Big price differentials, competitive advantages, and healthy margins are making over-the-counter remedies the brightest stars of the health and beauty care private-label universe.While riding the coattails of the marketing power behind the branded versions, private-label OTCs gain rapid acceptance when they're introduced because customers know government regulations mandate their quality. In addition,

Big price differentials, competitive advantages, and healthy margins are making over-the-counter remedies the brightest stars of the health and beauty care private-label universe.

While riding the coattails of the marketing power behind the branded versions, private-label OTCs gain rapid acceptance when they're introduced because customers know government regulations mandate their quality. In addition, their prices are significantly lower than the national brands.

Many retailers said the spring 2003 introduction of loratadine -- the generic version of Claritin -- was a prime example, contributing to double-digit sales increases for the allergy category in its first year of availability. This continued for the 52 weeks ended Oct. 3, as the private-label cold/allergy/sinus category grew 23% in supermarkets, according to Information Resources Inc., Chicago.

The only other category of private label seeing across-the-board growth during that period was oral care products, IRI reported. "The key movers in private label have always been in the remedy area and in oral care," said Tony Pooler, director, HBC/GM, Save Mart Supermarkets, Modesto, Calif. "Beauty and grooming seem to be more brand-oriented."

OTC and other private-label products yield strong margins for retailers, while potentially giving them an opportunity to promote a point of difference with mass merchandisers and drug stores, retailers and wholesalers told SN during a recent conference of General Merchandise Distributors Council, Colorado Spring, Colo.

A current example is the CareOne line introduced recently by Stop & Shop Supermarket Co., Quincy, Mass., an Ahold division that also operates Giant Foods, Landover, Md. The retailer combined its various private-label names under a common banner and promoted it last month with a four-page insert to its weekly circular.

While company executives declined comment, the program has been extended to Ahold's Giant Food Stores, Carlisle, Pa., which also operates Tops Markets, Williamsville, N.Y., SN has confirmed through company Web sites and calls to stores. CareOne includes OTC segments like cough and cold, allergy, digestive remedies and diabetes products carried by the pharmacy, as well as HBC products.

In other channels, Target, Minneapolis, and CVS, Woonsocket, R.I., are bringing in private-label products from British HBC retailer Boots, according to the New York Times. Among the offerings are 10 lines of makeup, skin care and hair care carrying the Boots name and priced from $4.99 to $21.99.

"Supermarkets have to go to a premium, innovative, value-added [private-label] program, or they're going to have a hard time competing," said Brian Sharoff, president, Private Label Manufacturers Association, New York. PLMA is holding its annual trade show this week in Chicago.

To differentiate themselves, supermarkets have to create premium private-label programs for OTC and HBC, just as they have in food categories, he said. "Innovation and quality are the two things that could bring a customer into a supermarket for health and beauty and OTC, not low price. There are other places they can go for low price," he said.

Private label has been growing steadily for 20 years, noted Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill. For the retailer, "it's another opportunity to differentiate yourself from other stores. If you invest some time, effort and marketing dollars in building something around your store brands, and building a trust with your customers, they're going to be less likely to leave you for somebody else," he said.

OTC products lead most supermarket private-label programs, HBC executives told SN.

"The strongest private-label category I have is allergy/sinus," said Sue Vodika, HBC buyer and category manager at Bashas', Chandler, Ariz. Allergy season is 10 months a year in Arizona, she noted. "The customer is more willing to switch to a private-label allergy/sinus product than anything else I have sitting on my shelf," she said.

"Loratadine, the generic Claritin, has just taken off," said Curtis Maki, vice president, HBC/GM/pharmacy program management, Topco Associates, Skokie, Ill. "We continue to add [stockkeeping units], and we think a lot of that is new business. The future is in Rx-to-OTC switches," he said.

One reason for the success of OTC products is that formulations are regulated by the government and are the same for private-label and national brands, Wisner noted. "Acetaminophen is acetaminophen. Aspirin is aspirin. The trade dress differences are a relatively small part of why people buy those products," he said.

