Drug makers try new formula

Manufacturers are making their drugs more widely available, but this is exposing them to stiff competition from own label. By Ed Chatwin. Ed Chatwin is an account handler at IRI Infoscan

In the over-the-counter medication market, opportunities for sales growth are often limited by the nature of the products. Unless people start to get more headaches or more colds, how do you get them to buy more remedies?

One answer has been to make the products more widely available. This has been well illustrated by the recent move of many medicines to lower classification types, either from prescription-only medicine (POM) to sales supervised by a pharmacist (P) or from P to general sales list (GSL). For some which have made the switch, the impact has been dramatic.

For example, in February 1996, the Nurofen 12-pack changed from being a P product – only available from licensed pharmacies – to GSL, which means it can be bought from a wide range of outlets including grocers, newsagents and garage forecourt shops.

This increase in distribution has helped the brand boost its share of the adult analgesics category from 13.2 per cent in September 1995 to 15.2 in September 1996.

Supermarket chains have also benefited from the change. Sales of Nurofen through multiple grocers (such as Tesco, Asda and Sainsbury’s) have increased fourfold to be worth nearly 500,000 in September 1996 compared with last year.

Much of this growth can be accounted for by the convenience factor, with shoppers buying their Nurofen from the supermarket as part of the weekly shop instead of making a special trip to the chemist.

Other outlets have also benefited. Analgesic sales through garage forecourts grew 10.5 per cent in September compared with last year, but the real, long-term gains are likely to be in the grocery multiples because otc medicines will eventually join toothpaste and shower gel as a weekly shopping item.

Chemists’ sales of Nurofen were down 6.5 per cent to 1.84m in September 1996, a decline of 120,000 compared with September 1995.

It is not just wider distribution of medicines that poses a threat to chemists. The real pressure is likely to come from aggressive pricing by the grocery sector.

Even with Resale Price Maintenance in place, supermarkets have always been at liberty to set the prices of their own-label medicines and Asda has led the way with its own-brand paracetamol, avail able for only 24p – up to seven times cheaper than some branded competitors.

Asda’s paracetamol pricing has yet to produce a significant effect on chemists’ sales of paracetamol but when other retailers follow suit, as they surely will if and when the RPM is removed, the impact will be much greater and the analgesics market could soon be dominated by the supermarkets.

There are fears that the move will hit community pharmacies hard (MW October 25) but if the removal of the Net Book Agreement is anything to go by, the majority will be able to adapt and survive.

However, unlike the toiletries markets, manufacturers of otc medicines will still have a valuable measure of control – whether or not to push for more medicines to go from P status to GSL.

If manufacturers continue to press for their P products to be made more widely available, the distribution gains may lead to increased sales but they will also create exposure to intense price competition and therefore reduced profits.

If the P status is retained and products stay behind the chemists’ counter, not only will manufacturers protect their relationships with the chemists and their own margins but supermarket own-label medicines will be left at a disadvantage, restricted to smaller pack sizes and weaker formulations.

The brands will retain an important competitive advantage but the question is, can manufacturers resist the sales opportunity?

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