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.

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CBD rollout gathers pace

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2019 looks to be the “breakout year” for US cannabidiol-based products. Changing legislation – hemp’s removal from the Controlled Substances Act in December 2018 – along with growing retailer support, marketer innovation and high consumer demand have combined to make CBD the hottest property in the consumer healthcare market. CVS Pharmacy has announced plans to sell topical CBD products such as creams, sprays, roll-ons and salves in 800 selected stores across eight US states, including Alabama, California, Colorado, Illinois, Indiana, Kentucky, Maryland and Tennessee.

More recently, Walgreens announced it was following suit, with plans to sell CBD creams, sprays and patches in almost 1,500 stores across nine states – Oregon, Colorado, New Mexico, Kentucky, Tennessee, Vermont, South Carolina, Illinois and Indiana. “This is in line with our efforts to provide a wider range of accessible health & wellbeing products and services to best meet the needs and preferences of our customers”, said a Walgreens spokesman. Between CVS and Walgreens, CBD-infused topical products will be sold in at least 12 US states, including five where both retailers will be active – see our map below.

CBD states

Regulatory uncertainty is still an issue though, with the FDA insisting that marketers should not add CBD to food or sell it as a dietary supplement. The American Herbal Products Association has adopted a new Guidance Policy for dietary supplement and food products that contain hemp and hemp-derived cannabidiols to help ensure the industry complies with existing regulations. The policy was developed to encourage industry to be mindful of the federal regulations that apply to these product categories, notwithstanding the FDA’s ongoing review of the status of CBD and potential pathways for its lawful addition to food and dietary supplements.

This uncertainty isn’t completely holding back the market, however, with SPINS data showing that CBD functional ingredient sales in the US natural channel grew to US$40.4mn in the 52 weeks ending 4th November 2018, up from just US$1.2mn two years previously. Given that CBD is now moving out of the natural channel into mainstream retail, the potential for CBD is huge, with the Brightfield Group estimating the US market could be worth US$22bn by 2022.

Review 18,000+ new launches and innovations, including the latest medical cannabis developments, with OTC New Products Tracker, the ultimate competitive intelligence tool! Products are given a star rating, with “me too” items ranked 1*; launches / line extensions in a new category / adjacency 2*; major launches / line extensions with strong new benefits / positioning 3*, and 1st Rx-to-OTC switches in a category, creation of a new OTC class or other major leaps in innovation 4*. With a recently-released major update including eye-catching new graphics and powerful search filters that help you visualise and explore the vast archive according to your exact specifications, now is the perfect time to set up your free trial. For a demo or more information, contact waisan.lee-gabell@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

Latin America: Focus on Brazil

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Nicholas Hall’s 4th Latin American Consumer Healthcare Conference was held in Sao Paulo, Brazil last week and attracted a large and enthusiastic audience. This vitality is reflected in OTC growth trends – according to the latest MAT Q3 2018 figures, which will be published along with trend reports on the OTC DASHBOARD website soon, Latin America remains the fastest-growing region in the global OTC market, with sales up 12.8% to US$8.5bn in the year to end-September 2018.

Brazil is at the heart of this upturn, as shown by our chart below displaying the Top 5 countries in the region. Brazil’s OTC market is enjoying continued double-digit growth, and accounts for almost half of regional turnover, ahead of Mexico and Colombia. There is currently a proposal to create a legal mass market for CHC products in Brazil, which could provide further fuel for OTC growth, however there is currently strong opposition from doctors, pharmacists and, surprisingly, consumer associations, so the proposal is unlikely to be approved in its present form.

