealand Natural Health Products, health food stores do not fit the description of “essential” businesses.

The situation is similar but more complex in the USA, home to the world’s No.1 VMS market. While essential food and drug suppliers are open for business during Covid-19 restrictions, industry leaders are working to ensure that the same applies to speciality health food stores and cannabis dispensaries. No specific federal regulation is in place, but “essential business” status is being determined at state and local level. While California most decisively classified workers supporting cannabis and dietary supplement retail as essential workers, and Illinois added licensed medical cannabis dispensaries and cultivation centres to its essential healthcare operations list, not all states have set such guidelines.

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In a letter to state governors, industry associations including the Consumer Healthcare Products Association urge that supplement supply chains remain open in all states, arguing that now more than ever, consumers need essential nutrients to stay fit and healthy and proactively reduce their risk of chronic diseases without burdening an already overstretched healthcare system. They write: “As each of you plan your own approach to this challenging issue, we respectfully request you mirror White House / Centers for Disease Control & Prevention guidelines and make special accommodation for critical infrastructure industries that specifically include not only conventional foods but all subcategories of food, including dietary supplements, infant formulas, medical foods and spices & flavours.”

As for how the Covid-19 crisis will affect the VMS market, it’s clear that some categories stand to benefit more than others. Herbal & natural immune stimulants and vitamin C supplements are likely to see the biggest boost, as long as supply chains can be maintained. In certain markets, such as India and China, there is likely to be a rise in sales of country-specific natural remedies (Ayurvedic medicine and TCM) positioned for immunity support, though marketers will have to be wary of government clampdowns on products that are claimed to prevent or cure Covid-19.

For a full analysis of Covid-19’s impact on the global CHC market, pick up a copy of our all-new Hot Topic review Coronavirus 2020 and its potential impact on CHC from Nicholas Hall’s CIMA division. Buyers of this report will also receive a situation update in six months time. For more information, or to purchase your copy, please contact melissa.lee@NicholasHall.com.

Latin America a ray of CHC light

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As reported in our MAT Q2 2019 update, the Emerging Markets have produced mixed performances in recent quarters, with consumer healthcare growth in both China and India impeded by a relatively low-key cough & cold season and weakening economies. Over the weekend, it was reported that India’s economic growth slowed further in the third quarter, highlighting the depth of the downturn afflicting a nation that was only recently revelling in its status as the world’s fastest-growing large economy. 

One region that continues to produce above-average consumer growth, however, is Latin America – CHC sales grew by 8.3% in the MAT Q2 2019 period – and Nicholas Hall recently returned to São Paulo for our 5th Latin American Consumer Healthcare Conference. Reflecting on his trip, which also included a workshop in Mexico City, Nicholas Hall said “the topics that aroused most curiosity at these meetings were e-commerce, cannabis, probiotics, industry consolidation and, inevitably, regulations, with Brazil travelling in one direction (liberalisation) and Mexico the other.

Strong growth in Brazil has been also been fuelled by higher levels of launch activity, with our OTC New Products Tracker service showing a strong spike in the number of innovations recorded in 2018, totalling just over 250.

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Below is a summary of some of the Key Learnings from our Latin American CHC Conferences:

• As we enter the 4th industrial revolution, it is important to question traditional business models & sales strategies

• Innovation is not limited to NPD (new product development); within an increasingly saturated market with tough regulatory obstacles, we should explore new business models & sales strategies

• Traditional market research methods are deeply flawed but the wealth of consumer data that advancing technologies (such as wearables) provide could be a goldmine of opportunities

• LatAm lags behind other global regions in eCommerce owing to regulatory hurdles, high levels of fraud & a lack of consumer trust in online platforms

• Precision marketing – using online influencers & product placement – can help connect with more clustered consumers

• While HCPs might be interested in features, consumers want benefits!

• Content marketing – particularly focusing on preventive healthcare – could be key to improving low levels of health literacy and the burden this places on national healthcare services

A detailed write-up of both our São Paulo & Mexico City conferences will be included in the next issue of Insight Latin America. To receive a copy of this article, contact Melissa

Alibaba and Walmart report strong Q2

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Our blog this week rounds up the latest retail news, including recent Q2 results from Walmart and Alibaba, and a focus on M&A activity in Asia-Pacific. China’s Alibaba trumped analysts’ expectations with a 42% year-on-year jump in quarterly revenues to Rmb114.92bn (US$16.3bn), contrasting with its rival Tencent which one day earlier disappointed the market by falling short with a more modest quarterly growth (though Tencent did report a 26% year-on-year increase in profit).

