The cough and cold category has become a hiccup in the continuing growth of private-label health and beauty care.
A jumble of state laws dealing with the serious methamphetamine problem has collapsed sales of products containing the popular and effective decongestant pseudoephedrine, which is also popular as an ingredient in meth production. This has impacted national brands and private labels, as the medicines containing PSE are now frequently sold from behind pharmacy counters.
As a new generation of products containing the ingredient phenylephrine -- usually identified by the initials PE -- come to market, private-label over-the-counter programs have been challenged to keep up, retailers and wholesalers attending a recent conference of the GMDC, Colorado Springs, Colo., told SN.
Although some chains use the services of private-label cooperatives like Topco Associates, Skokie, Ill., many retailers bear the brunt of finding the new private-label formulations, unlike the national brands, where big manufacturers deal with the problem. The supermarket executives said that in some cases, the private-label makers were ahead of the national brands in getting PE products to market, but others were several months behind.
"There's no question that the quicker our retailers can get into the new formulations, the better off they are going to be," said Larry Ishii, general manager, HBC/GM, Unified Western Grocers, Commerce, Calif.
"When the new formulations hit the shelf, they are accepted very strongly by the consumer, and that's a good sign. It also makes sense from the standpoint that consumers had ready availability of pseudoephedrine for so many years now," he said. "The trend we are seeing is the transition to PE from PSE in the cold care brands," said Tony Pooler, director of GM/HBC, Save Mart Supermarkets, Modesto, Calif.
Law enforcement agencies and the media have made an effective case that controlling PSE merchandising helps to rein in meth production. Trade associations like the Food Marketing Institute, Washington, and the National Association of Chain Drug Stores, Alexandria, Va., are pushing for national legislation to replace the hodgepodge of local laws.
Meanwhile, and probably for the foreseeable future, there is PE, which some say is not as effective as PSE, but at least can be sold in the self-service environment of a supermarket, and offered in less costly, higher-margin private-label packages.
"That's probably the biggest headache of 2005," said Dan Spears, director, HBC/GM, Ingles Markets, Asheville, N.C. "We are in six different states and it's hard to know what all the new legislation is going to be in all the different states. It made us take a look at changing our planograms in a hurry to try to cover all the state laws and regulations. It probably would have been better had there been a blanket federal law."
Some manufacturers have been slow coming out with the PE formulations, he said. "We are basically losing [stockkeeping units]. We'll have to wait and see how the replacement non-PSE product works from the big manufacturers before we move into it with the private label."
A nonfood executive with another major Southeast chain noted that every state's laws are a little different. In one case, "we had to be ready within 48 hours" to comply with a new law. "That makes it a huge challenge. In some states, if you don't have a pharmacy in your store, you are out of luck -- you can't sell it."
It's also an opportunity to reinvent the corporate brand strategy "and drive for optimal sales and profits by properly looking at your category assortment," he said.
"We don't have pharmacies in our grocery stores, so I will probably try to replace as many of the items as I can with PSE-free products," said Susan Spring, HBC/GM buyer, W. Lee Flowers & Co., Lake City, S.C.
Jan Winn, director of HBC and GM at Big Y Foods, Springfield, Mass., credited Topco and its supplier Perrigo Co., Allegan, Mich., for being quick-to-market with PE reformulations, which "in many cases" were ahead of the national brands. "A lot of folks dragged their feet and waited, and are rolling out their reformulations in the second quarter of next year. At this point, we are in the position to expand the facings of our store brand and take care of the customers," she said.
Sales dropped for stores of Ahold USA, Braintree, Mass., when it followed the lead of national brands and pulled private-label PSE products behind the counter, said Jim Godwin, director, corporate brands, GM/HBC, American Sales Co., Lancaster, N.Y., an Ahold division. However, that quickly reversed when PE products arrived. "Within six to eight weeks of putting out the PE version, those sales have gone from nothing to 100% to 120% of what PSE was," he said.
"So I think PE is going to fill that gap nicely. We were very worried about that transition, but it is happening a lot faster than we expected," Godwin said.
"Private label is looking at a challenge in the pseudoephedrine issue," said Al Jones, senior vice president, procurement and marketing, Imperial Distributors, Auburn, Mass. "There are a lot of changes that are going to have to take place there; a lot of very, very key items -- top-selling items in the category -- are going to have to change."
How fast this is going to happen will depend on how the laws change and if national legislation is enacted, but, he said, "it's going to happen very quickly. That's on the verge of becoming a major, major change in the over-the-counter cough, cold and analgesic area," Jones said.
It's a big challenge for private label in particular, "because they have to wait for the national brands to make their decisions before they can change," he said.