Amazon Supplements, OTC Drugs Ride Lower Prices To Gains In Market Share

Amazon’s Solimo supplement and Basic Care OTC lines unlikely to expand much, says Jefferies analyst Brian Tanquilut. Still, brands are well positioned against retail private label competitors, as most products are priced lower than similar products by Walgreens and CVS.

[Amazon.com Inc.] likely has few options remaining for extending its Solimo dietary supplement and Basic Care OTC drug brand lines but both are positioned to gain market share with product prices cut lower in the past six months than the biggest private label and store brand competitors.

“There just aren’t a lot of products left that they could launch in the health care bucket that they don’t offer today” in the Solimo line, said Jefferies Americas market analyst Brian Tanquilut in an interview following his Dec. 27 report on Amazon brands' sales. For Basic Care, “there really aren’t too many OTC, high volume medications they can do to add volume to the line,” he said.

Tanquilut’s report reveals a decline from earlier in 2018 in the Amazon brands’ pricing relative to major competitor private label brands by Walgreens Boots Alliance Inc. and CVS Health Corp.In June, Solimo products were priced 13% more than Well at Walgreens supplement items, with two-thirds of the Walgreens’ items selling at a lower price, Tanquilut found. However, CVS Health supplements net prices were 11% higher at median than Solimo, with 60% of the CVS items selling at higher price points.

"The front end of the retail side of the business where OTC is sold ... has been under pressure for two years. I think they are losing share to Amazon.” – Jefferies analyst Brian Tanquilut

Growing consumer trust in buying consumer health products online also is a factor in the e-commerce giant's growth in the space (see sidebar).

In his latest review of prices looking at a basket of goods with appropriate comparable matching products – measured by size, form, dosage, etc. – Tanquilut found Walgreens products are slightly more expensive than Solimo, around 9% at the median, and that 58% of the national retailer's store brand supplements sell at a higher price point, he said.

Additionally, CVS supplement product prices have increased “significantly” compared to Solimo due to a much lower level of discounting than the chain previously implemented.

In the month ending Dec. 27, CVS’ net prices were 38% higher at the median than Solimo's, with about 80% of CVS products selling at a higher price point.

In the analysis Tanquilut published on Basic Care and its competitors in July, he found the Well at Walgreens line priced 20% higher and CVS’ Health line priced 22% higher than Basic Care. 

Currently, Walgreens' net prices on OTC products are 33% higher at the median than Basic Care, with 83% of products selling at a higher price point. CVS’ products are more comparable to Basic Care due to heavy discounting; CVS items are priced 5% higher at the median, with 59% of its health-related items selling at higher price points, Tanquilut said.

He maintains that Solimo and Basic Care remain a threat to other private label and store brand lines, even as those competitors try to “downplay” Amazon's impact with an argument that not all consumers want to buy supplements online.

Amazon, which already was using the Solimo brand in India for furniture and other home goods, in early 2018 extended the brand to a line of “simple” and “clean-looking” personal care, supplement, cosmetics and food products. With the tagline “Simple to Shop. Easy to Love,” the band comprises around 30 supplement products including probiotics, letter vitamins, calcium, multi-vitamins, prenatal vitamins, letter vitamins and supplements for immune health, hair, skin and nails. The brand also includes around 100 personal care items such as razor blades, cosmetic wipes, moisturizer, body wash and mouth rinse as well as household items like trash bags and laundry detergent. (Also see "Amazon's Solimo Supplements' Prices, Selection Slow Market Share Incursion" - HBW Insight, 13 Jul, 2018.)

Basic Care marked the e-commerce giant’s entrance to the OTC drug space in late 2017 after developing the line with leading private label manufacturer Perrigo Co. PLC. (Also see "Amazon OTCs Likely A Worry For Retailers, A Remedy For Perrigo" - Pink Sheet, 3 Jan, 2018.) After launching with around 35 products in categories including cough, cold, allergy and digestive treatment products, Amazon doubled the line's number of stock-keeping units to 65 in under a year. (Also see "Amazon OTC Line's Impact On Pricing Grows Along With Its SKUs" - Pink Sheet, 12 Jul, 2018.)

Impact Exceeds Market Share

Amazon’s consumer health market share has not grown much yet, according to Tanquilut. But its impact still is felt by conventional retailers.

“If you look at the pure performance coming out of competitor retail pharmacy, the front end of the retail side of the business where OTC is sold, it has been under pressure for two years. I think they are losing share to Amazon,” he said.

His position on Amazon’s impact is counter to some industry experts, though. Phil Masiello, founder of Hound Dog Digital Marketing Agency in Baltimore, said in an interview that sales in many categories have increased since Amazon launched private label, due to the money the retailer is pumping into their own site to promote the products, which has in turn brought awareness to whole categories. He admitted, though, that Amazon’s private label lines are something to “keep an eye on,” especially because Amazon has a direct link to customers. (Also see "Amazon Expands Consumer Health With Advantage Of Cutting Prices" - HBW Insight, 7 Dec, 2018.)

Tanquilut said he is doubtful of the potential for Amazon to launch Solimo and Basic Care or any of its other brands in conventional stores. Amazon has its own grocery store chain to stock its products on shelves from its $13.7bn purchase of Whole Foods Market Inc. in 2017. (Also see "Amazon Pays $13.7bn For Whole Foods: Health And Wellness Industry News" - HBW Insight, 19 Jun, 2017.)

“The infrastructure is there, it won’t be hard for them to roll it out,” he said.

But stocking Whole Foods shelves with its products probably isn't happening in the short term. “I’m not sure they would gain that much traction off the bat," Tanquilut said.

"Amazon is in a phase they can brand build online in an app or portal but probably not ready for a stand-alone offering for these brands. I don’t think Amazon has done that good of a job yet to really build up the Solimo or Basic Scare brand from a consumer awareness perspective.”

Other Amazon health and wellness brands, such as the Primary Health OTC and SouthHealth OTC and dietary supplement ranges that debuted in 2018, were not included in Tanquilut’s analysis.