'Tectonic' Shifts In Germany’s OTC Market Require Smart Sales Strategies
Executive Summary
Data from Sempora Consulting shows Germany's OTC market is still struggling to return to pre-pandemic growth levels in the first quarter of 2022. Digging deeper into recent trends like e-commerce and inflationary pricing, the firm suggests a number of points for consumer healthcare companies to consider in formulating their sales strategies for the rest of the year.
The latest data from Sempora Consulting shows the German OTC market continuing to stabilize, helped by a rebounding 2021/22 cough, cold and flu season and continued demand from consumers for vitamins and supplements.
Enduring trends in both channel and category choices on the part of consumers, as well as unpredictable inflationary pressures, require smart and adaptive sales strategies on the part of consumer health companies, Sempora advises.
“The overall OTC market is calming down after the violent upheavals during the pandemic,” noted Sempora in its most recent “Corona Update.” (Also see "Cough, Cold & Flu Demand In Community Pharmacy Stabilizes German OTC Market" - HBW Insight, 18 Nov, 2021.)
The “important OTC core category,” cough, cold and flu, is “recovering noticeably,” Sempora pointed out, but is still posting sales below pre-COVID levels.
“Preventive sub-markets such as vitamins and minerals continue to benefit from coronavirus trends,” the firm continued, “and largely maintain their high level.”
Interestingly, sales of immunity products, such as supplements containing vitamin C, are still growing fast, outstripping even 2021 demand, Sempora’s data revealed.
Nevertheless, a return to pre-pandemic OTC sales remains elusive.
While the market grew by 5% overall in Q1 2022, compared to 2019, it was down 6%, Sempora explained.
While consumers are returning to bricks-and-mortar pharmacies, sales through this channel are still 9% lower compared to before the pandemic, Sempora added.
Mail order sales are still growing fast (by 11%), but not quite as fast as in 2021, and not fast enough to offset the loss of sales in the stationary channel.
Online Strategy
Trends in both distribution channels and in particular categories through these channels show that consumer health companies need to adapt their sales strategies, Sempora advised.
“The pandemic has shown that consumer preferences and the general need for certain product groups will change permanently,” it said.
“This requires both a review of the role of categories in the portfolio, a reassessment of strategic brand priorities, and a fresh perspective on business development priorities.” (Also see "With More Consumers Shopping Online During COVID-19, How Do Marketers Keep Them There?" - HBW Insight, 8 Nov, 2021.)
In terms of online sales strategies, Sempora pointed to “tectonic” changes happening in the mail-order pharmacy sector that OTC firms needed to take into account.
In a recent report on the German pharmacy market, Sempora highlighted a number of recent significant acquisitions, for example of Dutch mail-order pharmacy Disapo by European cosmetics chain Douglas.
Surveying manufacturers, Sempora found that many companies operating in Germany “expect further consolidation within the sector and an increasing importance of pharmacy mail-order.”
From the point of view of both manufacturers and pharmacies, it reported, DocMorris, Gesund.de and the Shop Apotheke Marktplatz will be the most important online platforms in the future.
Amazon Entry
Amazon is also expected to increase its presence in Germany, Sempora warned, with half of German consumers saying they can already imagine ordering OTC medicines on the marketplace, with 44% preferring Amazon to other mail-order pharmacies.
“This enormous popularity shows how important it is for manufacturers to quickly think about their own Amazon strategy,” advised Sempora managing partner, Ulrich Zander.
“The corona pandemic has shown particularly clearly that it is a catalyst for change,” added Franziska Bayer and Max Erkrath, both principals at the firm.“The field service of the future will increasingly have to integrate digital sales strategies and tools in addition to personal contact.”
“As a result, a good mix of analogue and digital sales measures is required now and in the future in order to be competitive in the long term,” they recommended.
Price War
Another thing for consumer health firms to think about, Sempora continued, is rising inflation and the pressure this puts on costs for manufacturers and consumer spending power.
“Inflation in the Eurozone area has risen to its highest level since the introduction of the Euro,” Sempora commented. “Economists assume that inflation will continue to accelerate and that inflation rates of well over 5%, possibly even in the direction of 10%, since not all cost increases have yet been passed on to consumers.”
Surveying OTC manufacturers on this issue, Sempora found that the “vast majority” of firms (91%) are already finding that inflation is driving up procurement and production costs. Almost half of the managers surveyed (43%) said they will be adjusting their price policies in the short term to avoid losses.
“Most of the top decision-makers we surveyed plan to clearly differentiate their price adjustments according to products, customers and channels,” Sempora partners Ulrich Zander and Thomas Golly said in the recently published “Flash Survey.”
“That makes it complex – but it is strategically clever and therefore clearly necessary,” they added.
Margin Control
“Accelerated inflation and cost pressure are putting pressure on the margin model in industry and the pharmaceutical trade,” Sempora concluded.“At the same time, changed consumer preferences and the increasing importance of online pharmacies are influencing the price perception of consumers and patients.”
“Setting the right price points is becoming more complex and requires the use of state-of-the-art methods and instruments, as well as clever margin control in the direction of sales partners – both stationary and online.”