P&G Stretches ZzzQuil Sleep Brand Into Supplement Space With PureZzzs

P&G will launch Vicks ZzzQuil PureZzzs in late February as a drug-free, melatonin-based sleep aid, CFO Jon Moeller says. P&G hopes to reach $4.5bn in e-commerce sales in 2018, up from $3bn in 2017.

Procter & Gamble Co.'s latest extension of the "Vicks" and "Quil" roots of its consumer health brand enters the dietary supplement space with VicksZzzQuilPureZzzs, a melatonin sleep aid catering to the fast-growing market of consumers seeking natural remedies.

Chief Financial Officer Jon Moeller announced the PureZzzs launch on Jan. 23 during P&G's second-quarter earnings call, when the firm reported 4% organic growth in net sales to $2.21bn for its health care segment.

The Vicks brand debuted in the 1890s with a line of 21 home remedies led by a croup and pneumonia salve, one of the first medicinal products with menthol available in the US, P&G says. The firm rolled out Vicks products using Quil in the brand in 1966 with NyQuil, a name the firm says, based on legend, was derived from “nighttime tranquility" (see box below).

PureZzzs will roll out online late February and in stores in early March, a P&G spokeswoman said. A product image and pricing information were not made available.

Natural sleep aids in recent years have taken share from OTC drugs as consumers look for natural and non-drug formulas that do not cause residual drowsiness, according to a Kline & Co. 2017 study. (Also see "OTC Sleep Aid Sales Snooze As Consumers Wake Up To Alternatives" - Pink Sheet, 21 Jun, 2017.)

Iconic Across OTC Categories

P&G wrapped Vicks and Quil around multiple OTC monograph drug categories before stretching it into the supplement market.

The original NyQuil (acetaminophen 650mg/dextromethorphan 30mg/doxylamine succinate 12.5mg) was followed by non-drowsy formulation DayQuil (acetaminophen 325mg/phenylephrine 5mg), which was launched in 1976 as Vicks DayCare before P&G later rebranded it.

The firm co-opted Vicks and Quil into the OTC monograph sleep aidcategory in 2012 with Vicks ZzzQuil (diphenhydramine 50mg) Liquid and LiquiCaps. (Also see "P&G’s ZzzQuil Emerges As Sleep Aid Giant In Fragmented Category" - Pink Sheet, 5 Aug, 2013.) It also markets natural sleep aids under its New Chapter Organics dietary supplement division – Turmeric Force Nighttime with turmeric and Zyflamend Nighttime containing chamomile, hops and lemon balm. P&G purchased New Chapter Organics in 2012.

P&G's most recent Vicks/Quil brand play was in 2014 with the Vicks QlearQuil line launched in the allergy and sinus space and including sinus products moved from other Quil lines and re-branded. (Also see "QlearQuil Leverages Brand Into Allergy Space, Absorbs Existing ‘Quil’ Sinus Products" - Pink Sheet, 8 Sep, 2014.)

The line comprises All Day & All Night 24 Hour Allergy Relief (loratadine 10mg); Nighttime Sinus & Congestion Relief, formerly NyQuil Sinex (acetaminophen 325mg/doxylamine succinate 6.25mg/phenylephrine 5mg); Daytime Sinus & Congestion Relief, formerly DayQuil Sinex (acetaminophen 325mg/phenylephrine 5mg); Nighttime Allergy Relief (diphenhydramine 25mg); and 12 Hour Nasal Decongestant Moisturizing Spray (oxymetazoline 0.5%).

According to Kline, single-ingredient OTC drugs accounted for 81.7% of the total consumer health sleep aid market in 2015 with sales of $236m, and natural products made up 18.3%, but are likely to take a larger share in coming years.

P&G’s melatonin product will compete with numerous similar products formulated with the ingredient, including MylanNV’s MidNite and Pfizer Inc.’s Emergen-Zzz products. Moeller said PureZzzs is free of artificial flavors, gluten, lactose and gelatin, but provided no other details.

The Cincinnati-based global health, personal and household care marketer has been pressured by activist investor Nelson Peltz, who recently won a year-long battle for a board seat, to invest in niche and natural brands to compete with a growing number of smaller firms appealing to consumers and winning market for share consumer packaged goods firms with low prices, natural positioning or subscription delivery.

P&G announced in December that Peltz, CEO and founding partner of hedge fund Trian Fund Management L.P, would join the board in March after winning a proxy vote that ended at an October shareholder meeting. (Also see "P&G Board Seat Swings To Peltz In Ongoing Vote Tally" - Pink Sheet, 15 Nov, 2017.)

In another move to invest behind naturals, P&G recently purchased direct-to-consumer firm Native Co., which markets direct to consumer a namesake brand of natural deodorants, for a reported $100m. (Also see "P&G Goes Native In Acquisition That Aligns With Peltz' Vision" - HBW Insight, 28 Nov, 2017.)

