NOTHING TO SNEEZE AT 2004-03-29 (1)

LIZA CASABONA / Additional reporting: Dan Alaimo

Seismic changes are rumbling through retailers' cough, cold and allergy sections. Retailers find themselves faced daily with more complicated merchandising issues as a number of outside factors exert force on the products and in-store treatment of the category.

Prescription drugs are increasingly making the over-the-counter switch, lengthening the selling season. That product proliferation, while driving growth, is creating serious space issues. Meanwhile, as retailers jockey for more real estate for an expanding category, they are also faced with a new challenge: how to merchandise a class of OTC medicine that has been targeted for abuse.

"The cough and cold area is a problem," said Al Jones, senior vice president of procurement and merchandising, Imperial Distributors, Auburn, Mass. "It's adjacent to analgesics, and the line extensions are a real problem in terms of finding space. Retailers have to make some tough decisions."

The issue has become worse as the runaway success of some new OTC products have impacted normal category patterns. Not only have they added stockkeeping units to the line, but they have affected the overall timeline of the allergy selling season, he said.

Sales volume of Claritin and Claritin D Cold/Allergy/Sinus tablets grew strongly in the 52 weeks ending Feb. 22, according to data from Information Resources Inc., Chicago. Claritin rose to a sales volume of 5.8 million units (based on a 10-count package). Claritin D grew to 3.5 million units. Alavert hit a sales level of 3.1 million units. Retailers anticipate that growth to continue.

"Claritin has really been a big boost in the category, and private label will be a further boost to it. I don't think sales of Claritin have peaked yet by any means," said Dan Spears, director of HBC and general merchandise, Ingles Markets, Asheville, N.C. Additional Claritin SKUs are coming out in the future, Spears noted.

"The new products, the Claritins and the Alaverts, have increased or lengthened the 'allergy' season," said Jones. "Everyone thinks about spring and fall for allergies, but these products go beyond that."

Allergy season is still the marketing target for many products, but Imperial Distributor's customers are treating items like Claritin and Alavert more like analgesics in terms of advertising, Jones said. Imperial supplies supermarkets from the Mid-Atlantic region north to the Canadian border.

The extension of the allergy season, and the products associated with it, could play out very well for retailers trying to compete with mass marketers and drug stores if they are alert to the shifting patterns.

For many years, research has pointed to customer defections to other channels -- particularly mass in the HBC categories. But the stakes are getting even higher, said Jim Wisner, president, Wisner Retail Marketing, Libertyville, Ill. Now if customers leave the store to buy their OTC remedies elsewhere, they will also pick up many products that once were the exclusive province of food operators.

"These OTC categories have become so much more important, and so much a part of the regular shopping experience, that you might as well take advantage of the traffic in your store instead of having them run to another channel to get those products. They are buying a lot of other stuff when they do that," Wisner said.

The increasing role that nonfood plays in retaining customer traffic has raised the stakes for retailers in addressing category pressures such as merchandising problems and policy issues, Wisner said.

Legislators and the media across the country have highlighted problems retailers have experienced with theft and overpurchase of pseudoephedrine cough/cold products, which are used in the production of illegal methamphetamine. Retailers faced with potential legislation could have even greater issues ahead.

"The question is, do the regulations and paperwork change? Will they change the laws again, make it more stringent, more difficult to sell, make the record keeping almost impossible? That's a possibility. If they do that then there will be an effect on the category," Jones said.

In areas where the problem has been particularly bad, some retailers have already taken in-store measures -- ranging from purchase limits to purchase logs -- to control sales of products containing pseudoephedrine (see SN, Feb. Some retailers have made voluntary efforts to get ahead of pending legislation; others are responding to mandates. But all are concerned with the issue.

"In a lot of areas, they want cooperation from the retailers to point out any larger purchases [of these products]. We have made our people aware of the problem and want them to understand that it's not typical for somebody to walk in and buy everything on a shelf," Spears said. Ingles has pulled some of the Coricidin products, a particularly hard-hit brand with pseudoephedrine as its main ingredient, behind the counter where consumers have to ask for it.

Hy-Vee, West Des Moines, Iowa, relocated 18 popular cold remedies containing pseudoephedrine as a single ingredient behind its pharmacy and customer-service counters in January of this year. The move was precipitated by an increasing problem in the Midwest market the company serves.

Going into the allergy season, the company does not anticipate an adverse effect on sales due to the policy, said Ruth Mitchell, spokeswoman, Hy-Vee.

"Two months into our policy, customers are becoming accustomed to asking for the products," she said. In some cases, she believes, people are just opting to purchase multi-symptom products in place of the problematic single-ingredient brands.

The industry is struggling to find a balance between consumer convenience and consumer safety in the long run.

"I think the industry is looking at ways to make it more difficult to purchase these products, to separate out the pseudoephedrine. They are looking at ways to continue to fight colds and allergies effectively but also at ways to make abuse more difficult," Mitchell said.

Hy-Vee's policy limits the number of packages of the products in question to two per customer, requires customers to sign a log, and moved all the products behind staffed counters.

Cold Concerns

State legislation aimed at controlling sales of readily available ingredients used in the production of methamphetamine may soon further complicate merchandising of cough, cold and allergy products for retailers. In some states, legislation already plays a role in merchandising issues in-aisle.

Legislation addressing sales of cough, cold and allergy medication containing pseudoephedrine, the main ingredient in meth production, has been introduced in Alabama, Colorado, Hawaii, Illinois, Iowa, Kansas, Kentucky, Minnesota, Oklahoma, Washington and New Mexico. Most of the legislation is either pending or has been struck down, but a few states have passed bills limiting package sales, according to research from the Food Marketing Institute, Washington.

Sales limits were the primary focus of proposed legislation, but some bills added other limitations including age limits, point-of-sale registries, photo identification checks, possession limits and Schedule V status (which means only pharmacists can dispense an item).

Retailers have been supportive of efforts to control illicit sales of these products, but are understandably wary of sweeping legislation.

"Regulation could make it difficult on the distribution network," pointed out Al Jones, senior vice president, Imperial Distributors, Auburn, Mass. "If they make it difficult enough, there is a chance that people may consider it's not worth the effort of carrying those products, which would impact the number of items we carry." The issue has not reached that level yet, Jones stressed.