SEEKING REMEDIES

CHAPIN CLARK

An innovative prescription to over-the-counter switch product can not only generate big sales for supermarkets but also spawn entirely new OTC categories, or liven up those that have become stagnant.

A classic example is smoking cessation. In February 1996, SmithKline Beecham's Nicorette, the prescription drug in chewing-gum form, became the first smoking-cessation product approved by the Food and Drug Administration for over-the-counter use.

Next came McNeil Consumer Products' Nicotrol patch, which went OTC in July of that year, followed by SmithKline's Nicoderm patch a month later.

Sales of Nicorette, Nicotrol and Nicoderm by supermarkets, drug chains and mass merchants now exceed $500 million annually. New nicotine-containing nasal sprays and oral inhalers are awaiting OTC approval. And some health care experts are advocating lifelong use of these alternative delivery systems as the sanest course for people who are addicted to nicotine and likely never to give it up.

But, supermarket health and beauty care directors contacted by SN note, this brings a whole new set of concerns: How to prepare for the introduction of such products? How to make room? And, most importantly, how to convince consumers that supermarkets are the place to shop for these items?

The switch market used to be driven by consumer-product companies looking for "The Next Big Thing" but now is dictated by pharmaceutical manufacturers who want to extend the life of their drugs, according to Susan Lavine Coleman, president of NCI Consulting, Princeton, N.J., a company that frequently is retained by both drug and consumer-product companies to advise them on the prescription and over-the-counter drug markets.

Within one year of losing patent protection, Coleman said, a prescription drug typically bleeds 70% of its revenues, due mainly to the encroachment of generic equivalents.

"Many of these brands, because they've been around for years, have tremendous equity in the consumer market. Pharmaceutical companies see [switches] as a way to continue the revenue stream."

Not surprisingly, then, retailers assign manufacturers a vital role in making sure switches and the OTC categories they introduce go over well with consumers.

"The more lead time and information manufacturers can give us, that's very important," said Galen Itami, HBC manager at United Grocers, Portland, Ore. "We're trying to partner more with our manufacturers and brokers. Everyone's pressed for time and resources, so we're trying to be as efficient as possible."

Whether a switch product is a category builder, Itami said, depends on whether "the manufacturer has really thought about what the market is, who the customer is, put advertising support behind it. The manufacturer has to have a well-thought-out, long-term strategy so that it's not just a get-it-out-there thing."

Thinking it through is important for store staff, too, said Bonnie Quick, HBC director at G&R Felpausch Co., Hastings, Mich.

"I usually check with my pharmacy director to see what kind of history [prospective switches] have had in Rx. I also educate my HBC clerks -- they have to understand what's behind the hype."

"Pharmacists are the vital link there," said Christie Frazier-Coleman, HBC buyer for Bashas' Markets, Chandler, Ariz. "We tell the pharmacist, 'You may now refer those patients to these OTC products.' "

She added that sales of Rogaine, Pharmacia & Upjohn's hair-regrowth treatment, are stronger in Bashas' stores with pharmacies than in those without.

With the proliferation of switch products in a particular category, and the accompanying rise in consumer interest, the problem becomes how to accommodate them, retailers said.

"When the smoking-cessation products hit, it was like, 'Where does it go?' " Quick recalled. "It's really hard to find a home for these things and make it mean something, and yet they deserve the space."

She said she relies on input from manufacturers and Felpausch's wholesaler, Grand Rapids, Mich.-based Spartan Stores, to develop display strategies.

Although the chain's smoking-cessation sales are strong, Quick said, "we're still floundering" in terms of a consistent placement policy. Some Felpausch stores, in addition to allotting shelf space, display the products at the pharmacy, others use endwing displays in HBC, and still others keep them behind the counter at the service department.

"It still doesn't have a definite space. Each store is a little different, wherever it works the best."

Because of the profit potential, making room is "something that has to be done," stressed Frazier-Coleman. "With category management, it's not so hard to figure out these days. You know the products that aren't paying their way."

"Usually a facing goes or a product goes," Quick said, adding that some stores are too small to make certain categories -- hair regrowth, in Felpausch's case -- work. "It's not a quick turn. Small stores with really small departments just can't carry items like that."