Alibaba’s CEO, Daniel Zhang, said the company “had a great quarter, expanding our user base to 674mn annual active consumers, and demonstrating our superior user experience. We will continue to expand our customer base, increase operating efficiency and deliver robust growth. With strong cashflow from our core e-commerce business, we will continue to invest in technology and bring digital transformation to millions of businesses globally.” 

Alibaba is also reportedly looking to acquire Kaola’s cross-border online shopping platform from rival NetEase, according to two people familiar with the matter, as China’s highly competitive US$2tn e-commerce market takes early steps towards consolidation.  

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Meanwhile, Walmart has raised its outlook for the USA and said US consumers were in “solid” financial health as it shrugged off the Trump administration’s trade war with Beijing and turmoil elsewhere in bricks-and-mortar retail. Walmart revenues rose by 1.8% in fiscal Q2 2020 to US$130bn (+2.9% on a constant currency basis). USA sales were US$85.2bn (+2.9%) and the retailer noted that it is gaining market share in key categories, including health & wellness; e-commerce sales grew by 37%. International sales fell by 1.1% to US$29.1bn (+3.3% excluding currency impacts). Strength in Mexican subsidiary Walmex and China were offset by softness in UK and Canada. 

In Brazil, No.1 drugstore chain RaiaDrogasil (RD) reported better than expected results, seeing its national share rise to 13% in Q2 2019 (up 1.6% vs Q2 2018). Another drugstore chain quickly gaining share in Brazil is Farmarcas, which looks set to become the No.4 ranked chain by end-2019 after reporting even stronger results than RD, putting pressure on established players Drogaria DPSP and Pague Menos.

As for M&A activity:

• In Japan, drugstore operator Cocokara Fine is pursuing a merger with rival Matsumotokiyoshi in a deal that could create a market leader with sales of around ¥1tn (US$9.4bn)

• Amazon, which is looking to boost its bricks & mortar presence in the fast-growing Indian market, is reportedly in advanced talks to acquire up to 10% of Future Retail, the country’s No.2 retailer

• AS Watson (an affiliate of CK Hutchison Holdings) is in talks with potential partners in UAE with a view to introducing its health & beauty stores there

Take a look at the evolution of Pharmacy and Pharmacy Point-of-Care in the Distribution chapter in our new report, Nicholas Hall’s New Paradigms for CHC 2019: Over the Horizon, written by Nicholas himself! Other chapters will include Healthcare Trends, Regulation, Digital engagement amongst many others. Nicholas will also unveil the 15 “Infinity Zones” he has identified as being crucial to the future growth of the industry. 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 pre-order your copy, please contact melissa.lee@NicholasHall.com.

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.

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

Asia OTC investment in Middle East & Africa

In last week’s blog, we looked at rising Chinese investment in Africa, specifically in the area of pharmaceuticals, and this week our focus is on Indian & SE Asian OTC marketers expanding their operations across the Middle East & Africa. Here we summarise some of the key developments that form this growing trend over the past 6-9 months.

In July 2017, it was reported that a number of Indian pharma companies, including Dr Reddy’s and Lupin, were planing to expand operations in Africa. While Lupin is focused on opportunities in South Africa, following the establishment of a new regulatory authority (SAPHRA) in the country in mid-2017, Dr Reddy’s is targeting an expanded presence in French-speaking countries in Africa, which are markets where Indian generic companies have traditionally been underrepresented.

OTC development by Indian marketers in Africa will not be limited to generics, however. In summer 2017, Emami announced that it is evaluating setting up manufacturing units in international markets to meet growing demand for its brands. The marketer also revealed that it is expanding into Nigeria and Ghana via product launches.

More recently, in January 2018, Strides Arcolab agreed – via its wholly-owned subsidiary Strides Shasun – to acquire a 55% stake in South African-based Trinity Pharma for R55mn (US$4.5mn). Strides Shasun MD, Shashank Sinha, said: “This … provides further impetus to our ‘In Africa for Africa’ strategy as it fast tracks Strides’ presence in the lucrative and high entry barrier market of South Africa. With this acquisition, we are now present in East, West and South Africa, covering all the key markets in Sub-Saharan Africa.”