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Here’s a brief roundup of all presentations at our 4th Latin American Consumer Healthcare Conference – a fuller review will be in the next issue of OTC INSIGHT Latina:

  • Juan Thompson (ILAR): Huge savings for public health systems could be made by encouraging OTC treatment of common, non-serious conditions, thereby reducing public expenses.
  • Andre di Donato (MyPharma2go): By understanding the intricacies of the region’s regulatory systems, we can take advantage of legislation, rather than being restricted by it, and gain in-depth market insights. In particular, MyPharma2go is detailing Brazilian doctors to write prescriptions for high-strength supplements imported from the USA, which are delivered to individual consumers / patients in under 14 days — in the case of Celebrity Vitamins, the company is generating 2,000 prescriptions a day.
  • Rodrigo Ribeiro (GSK): Recommendation is the most powerful tool we have, so we cannot underestimate the importance of investing in HCP promotion and education, in addition to informative consumer-oriented advertising.
  • Tatiana Raposo Pires (Herbalife): It is likely that the food supplements industry in Brazil will benefit greatly from ANVISA’s new category definition, including specific and simplified legislation; however, there are still some obstacles to overcome, particularly relating to probiotics, which offer high-growth potential.
  • Rodrigo Garcia (Pfizer): There are many regulatory barriers to switch in LatAm, including political and social; but public education and encouraging regulatory agencies to recognise increasing consumer understanding of OTCs are key to pushing for switch.
  • Rosana Sun (Adigo) reminded us of the importance of human emotions and the essential human differences in developing relationships and interacting with others in the business world.
  • Julio Cesar do Monte (J&J): In order to survive in a changing and increasingly-digitalised environment, companies need to remain open and flexible to change, looking to technology for new ways to gain a competitive advantage.
  • Keith Garrity: Outsourcing and brand fostering is increasingly popular as part of companies’ global growth strategy, recognising the importance of local nuance and market specifics.

Stay up to date with the latest trends and developments impacting Latin America in Nicholas Hall’s OTC INSIGHT Latin America. This bi-monthly publication includes new product activity, recent LatAM news, a global OTC update and much more. To receive a sample issue or for details of subscription rates, please contact melissa.lee@NicholasHall.com

NRF forecasts strong US holiday season sales

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According to a report this week by the National Retail Federation, US holiday retail sales (in November and December, and excluding automobiles, fuel and restaurants) are forecast to increase 4.3-4.8% this year vs the same period in 2017, to total US$717-721bn. This upturn compares to an average annual increase of 3.9% over the past five years.

In 2017, health and personal care store sales accounted for 17.8% of this total (US$59.3bn), a growing share compared to the year before (17.4% share in 2016, or US$56.9bn). If this trend of growing US retail sales in the holiday period – plus a growing share for healthcare sales – continues as forecast in 2018 then OTC marketers active in the US market can expect a strong finish to the year.

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According to NRF Chief Economist Jack Kleinhenz: “Last year’s strong results were thanks to growing wages, stronger employment and higher confidence, complemented by anticipation of tax cuts that led consumers to spend more than expected. With this year’s forecast, we continue to see strong momentum from consumers as they do the heavy lifting in supporting our economy. The combination of increased job creation, improved wages, tamed inflation and an increase in net worth all provide the capacity and the confidence to spend.”

NRF’s holiday forecast is based on an economic model using several indicators including consumer credit, disposable personal income and previous monthly retail sales. The number includes online and other non-store sales.

Explore growth opportunities in the CHC industry with Nicholas Hall’s specialist M&A boutique, which works with a number of strategic and financial partners to assess potential opportunities — for buyers and sellers — and is well placed to discuss the current business climate and possible synergies. To find out more, please contact ammar.basit@NicholasHall.com

Direct Sales: The Fastest-Growing Channel

ReportsheaderThe Direct Sales channel (specifically network marketing, where sales happen either one-on-one or through a party plan) is distinguished by offering face-to-face interaction with consumers – an attractive alternative to the retail channel, standard promotional tools and online interaction. Direct Selling is huge in many markets around the world, and is one of the fastest-growing channels in several countries. The product offering ranges from cosmetics & personal care to household goods, clothing and books, but OTC accounts for a sizeable proportion of sales – over 20% share of a global market valued in excess of $100bn.

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