Editors note: This is an abridged version of an article that ran in Nicholas Hall’s CHC Insight North America, a bimonthly publication that covers consumer health care.
When Bob Dylan released “The Times, They Are A-Changin” in October 1963 he could have been talking about the 2020 consumer health world in North America. The velocity and change experienced during COVID-related time was, and remains, dizzying. It is still not a post-COVID world, but the pre-COVID world is blowing in the wind.
The big stories from 2019, to be sure, continued into 2020. After a few months of new COVID-driven consumer behavior, some segments warped forward. The omnichannel world is now more balanced as consumer health (CH) e-commerce went from a projected 10% to 12% of industry revenue to potentially topping 30%. Everything changed in 16 weeks. News about supply chains, forecasting, categories, trade channels, go-to-market, M&A, a tragic and stubborn opioid crisis, transformative changes to the CHPA and (finally) Monograph reform were eclipsed by COVID. Several developing stories also impacted 2020: Legalized marijuana and a greater attention to the environment and “green-washing” were all newsworthy. CBD enjoyed another growth year. A lot happened besides a pandemic.
The shift to Amazon, for example, has been seismic. By Amazon’s rough estimate COVID spurred 36 months of adoption growth in 16 weeks. One small business owner, enjoying the company’s best year ever, saw a shift from the drug chain world to Amazon account for 90% of annual growth. Emerson Group saw an increase in brick-and-mortar distribution of 7%. Meanwhile, their e-commerce business jumped 90%. Emerson’s e-commerce sales will end 2020 within sight of surpassing their top customer, Walmart.
While omnichannel and Amazon thrived, there were traditional format winners, notably Walmart and Target, who had strong long-standing pre-COVID digital strategies in place. As one leader noted, the grocery channel was an “accidental” winner, benefitting from consumers transitioning to a one-stop-for-everything habit. COVID unmasked how far behind the digital drug channel is. Another brand owner saw a 15% jump at Dollar Store, attributing it to stretched budgets in the face of unemployment. Meanwhile, the distribution world had to adjust and adapt.
It is not all smooth seas for Amazon. One leader noted they are “not easy to work with.” Meanwhile, Walmart and Target have leveraged click-and-collect which, in effect, has transitioned stores into mini distribution centers.
Amazon has long leveraged scale with shipping costs. While Amazon seeks a $10+ order, most of the strictly e-commerce competition looks for $50+ baskets. Meanwhile, traditional retailers will need to reevaluate in-store inventories, space allotment and staffing structure. One observer noted that retail analytical capabilities dramatically improved. Given the structural changes, it had to. Pioneered with grocery products, click-and-collect or even home delivery has led to in-store traffic jams. It also limits up-selling and/or impulse items. If a product is not on the “click” list, it will not be collected. In addition to order accuracy, retailers also have the added challenge of improving safety and preventing infections for both their own employees and consumers. Systematic sanitizing of carts may soon be table stakes. A consistent comprehensive store certification framework is not too far behind.
Amazon’s widely expected move into the pharmacy arena will further impact the traditional trade. It was just a matter of time before the 2018 PillPack acquisition and pharmacy certifications in almost every state trumpeted Amazon’s impending arrival. The “back of the store” in drug chains and independent pharmacy are especially vulnerable and will lose pharmacy volume. This will impact crucial “front of the store” foot traffic. Meanwhile, Amazon will pinpoint areas where a new go-to-market structure will permanently disrupt the status quo. Amazon views patient pain points as opportunities. Small scale pilots will confirm new models. Amazon then leverages its structural advantages of data, Amazon Prime and vertically integrated sales and supply chains. And the patient journey does have some pain points ripe for fixing, including the ease of FSA and HSA account usage, direct-to-consumer delivery of multidose medications and direct fulfillment.
Meanwhile, the Big Three drug chains are struggling and are mostly in a defensive mode. Some brand owners observe that Walgreens has not been able to adapt the powerful Boots UK loyalty framework to the U.S. market. Instead, CLR (Container Load Results) “shakedowns” occur on a regular basis. CVS’ strategic shift to Wellness is still in rollout phase and appears to be gaining traction. The shift to DIY self-care led by immunity products, general well-being, and sanitizers is on trend, as consumers are turning more to recovery at home combined with convenient self-care management. CVS HealthHubs’ point-of-care — testing, monitoring and inoculations — is a timely shift to product plus service. At the corporate level, CVS made changes: An entire level of management was removed in Rhode Island while 15,000 new field positions were created, enabling HealthHub stand-ups around the U.S. Meanwhile, Rite Aid launched its RxEvolution strategy combining alternative medicines with traditional O-T-Cs. All three major drug chain retailers suffered significant turnover and reorganizations, especially at the category buyer level, impacting category management. The drug chain channel in general has been slower to transition to an omnichannel and/or product plus service model.