Making ample space for new switch categories is also essential in building a longer-term relationship with the consumer.

"Wal-Mart had massive display presence with the introduction of the H2s [stomach-acid reducers]," said consultant Coleman. "When Zantac was introduced, Wal-Mart had rows and rows of Zantac displays right at the front of the store."

According to Information Resources Inc., Chicago, dollar sales of stomach remedies -- three of the Top-10 brands, including leader Pepcid AC, are recent switches -- grew by 10.8% in the mass-merchant channel over the last year, vs. 2.9% in supermarkets.

"Supermarkets could take advantage of their traffic and use secondary locations more," admitted Itami.

Regardless of the class of trade, brand identity is a major factor in turning a pharmacy customer into an OTC customer -- and holding him or her.

Well-known prescription brands like Zantac have built-in consumer interest when they switch, and "customer loyalty can be built through those OTC items," said Frazier-Coleman.

An HBC director for a wholesaler that supplies more than 100 supermarkets in the Southeast gave the anticandidal (anti-yeast-infection) category as another example.

"Gyne-Lotrimin was the first to make it to the market, but Monistat 7 was the brand everyone knew. Gyne-Lotrimin did well, but when Monistat 7 was introduced it was an overnight sensation."

In addition to Vagistat 1, Gyne-Lotrimin, Monistat 7 and their faster-acting offspring Gyne-Lotrimin 3 and Monistat 3 now comprise a $169.8 million category, according to IRI.

But if it is a general rule that brands cross over from the pharmacy to HBC aisles, the same cannot be said of pricing.

The high retails carried by most switches can be a boon, said Frazier-Coleman, but they are problematic as well.

"It's a great way to build dollar sales in those categories, but the challenge for retailers is to be able to market them so customers are comfortable paying those retails."

Most shoppers, she added, don't think twice about going to the pharmacy for medication they need, but have a set grocery budget that encompasses their HBC purchases.

"Manufacturers are doing their part to make these items more mainstream," Frazier-Coleman said, citing Rogaine's two-for-one offers and rebates, which Bashas' has been advertising "since day one."

"They've got to make those retails palatable on a gradual basis. It's pie in the sky to think you can offer a product with a $30 or $40 retail without discount promotions.

"But once [consumers] are there, you've got them," she added.

Breaking Down Acid Reducers

Total Stomach Remedies Brand Sales: $1.5 billion (52 weeks ended Sept. 28)

PEPCID AC (Johnson & Johnson-Merck)

Date of OTC approval: April 28, 1995

Sales for 52 weeks ended Sept. 28: $226.9 million

Sales ranking among stomach remedies brands: 1

Percentage of total stomach remedies brand sales dollars: 14.5%

TAGAMET HB (SmithKline Beecham)

Date of OTC approval: June 19, 1995

Sales for 52 weeks ended Sept. 28: $91.8 million

Sales ranking among stomach remedies brands: 7

Percentage of total stomach remedies brand sales dollars: 5.9%

ZANTAC 75 (Warner-Wellcome)

Date of OTC approval: Dec. 19, 1995

Sales for 52 weeks ended Sept. 28: $161.2 million

Sales ranking among stomach remedies brands: 3

Percentage of total stomach remedies brand sales dollars: 10.3%

AXID AR (Whitehall-Robins Healthcare)

Date of OTC approval: May 9, 1996

Sales for 52 weeks ended June 29: $48.9 million Sales ranking among stomach remedies brands: 12

Percentage of total stomach remedies brand sales dollars: 3.1%*

Note: ranking and market share based on sales through June 29

MYLANTA AR (Johnson & Johnson-Merck)

Contains same active ingredients as J&J-Merck's Pepcid AC. Introduced January 1997 to capitalize on clout of Mylanta brand

Sales figures for this product are not available, but total Mylanta sales -- including those of Mylanta, Mylanta Double Strength, Mylanta Gas, Children's Mylanta and Mylanta AR -- were $142.1 million for the 52 weeks ended Sept. 28, a 9.1% share of total dollar sales in the category

Source: Information Resources Inc., Chicago