It's become a merchandising struggle for supermarkets to position some of the innovative drugs released over-the-counter during the last 17 months.
Rogaine (Pharmacia & Upjohn), Nicotrol (McNeil Consumer Products), Nicorette and Nicoderm (both from Smithkline Beecham) ushered in two new health and beauty care categories last year -- hair growth and smoking cessation. These products, while offering retailers new found sales, carried high price points and pilferage liability.
"It's necessary to safeguard products like Rogaine, Nicotrol and Nicorette because each is a $30, $40 or $50 ring," noted David Spohr, health and beauty care category manager, Randalls Food Markets, Houston.
From January 1996 through the first quarter of this year, eight prescription drugs were released OTC. Besides the ones mentioned above, Axid AR (Whitehall-Robins Healthcare), Monistat 3 (Ortho), Nasalcrom (McNeil Consumer Products) and Vagistat-1 (Bristol-Myers Squibb) all won FDA approval. Two other products Gyne-Lotrimin 3 (Schering-Plough) and Ivy Block (EnviroDerm) for poison-ivy protection, which were previously not available through prescription, also received OTC approval during this period.
According to InfoScan data from Information Resources Inc., Chicago, all prescription drugs that went OTC, excluding Vagistat-1, which was released this February and has not been on the market long enough for IRI to track, generated a total of $699 million in sales for the 52 weeks ended March 2, 1997. That represents a little more than 1.6% of the total $42 billion HBC market measured by IRI, and about 4.3% of the $16.1 billion in annual expenditures on OTCs measured by ACNielsen, Schaumburg, Ill.
"Sales of these new switch medications are exceeding expectations nationwide," said Jamie Barickman, executive consultant, Meridian Consulting Group, Westport, Conn., a sales and marketing consulting firm specializing in the Rx-to-OTC switch market. "Both Rogaine and the new antismoking products have positively affected our bottom line purely due to incremental volume," stated Spohr.
"These products are significant since they make up new OTC categories and every dollar sale we get is a sale we would not have made in previous years. With projected sales of $700 million over five years, the impact of Rogaine is expected to be far reaching," Spohr said.
According to Peter Paris, spokesman for Smithkline Beecham, Pittsburgh, this category is on its way to being a $500 million to $600 million market annually, which will far surpass what it was as a $260 million prescription item.
Yet of particular concern to grocery retailers is the high price tickets that many of these products carry.
Randall King, HBC buyer, Byrd Food Stores, Burlington, N.C., said he is forced to keep Rogaine and the antismoking products in a secure area where they must be requested specifically by name.
"We have found that products not visible in stores and not seen on a regular basis are often perceived by customers as not being available," he said. "Also, people have always purchased these products in drug stores and it's difficult to change people's habits."
Barickman pointed out that, historically, there has been a perception among grocery store operators that items at higher price points are associated with the drug class of trade and not the grocery class.
"In other words," Barickman said, "to exceed a $15 price point is seen as inappropriate for supermarkets."
He suggests that supermarket executives must change their attitudes regarding what they perceive is the high cost of some OTC drugs.
"More grocery retailers must understand that to be successful in the emerging home health care channel, they have to allow previous perceptions of price barriers to be broken down," he said.
Barickman believes that many consumers are still not fully aware of the breadth and scope of OTC products available at supermarkets.
He cites Kroger Co., Cincinnati, as one chain that is doing a particularly good job in terms of marketing and selling OTC medications by developing its own merchandising solutions as it focuses on making OTC sales an integral part of its pharmacy operations.
"Aggressive grocery retailers understand the competition for the consumer drug dollar and correctly see these new OTC medications as potentially high margin, high dollar profit items," Barickman stated.
The two prescription drugs released OTC this year -- Nasalcrom and Vagistat-1 -- contain characteristics that could alter the dynamics of their respective categories.
Nasalcrom has already generated $1.6 million in sales since it was released in January for the period ended March 30, according to IRI. It is the first OTC nasal spray indicated for both the prevention and treatment of allergies, and as such, could have a big impact on the allergy medication category, some industry analysts speculate.
"It's a unique drug. I don't know of any drugs out there that will be competitive with it at this point," said Bob Ernsberger, an industry consultant for Whitehall-Robins Healthcare, Madison, N.J., a division of American Home Products.
In looking at the feminine-hygiene category, Vagistat-1 as the first one-dose medication for vaginal yeast infections is bound to offer strong competition to the other products which are three- to seven-day treatments. Last year, the three-day treatments were introduced over-the-counter. Monistat 3 has done well with sales of $47.1 million for the one-year period ended March 30. Vagistat-1 is priced competitively with the three-day products from between $13.99 to $15.99.
Axid AR, approved for OTC sales in May 1996, garnered $33.6 million (2.2% share) for the 52 weeks ended Feb. 23. In the $1.5 billion stomach remedy category, Pepcid AC continues to be the market share leader with sales of $229 million, up 28.7% over the previous year.
"Pepcid did an excellent marketing job along with educating the public about its product when it first went OTC. This enabled it to capture market share (Pepcid's market share is about 15%) and it continues to maintain the lead in this category through an aggressive advertising campaign. As a result, Axid AR has its work cut out for it in terms of marketing and promotion if it hopes to gain a sizable share of the market," said Ronnie Williams, vice president of HBC purchasing, Millbrook Distribution Services, Leicester, Mass.
In discussing some of the OTC items introduced in recent years, King of Byrd Food Stores reports that items like Pepcid and Zantac 75 have performed the best in terms of sales, while the newest stomach remedy -- Axid AR -- has, so far, made virtually no impact. Spohr of Randalls also notes that Axid AR has underperformed in this category so far, and compares it to the poor performance of Orudis KT when it became available as an OTC drug a couple of years ago. King also said that Nasalcrom and Vagistat-1 have yet to make any impact because they are so new.
The smoking-cessation and hair regrowth products have made the largest impact of the recently introduced OTCs. Meanwhile in North Carolina, sales in the smoking-cessation category have lagged behind sales in the rest of the country. A key reason for lower sales figures in North Carolina is that this is a major tobacco producing state where the antismoking campaign has been far less effective than elsewhere.
"We've run special coupon promotions, as well as temporary price reductions, for both Rogaine and the antismoking products, said King of Byrd Food Stores.
"While these promotions helped spur sales somewhat, since these items are big dollar rings it will take time for more customers to become aware that they are being sold over-the-counter."
Looking toward the future, King said that a new private-label hair regrowth product priced at $12.99 could impact on sales of Rogaine, currently priced at $30. The FDA ruled not to grant exclusivity to Rogaine, which lost its patent status three days after it was approved to go OTC.
This follows the trend of established OTC brands increasingly being challenged by less expensive private-label brands, a practice which is expected to continue to grow and play a significant role in several categories.
Kim Botkin, HBC buyer at Gerland's Food Fair, Houston, said that private-label hair regrowth product is consistently outselling Rogaine.
"For the past 13 weeks, Gerland's has sold a total of just 16 Rogaine compared to 40 of the private-label brand. For us, Rogaine is definitely not setting the world on fire and price seems to be the main reason [sales remain low]," Botkin reported.
In speaking about price, Meridian's Barickman explains that "the challenge will be for manufacturers of products like Rogaine, which are challenged on price by private-label hair regrowth products, to be able to convince consumers that they will get added value through use of their product only. Depending on how successful these private-label brands are in attracting consumer interest, it's possible that Rogaine may have to reduce its price at some time in the future."