There were COVID-created category winners and losers. Any product that could claim immunity flew off the shelves, while impulse products dependent on retail foot traffic, especially at drug chain or mass, suffered. One brand owner saw mass channel foot traffic down 20% and its overall U.S. sales fell 6% to 7% as a result. Beyond immunity, the emotional/mental health, stress and PPE categories all prospered. Gummies continued solid growth, with starchless technology promising further growth. There were some specific product launches, as GSK was able to introduce the topical analgesic Voltaren (diclofenac).
The marketing landscape also changed. Digital became much more important, while COVID-themed content and the run-up to the 2020 election took up almost all of the oxygen in the marketing messaging, impact and cost worlds. The fragmented and skewed media market was even more pronounced because of COVID, and influencers gained in importance. One industry observer compared Walmart’s acquisition of TikTok as the modern-day equivalent of P&G’s leveraging Soap Operas in the ’60s. Brand owners refocused their digital footprint as principal displays and site navigation were scrutinized.
On the sales front, presentations and materials changed as sales calls migrated to Zoom. The sales hierarchy of preferred meetings was reordered: Zoom over Facetime over Phone over an email. While U.S. salesforces struggled on Zoom, COVID ushered in a reevaluation of the need for, or at least the size of, a field salesforce. Telemedicine has jumped from 2% to 3% penetration to 30%, a three- to five-year jump according to most forecasts. Importantly, telehealth has been approved for reimbursement at full Medicaid cost. Traditional health systems will be challenged as hospitals will see declining visits and stays. Health systems presently focused on prescription cost containment and consolidation will battle falling revenue as well. The negotiations with insurance companies will be tougher. The echo effect of this dynamic could impact the O-T-C salesforce composition. On the positive for self-care and O-T-Cs, the challenged health care system will force consumers to look at O-T-C alternatives, as the unemployment spike will lead to lost insurance coverage, a bittersweet silver lining for sure.
The normally stodgy world of supply chain suddenly became a first-order concern. The hunt for clean ingredients and dependable supply chain vendors became mission critical. Depending on the category, brand owners either had too much or too little of work-in-process materials. Ingredients and components sourced overseas were at particular risk. Even smaller to medium-sized O-T-C brand owners were getting a crash course on hedging for key ingredients. Overall, U.S. manufacturers were, by and large, able to source key ingredients. One of their biggest challenges, like the famous words of the movie The Graduate, was plastics. The steep decline in petroleum demand resulted in the chain reaction crash in the availability of plastics. While hopefully only temporary in duration, plastic caps, dependent on petroleum, became scarce. Inventories took a double hit: Reduced production and hand sanitizers gobbled up capacity.
The COVID 2020 world also hid developing stories that will most likely grow into bigger stories in 2021: cookies, marijuana and the continuing blur into the natural space.
The demise of cookies is about to get real. With the e-commerce world seemingly boundlessly growing, digital marketing will grow along with it. Marketers will fish where the consumers are — but it is about to get a lot more challenging to track the fish.
It started in Europe and migrated to California, and by the end of 2022 cookies will disappear. In spring 2018, the EU enacted the Global Data Protection Regulation (GDPR). By June 2018, using GDPR as a model, the California Consumer Privacy Act was passed into law, almost certainly pioneering a framework that will sweep the U.S. The heart of the legislation was and is data protection of personal consumer information. The consumer now has the right to tell a firm to stop using, storing or collecting their online data.
While demoted to D list status, CBD did grow 22% in 2020 and, unlike almost every other category, remained predominantly a brick-and-mortar business. CivicScience has noted a year-end COVID fatigue CBD trend. More than 20% of the country plans to include CBD for the holidays. Look for special gummies in stockings this year.
The CH industry is gradually blurring into the broadly defined natural channel. For several years CVS has focused on natural remedies. Interestingly, UNFI, the largest natural channel distributor, created a separate health care division with dedicated warehousing on both coasts. The blur is coming from both sides. The real change coming will be concern for carbon footprints and eco-friendly product and packaging. Green-washing will encounter demands for certifications with teeth — Leaping Bunny, Organic — will become the norm. ECRM planners are already developing 2021 content in this area. It is instructional to look at several of the Specialty Food Association Trendspotter 2021 predictions, as they could migrate to the CH industry in the next few years. Values-based buying will be reflected by the desire to purchase sustainability-focused brands from companies owned by women, Black people, people of color and/or B Corps. Ingredients will be scrutinized for functional values. Products containing ingredients like fermented honey sauce, prebiotics-laced snacks and functional ghee will gain traction.
As 2020 draws to a close, Dylan’s seminal tune concluded with lyrics that the order is rapidly fadin’ and the first one now will later be last for the times they are a-changin. COVID pushed that new order ahead in 2020 faster than anyone could have predicted. Indeed, the battle outside ragin’ will soon shake your windows and rattle your walls for the times they are a-changin’ …
Ed Rowland is a valued network partner of the Nicholas Hall Group of Companies. As the principal of Rowland Global LLC (www.rowland-global.com) he believes in the promise of global business and supports companies in their strategy, tactics and execution of international growth initiatives.
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