"The government controls the quality of all OTC products, and the customer knows that," said Bill Mansfield, vice president of GM and HBC, Pueblo International, Puerto Rico. "Branded acetaminophen or private-label acetaminophen both cure the headache. If the headache is cured for less money, the customer feels better about it," he said.

In other HBC categories, customers have more of a personal stake in the national brands, Wisner noted. "It gets down to flavors and colors and fragrances and a whole bunch of different things that have less to do with functionality and more to do with the user's emotional connection to the product," Wisner said.

"There's a huge difference in the cost between a private-label OTC item, vs. a national brand," said a nonfood executive with an east Texas retailer, who asked to not be identified. In other HBC categories like shampoo, there are low-cost brands, such as Suave, which are priced only slightly above a private-label equivalent.

However, that value equation changes when it comes to higher-priced items in those categories, such as a shampoo like Pantene, or teeth-whitening products. Customers are more willing to try the private-label version.

"When it comes to a product that addresses a need and a national brand at a high price point, it creates an opportunity to bring in a store brand, as long as you can effectively communicate that it is the same quality," said Doug Schwab, corporate director, wholesale health and beauty care, Supervalu, Eden Prairie, Minn.

In OTC, as in other HBC categories, the key to success is being first-to-market with the private label when it becomes available. "If patents allow, we want to be first in the market with our store brands," he said.

It's a given that private-label sales are dependent on the success of the national brand, but it is particularly true in HBC. "If you have a strong OTC switch and then a private label follows it, it usually turns out to be a very successful private-label product," said Dan Spears, HBC/GM director, Ingles Markets, Asheville, N.C. Claritin and loratadine were good examples, he noted.

"If the national guys don't push the category, private label can't grow because the category doesn't grow," said Charles Yahn, vice president, merchandising, Associated Wholesalers, York, Pa.

The private label line has to be branded as well, although usually at the retailer level, Yahn said. "Our private-label business keeps growing. It's growing faster than the national brands right now."

All HBC private-label categories are growing, noted Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. "Companies are making a bigger and bigger statement with private label. The consumer is being more and more accepting of these products. I think you will see that growth continue," he said.

"Private label is a necessary component of our continued growth because of the entry into our marketplace of some very low-priced operators," Pooler said. "We need to do everything we can to keep private label healthy so we can have profitability in the categories where we are seeing some very keen competition."

These low-priced retailers are putting a lot of pressure on traditional supermarkets, confirmed Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass. "If you use it properly, private label is a good way to combat that price point problem that they have."

Generic Growth

ROCKVILLE, Md. -- The number and usage of generic prescription medicines are accelerating, according to a recent study. This trend is closely aligned with the movement of prescription drugs to over-the-counter status, said Michael Shulman, director of research at ChangeWave Research, based here.

The study, released two weeks ago, showed 73% of health professionals are more willing to prescribe generics today compared to a year ago, and 81% said insurance providers are putting more pressure on consumers to use generics. A total of 139 medical industry members participated in the study, including 82 doctors.

"The big picture is, after a slowdown in blockbusters coming off patent this year, retail pharmacies need to be prepared for a large number of major drugs going generic that will have a material impact on their pharmacy revenue," Shulman said. He estimated this as between $10 billion and $20 billion in retail sales over the next 18 months.

"The retailers need to be very, very mindful that the train is running, and they'd better not get run over by it," Shulman said.

Meanwhile, more drugs will also go OTC, and those will be available in generic form eventually. This means increased sales for supermarkets without pharmacies, decreased sales for drug stores that sell few other HBC products, and "a wash" for stores like supermarkets that have both pharmacies and HBC departments, he said.

"This is immutable: you can't fight generics. There's no strategy that you can put in place at the retail level to stop the onslaught of generics when they are priced 20% or more below the branded proprietary drug. There's nothing you can do to stop the onslaught of an over-the-counter drug," Shulman said.

"Once a branded drug goes generic at a certain price, or generic and over-the-counter, it's lights out for the branded drug," he said.