E-commerce Up 40%

Moeller said after P&G's e-commerce sales grew more than 30% to $3bn in 2017, P&G believes it will grow the channel in 2018 to nearly $4.5bn. Halfway through P&G's fiscal 2018, e-commerce sales growth is up nearly 40%, and with all its top markets and eight of its 10 product categories growing or maintaining market share.

"We’re making good progress but we’re not yet where we needed to be in all categories and markets,” the CFO said. In addition to sales in conventional retail venues, the firm markets Crest oral care products and other consumer health products including Prilosec OTC frequent heartburn treatment and Pepto Bismol upset stomach remedy online through its P&G Shop and individual branded websites, which conduct sales by third-party online retailers. It also owns a subscription-distribution platform for men’s grooming products under the Gillette Shave Club. (Also see "P&G Talks Digital, Shave Biz Strategy In Light Of Unilever’s DSC Buy" - HBW Insight, 3 Aug, 2016.)

Moeller noted P&G is building share “broadly” across markets in e-commerce on its top spot in several categories. “You see in e-commerce a disproportionate appearance in the first and second page of a search for leading brands in many of our categories,” he said.

Consumer Health Sleep Aid Category Grows 6% In 2017
Data from market research firm IRI show that P&G's ZzzQuil ranked fourth among brands and fifth overall in consumer health sleep aid sales for 2017. Chicago-based IRI compiles its figures from US grocery, drug and mass market retail chains, military stores and club and discount retailers.
Brand	Sales for 52 weeks ending Dec. 31, 2017 ($ millions)	% Change From Year Ago	Market Share %	% Change From Year Ago
Private label products	$239.2	8.9	39	0.5
Natrol	$60.7	23.5	9.9	1.3
Nature's Bounty	$48.2	8.4	7.9	0.07
Nature Made	$36.2	1.7	5.9	(0.33)
Zzzquil	$34.6	(7.5)	5.6	(0.9)
Unisom Sleepgels	$31	(2.6)	5.1	(0.5)
Unisom Sleeptabs	$17.6	15.7	2.9	0.2
Sundown Naturals	$16.7	(20.8)	2.7	(1)
Vitafusion	$15.5	34.4	2.5	0.5
Olly	$15.5	144.8	2.5	1.4
Total Category	$755.8	6

The firm also maintains a strong position in discount retail chains, which have less shelf space and stock fewer brands. “Typically, only one or two brands or the market leaders” are on shelves, Moeller said.

Moeller also said P&G will continue holding on product prices despite pricing pressure from private label competition and online sales, and will continue differentiating its brands with innovation. “There are categories where [private label] increases from time to time, but generally, we’re not seeing a reason to chase lower prices as a result of private label,” Moeller said.

Health Care Up 4% Organically

Net sales for P&G’s health care segment in the quarter grew 7%, 4% organically, to $2.21bn, according to a same-day release. Oral care organic sales grew low single digits on Oral-B power toothbrush innovation, health care sales were up high single digits with increased consumption in the US driven by an “early and intense” cough and cold season and strong international shipments from the PGT joint venture, P&G said.

CFO Jon Moeller: In e-commerce, P&G is "making good progress but we’re not yet where we needed to be in all categories and markets.”

The PGT Healthcare LLP joint venture P&G launched in 2013 with Teva Pharmaceutical Industries Ltd. includes dietary supplements including Lactive vitamins and Neurorubine vitamin B complex with vitamin C. (Also see "PGT Licenses Swisse Wellness Line to Boost Supplement Stake" - Pink Sheet, 21 Nov, 2013.)

P&G’s beauty sector was the strongest unit in the quarter, with 10% growth in sales, 9% organically, to $3.23bn. Sales for the grooming segment, which includes the firm’s Gillette razor business, slipped 1% to $1.77bn.

Total company sales grew 3%, 2% organically to $17.4bn. Core earnings per share grew 10% to $1.19, beating analysts’ forecasts of $1.14.

P&G is maintaining organic sales growth guidance of 2%-3% for its fiscal 2018, which ends June 30. The firm is raising the top end of its core earnings per share guidance from 5%-7% to 5%-8% to reflect the benefit from corporate tax reform implemented by the federal government in December, Moeller said.

In a Jan. 23 analyst note, Morningstar analyst Erin Lash suggested P&G is on the right track with its grooming business.

“We posit the firm is pursuing a sound strategic course to rebut the competitive angst resulting from lower-price upstarts – by recalibrating its pricing, investing in one-trend new products and launching its own subscription-based sales model. Despite the lack of improvement to date, we don’t foresee a change to our forecast for segment sales growth to approximate 2% annually over the next 10 years,” Lash said.

Lash is optimistic on near-term performance with Peltz' proxy vote decided. "We think management’s focus can center on the task at hand – ensuring the sustainability in its top-line improvement. From our vantage point, P&G’s efforts to rationalize its product mix, reinvest behind its brands, extract costs and return excess cash to shareholders are prudent.”

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