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OTC PRIVATE LABEL SALES GROW 12% TO $2.3 BIL. IN 1992, TOWNE- OLLER EXEC TELLS NDMA MARKETING SEMINAR; INCREASED OTC PRIVATE LABEL COMPETITION ANTICIPATED

Executive Summary

Sales of private label health and beauty aids (HBAs), including over-the-counter medications, climbed over 12% to $2.28 bil. in 1992, Towne-Oller Associates President Robert McCann reported Jan. 13 at the Nonprescription Drug Manufacturers Association 1993 marketing seminar in New York City. McCann noted that similar growth trends were observed in food stores exclusively, with private label HBA sales rising 13% in 1992 to $840 mil. Food store sales of name-brand HBAs grew only 1% over the previous year to $12.48 bil. In drug stores, which is "a bigger component of the business," McCann said private label HBA sales grew 11% to $1.44 bil. in 1992, while sales of name- brand HBAs reached $12.04 bil., up 4%. Total HBA sales reached $26.8 bil. in 1992, up 3% from $25.96 bil. in 1991. Private labels accounted for approximately 8.5% of the 1992 total. McCann's data were derived from a Towne- Oller database that monitors store receipts from 31,473 food stores and 14,044 drug outlets in the U.S. The figures reflect 94 HBA product categories, including over 30 OTC drug categories. The accelerating growth in private label sales led McCann to conclude that "there is a challenge as we look through the '90s that is going to be posed by private label" over-the-counter products, a theme that was repeated by several speakers at the NDMA seminar. Foote, Cone & Belding Communications Worldwide Director of Marketing Planning Laurel Cutler noted the success of private label drug manufacturer Perrigo as an example. "Think of the business that Perrigo is building on the OTC side, making things like Wal-Mart's nighttime cold medicine, which," she said, "without advertising...is reported to be matching [Rich- Vick's] NyQuil's unit volume." Perrigo, she continued, is "applying for those ANDAs in order to be first to market for the drugs going off patent" and building "a business where OTC giants like you have either feared to tread or only participated in as a worst case scenario." Adding that "brand loyalty is declining," Cutler suggested that OTC firms with "a portfolio of products going off patent" should "join the generic bandwagon [and become] their own competitor first." Cutler also recommended to the NDMA participants that if they do not have any potential Rx-to-OTC switch candidates to spark growth during the next decade, they can instead make their OTC brands "more ethical [by] developing value-added professional programs and leveraging this professional support to consumers." Forging alliances or joint ventures with food companies to make drug delivery systems "more palatable" is also a good idea, Cutler noted. She also suggested continued promotion of an Rx version of a product after it has switched to over-the-counter. Asked whether the brandname OTC market is expected to experience growth in the next few years or lose ground, Cutler replied that "the danger of the Perrigos of the world to your industry...really argue the downside." Why "should I buy your ibuprofen," she asked, "when theirs is perfectly safe?" Echoing Cutler's comment about the decline of brand loyalty, Nielsen Marketing Research VP-Sales Management Services Karl Gnau presented preliminary results of an analysis of five HBA categories. The study found that 80% of "households that purchased a category across outlets exhibited a much lower loyalty to any given brand," Gnau said. NDMA Chairman and Schering-Plough HealthCare Products President David Collins also acknowledged the threat of private label products and large retail outlets. "The big -- K-Mart, Wal- Mart and Walgreen, for example -- are getting bigger and more aggressive. Wal-Mart alone is growing faster than any of our companies," he observed. "Some of the chains now regard the consumer as theirs, drawn to the store by the chain's reputation for quality, price and service and not the manufacturer's reputation [or] the brand image."

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