SWITCHING ATTITUDES

DAVID VACZEK

Retailers are sharpening their distribution and marketing programs in response to the rapid market entry of drugs that have gone from prescription to over-the-counter availability.

"We've taken a more positive, proactive attitude," said Patrick Gallagher, buyer-merchandiser at Market Basket Stores,

a 36-store chain based in Nederland, Texas.

Chains are ensuring that shippers are in stores when national advertising breaks, and that products are on the shelves after floor stands sell through.

The reason for these initiatives is that the prescription-to-OTC market is growing significantly. In 1995, seven new items entered the market, making it the biggest year for OTCs since 1982. And 1996 has seen more of the same.

Buyers late last month were making room for the first shipments to stores of Warner Wellcome Consumer Products' Zantac 75, a nonprescription version of Zantac, which currently has about $2 billion in U.S. sales. It joins the expanding H2 antagonist segment, created last year when Pepcid AC and Tagamet HB debuted.

Hannaford Bros., Scarborough, Maine, prepared for Tagamet HB and Pepcid AC with an aggressive merchandising program, said Mark Polli, co-director of pharmacy.

"We defined where the shippers were going to be located, where the products' final resting place on our shelves would be when the shipper period was over, and exactly how we were going to promote it," said Polli.

One of the reasons retailers like Hannaford are so ambitious is sales of switch drugs are expected to triple to $14 billion by the turn of the century, according to industry estimates.

Brookshire Grocery Co., Tyler, Texas, was ready for the Tagamet HB and Pepcid AC launches with floor stands, wing and pharmacy counter displays. Space for the product also was cut into the planogram. "I think we have obtained shipment of the products into the stores as well as anyone out there," said Jim Cousineau, pharmacy director. Programs for timely distribution of product to stores, frequent promotion, year-round shelf placement and competitive pricing are targeted at the many consumers who are flocking to buy new OTC versions of top-selling prescription drugs.

"The public is looking for these [OTC] products, which as prescription drugs have sold millions of dollars. And the prescription-to-OTC drugs are very profitable for us," said Gallagher of Market Basket. "This gives us an opportunity to gain back some of the health and beauty care market share that the grocery industry has been losing over the last several years." Enhancing the opportunity for retailers is the emergence of new product categories, which helps build incremental OTC sales. For instance, Rogaine, a 2% minoxidil hair regrowth remedy (Pharmacia & Upjohn), and Nicorette, a smoking cessation gum (SmithKline Beecham), both of which arrived in stores last month, are the first products of their kind to reach the OTC market.

And a basket of additional OTCs in first-time categories with large sales potential are on the way, including drugs for cholesterol treatment and wrinkle removal, industry analysts predict.

The supermarket channel has achieved a qualified success in Rx-to-OTC sales since "their best effort ever" -- the capture of analgesic sales with Aleve, brought to OTC shelves by Procter & Gamble in 1994, said David McConnell, vice president of administration and communication at the General Merchandise Distributors Council, Colorado Springs, Colo.

Though food stores today are doing a much better job with OTCs than they did several years ago, they still have work to do.

"Food stores are doing an outstanding job in the initial distribution of products. But after 120 days, and less than that in some cases, our sales start to fall off while those of our competitors increase," said McConnell.

Quick distribution of Pepcid AC and Tagamet HB allowed supermarkets to surpass the drug and mass merchant channels in sales in the first weeks. But after the 17th week, food stores' share of the antacid category dropped "dramatically," from 37.2% to 33.8%, he said.

Chains need to focus on sustained promotion of the products and competitive pricing, said McConnell, noting that "it's not a 100-yard dash; it's a two-mile run."

Large sales and profits are at stake. Direct product profitability of an average prescription-to-OTC item is three times that of an HBC item. Yet food stores' share of the switch market, holding at 20% in recent years, has not kept up with its share of the overall OTC segment of HBC, which is 39%.

"If we can capture the same share as our regular OTC share we would double our sales in [switch drugs] from $2.8 billion to $5.5 billion," McConnell said.

Meanwhile, new products can lift sales in existing categories. For instance, the ketoprofen subcategory of OTC analgesics, launched last year by Whitehall-Robins (Orudis KT) and Bayer (Actron), will boost overall category sales by 2% in producing more than $200 million in sales by the end of 1997, the manufacturers predict.

Aleve had that effect at City Market, Grand Junction, Colo., said David Vargo, director of merchandising and marketing for pharmacy and HBC.

"What's interesting about Aleve is that it brought new business into the category, and the prescription sales still tend to stay strong," he added.

Though food stores are taking steps to capture and hold on to these self-treating customers, so are their competitors.

Cousineau of Brookshire reported that Eckerd Drugs, one of Brookshire's biggest competitors, gained an edge with one recent OTC switch by receiving shipments a week before Brookshire could.

"There isn't a lot you can do if a manufacturer decides to give preferential shipment," he added.

Some manufacturers are trying to help speed their products' market debut. Following the leads of SmithKline Beecham with Tagamet HB and Johnson & Johnson/Merck with Pepcid AC, Warner Wellcome provided Zantac 75 in "speed packs" to help retailers get the products onto shelves. The speed packs, which contained six pieces of each of the four Zantac stockkeeping units, were rushed into Market Basket stores along with floor shippers in time for the product's launch date, said Gallagher.

Ukrop's Super Markets, Richmond, Va., works with Millbrook Distribution Services, Leicester, Mass., a manufacturer and service merchandiser, to stay on top of new launches.

"They develop a merchandising plan ahead of time, which includes formatting and distribution by type of store, and get the orders placed way up front so they are in our system and ready to go," said John Massaua, senior vice president of purchasing and merchandising at Millbrook.

Prelaunch and postlaunch advertising needs to be followed by frequent advertising in store circulars. Doing so lets consumers know that the product will be available over the long haul.

Brookshire is making an extra effort to feature these new switch products prominently in advertising. It also is moving HBC/OTC sections from alcoves at the pharmacy to in-line locations for better visibility and convenience, said Cousineau.

Along with placing more emphasis on advertising, food stores, which are still the highest priced outlet for OTCs, need to be more price-sensitive, said McConnell of GMDC.

Also, chain programs that involve the pharmacists in OTC sales build on enhanced vendor product support programs, which have been more comprehensive since Aleve.