Post-COVID Strategy: Invest, Don’t Save, Even If There's A Second Lockdown
Executive Summary
What should consumer health companies be doing as Europe comes out of lockdown? Invest in key brands, says Sempora Consulting's managing partner Tobias Brodtkorb, and consider seizing the opportunity presented by the long-term trend for natural OTCs, which has been accelerated by the coronavirus pandemic.
As Europe comes out of the coronavirus lockdown, consumer health companies should be investing in their OTC brands right now, according to Sempora Consulting Ltd.
“Rather than saving on marketing budgets it might be a good idea to invest when others don’t, provided you can afford it,” Sempora managing partner, Tobias Brodtkorb, told HBW Insight.
“Rather than saving on marketing budgets it might be a good idea to invest when others don’t, provided you can afford it,” Sempora managing partner, Tobias Brodtkorb, told HBW Insight.
Even if there is a second lockdown, Brodtkorb said that OTC brands that are advertising-driven and do not rely on doctor’s recommendations or pharmacy advice have an advantage, particularly in light of the move towards e-commerce and online pharmacy seen over the last few months.
Speaking about Germany specifically, he predicted that the effect of another lockdown on the country’s consume health market “will not be that big.”
Consumer health firms are “well prepared, organized and now used to the crisis,” he continued, and will be able to deliver OTCs faster and deal better with supply chain issues next time around.
During the pandemic, Sempora has been providing regular “Corona Updates” focused on tracking the impact of the virus and associated lockdown on Europe’s biggest OTC market. (Also see "German OTC Market Woes Continue" - HBW Insight, 8 Jun, 2020.) (Also see "The Bubble Bursts: Germany’s OTC Market Slumps As COVID-19 Impact Deepens" - HBW Insight, 4 May, 2020.)
The latest data shows the country edging slowly back to normality, albeit with some categories like vitamins, minerals and supplements and disinfectants retaining a large part of their year-on-year boost while sales in others – for example cold and flu related products – remain stubbornly low, thanks to early panic buying and its after effects.
Comparing the German OTC market to where it was last year, Brodtkorb said that, overall, revenue is now only 1.5% below what it was at the end of the first half 2019.
German consumers are still not really shopping in pharmacies, he reported. “They only look for the bare essentials and leave the pharmacy as fast as possible to avoid contact to other people.”
Alongside the shift to e-commerce, Bordtkorb suggested that, in general, people are becoming more health conscious – a trend reflected in the continued increased sales of VMS products.
According to a recent Sempora report, this expanding health-consciousness – which characterises the European consumer health market as a whole, not just Germany – is a long-term trend that pre-exists, but is amplified by, the coronavirus pandemic.
Combined with an ageing population in the region, this trend will drive continuous growth in the European self-medication market, Sempora predicts, with a 3% per annum revenue boost and a total market size of €39.1bn ($45.4bn) by 2024.
Another long-term trend identified by the report is a preference among European consumers for “natural” – i.e. non-chemical – self-medication products.
Linked to concerns about the environment, Sempora’s analysis shows that chemical-free non-prescription products grew more strongly than chemical non-prescription products between 2015 and 2018, at 4.8% compared to 2.7% respectively.
Sempora expects the chemical-free OTC market to further accelerate its growth over the next years, particularly in the area of chemical-free systemic pain remedies – a category that shows “dynamic long-term growth.”
This preference for naturals is especially noticeable in Germany, Brodtkorb pointed out, where it is more than a just a trend. “Natural OTCs are part of the market,” he added.
Chemical-free non-prescription brands already represent over 30% of the total OTC market in Germany, Sempora’s report shows, and are expected to “substantially outperform” their chemical competitors in growth terms by two percentage points year-on-year, reaching an overall slice of the German market representing €3.3bn by 2024.
Furthermore, smaller, local German players like Schwabe and Bionorica outperform larger, multinational consumer health companies like Bayer, GSK and Sanofi, when it comes to naturals, despite their relatively limited resources.
Asked why this is the case, Brodtkorb told HBW Insight that these smaller naturals specialists enjoy a “very positive” public image of providing high-quality German brands with no scandals attached backed up by sustainable long-term business strategies.
Pharmacy support for their products is also key part of their success story, he suggested, alongside their recommendation by German doctors.
At the level of OTC categories, chemical-free pain-relief products are especially popular in Germany, Sempora’s report found. In contrast to the chemical pain categories, Sempora explained, “the chemical-free pain segments show significant long-term growth.”
“Chemical pain products, especially used by chronically ill people, are known to have long term negative effects,” Brodtkorb commented. “So, natural products are preferred. Overall, one should also not forget that pain is generally one of the biggest OTC categories in Germany.”
The success of the natural pain relief segment of Germany’s OTC market, according to Sempora, was underlined by the “rather high number of recent launches.”
While only a few strong brands have been able to establish themselves, Brodtkorb said that the firms that have seen success have invested heavily in advertising and have built “credible, relevant stories” around these natural brands.
“Like always, excellent products with excellent marketing is the key ... Do not enter the market if you are not prepared to invest,” he continued, “as you are competing against existing brands whether natural or chemical with extensive budgets” - Brodtkorb warned.
Asked what advice he would give to consumer health companies looking to capitalize on this trend and enter the German market with natural OTC brands, he said “like always, excellent products with excellent marketing is the key.”
“Do not enter the market if you are not prepared to invest,” he continued, “as you are competing against existing brands whether natural or chemical with extensive budgets.”
lf firms are looking at Europe more widely, Brodtkorb warned that the importance of natural products would differ from country to country. “In Scandinavia, for example, chemicals are very dominant,” he said.
As well as focusing R&D on developing natural-based products, companies could also consider acquiring existing natural brands or registrations, Brodtkorb continued.
But in general, he urged companies considering going down the naturals route to “make sure that your products do not over promise and that you are (legally) able to communicate health benefits.”
“And you have to decide on your marketing approach,” he advised. “Heavy investment in advertising or leveraging recommendations by healthcare professionals, or both?”