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Strides Arcolab’s wide presence in Africa

As for Southeast Asian marketers, Indonesian OTC company Dexa Medica launched a brand called Stimuno in Nigeria in November 2017. Formulated with Phyllanthus niruri extract 50mg, Stimuno is a herbal & natural immune stimulant available in packs of 10 capsules. Dexa Medica is already one of Nigeria’s Top 5 OTC marketers, thanks to the success of its systemic analgesic brand Boska, and the company decided to leverage this brand equity by launching Stimuno at an event in Lagos called Pain-Free Day. Boska Brand Executive, Tunde Ojedokun, said that Stimuno is recommended for everyone, both healthy and unhealthy, for the total maintenance of the body system.

In February 2018, Indonesian drugmaker Kalbe Farma announced it is eyeing expansion across the Middle East, as well as Sri Lanka. Following a positive response to test-marketing of its packaged coconut water in the Middle East, Kalbe is now considering launching a range of nutritional products across the region. With local sales still sluggish, Kalbe’s new President Director Vidjongtius is focusing on new markets to broaden the company’s reach beyond Southeast Asia. 

OTC DASHBOARD remains your best port of call for the latest consumer healthcare trends in the Middle East & Africa. In the coming months, we will be updating our reports on 11 countries across the region, including Nigeria and South Africa. 

Clever Campaign Connects Condoms With Indian Truck Drivers

India has the third-largest HIV epidemic in the world, with 2.1mn people estimated to be living with the disease.

OTC INSIGHT Asia-Pacific reported last week that, in India, around 2 million truck drivers are frequently engaging in unprotected sex with sex workers and only 11.4% of these workers said they had used a condom.

As a result, the level of STDs in this group has substantially increased and, combined with the general population prevalence of HIV, it is nearly five times higher than the national figure. Sexual health awareness is low among truck drivers. Efforts are being made to educate the population on the importance of sexual health.

Tata Motors, one of India’s largest truck manufacturers, decided to tackle the problem head-on but needed to find an approach that would engage with the target group. Tata Motors enlisted the help of creative agency Rediffusion Y&R and launched the “Use Dipper At Night” campaign in April 2016. Indian truckers have a strong cultural identity and “Use Dipper At Night” (reminding drivers to dip their headlights during nighttime) alongside other brightly painted slogans is often written on trucks.

The idea behind the campaign was to encourage truck drivers to practice safe sex by linking it to a phrase that resonates strongly with every member of the community. To this end, a new condom brand called Dipper was created and marketed exclusively to truck drivers.

HLL Lifecare, a government-owned corporation and India’s largest condom manufacturer, produces the condoms. The brand identity has been carefully thought out in order to reflect the trucking culture in packaging. Each wallet, which contains three condoms, is decorated with different truck art motifs and slogans, such as “Have a Safe Journey”, to make them more appealing to the target consumer.

GSK helps Indian runners breathe better

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Mist machines touting the logo of nasal decongestant, Otrivin, cleared the air of pollution for athletes in India this spring when GSK sponsored the Amity Gurgaon Half Marathon. The full length of the marathon track was sprayed by Otrivin cannons before the event and then, as testing indicated poor air quality during the race, the cannons were moved to those locations where the mist cleared the air of floating particles of pollution.

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Otrivin has always helped people to Breathe Better,” commented Saurabh Nandi, GSK Marketing Lead, Pain and Respiratory. “A marathon is extremely relevant for us to partner with, as runners need clean air to breathe as they run, and more so in a city like Gurgaon. This association is more than just a classical sponsorship; we want to help people enjoy their run more by providing cleaner air.”

“Our insight was simple; when we go for a run after heavy rain, the air feels so much cleaner. The question was – can we make it rain artificially in a specific location, during a time-restricted event? ” added Jan Teulingkx, Global Creative Director, Saatchi & Saatchi, Switzerland, which developed the campaign

To learn about other ways OTCs are helping fight the effects of air pollution and other respiratory conditions in Asia, click below to read the latest issue of Nicholas Hall’s OTC INSIGHT Asia-Pacific:

Nicholas Hall’s OTC INSIGHT Asia-Pacific