Legacy Consumer Health Firms Invest To Compete In Start-Ups' Realm: Online

J&J, Colgate, P&G and Church & Dwight look to e-commerce to regain market share from smaller, nimble consumer health brands and digital-based retail start-ups, executives say at Barclays Global Consumer Staples conference.

Major consumer health product companies are turning more to e-commerce to drive sales as smaller firms, predominantly digital-based start-ups, increasingly disrupt global sales models and gain market share.

Executives from Johnson & Johnson, Colgate-Palmolive Co., Procter & Gamble Co. and Church & Dwight Co. Inc.discussed strategies they plan to implement to fuel sales online recently at the Barclays Global Consumer Staples Conference in New York.

In 2015, e-commerce sales across consumer packaged goods categories soared 42%, well ahead of overall online sales growth, according to market research firm 1010data.com (see chart below).

Amazon subscription, a key online sales driver, more than tripled in 2015. More than 20% of the overall e-commerce growth was through Amazon’s Subscribe and Save feature, which allows shoppers to save on personal care and household staples when they sign up for the feature that automatically refills product orders.

Some firms also are talking about spending in digital medial to emotionally engage with and developing consumers' affinity for their brands (see sidebar).

J&J Retools Across Its Bandwidth

Jorge Mesquita, J&J's worldwide consumer business chairman, acknowledged the threat facing large consumer packaged goods firms – the growing number of start-ups cutting out retailers and selling directly to consumers online or through their subscription serviced, often offering lower prices.

The competitors disrupting the market include Dollar Shave Club, a subscription-based razor company purchased by Unilever NV in 2016, and Hello Products LLC, which sells a line toothpastes free of synthetic ingredients in non-traditional flavors. (Also see "Oral Care Brands’ Social Media Fame Is Fuzzy Picture Of Sales Growth" - Pink Sheet, 24 Aug, 2015.)

Also making an impact are e-commerce upstarts like Brandless Inc., a recently launched online platform with off-brand products for $3 or less. The firm markets oral care, feminine hygiene and hand soaps, in addition to beauty and household products and food.

Consumer Packaged Good Product Categories E-Commerce Growth

Open Media

Toothpaste online sales were fastest growing among consumer health product categories in 2015. (Move cursor over bars for exact sales growth % of each category.)

1010data datasets for 2015 e-commerce

“You see these new players coming into our category and at the heart of this disruption, there is a new consumer-centric paradigm, and that’s challenging completely the cost of goods scale and the value scale as we know it and its forcing a change in both the retail and the media landscape,” Mesquita said.

J&J aims to compete with start-ups and other smaller firms by creating a more personal connection with consumers, offering products that match local tastes and using advertising with locally relevant messages. (Also see "J&J Consumer Health Brands Deliver Local Connections In Startup Style" - HBW Insight, 7 Sep, 2017.)

With a $3.5bn consumer business comprising six categories – OTC drugs, oral care, beauty feminine care, wound care and baby care – J&J expects to increase its e-commerce business eightfold over the next three years, Mesquita said. The firm is investing in supply chain, information technology and management reach its goal.

"We’re experimenting with connected commerce or direct-to-consumer as well,” he said, but did not discuss specific plans or brands involved.

J&J markets Tylenol analgesics, Listerine mouthwash and the Aveeno and Neutrogena skin care lines, which are sold on major retail websites including Amazon, Walmart.com and Target.com.

At the same time, J&J will continue to target traditional food, drug and mass-merchandise outlets and also look to grow in emerging retail channels, such as discount stores like Lidl and Aldi, which are growing “equally fast” to e-commerce but in a “less heralded way,” Mesquita said.

J&J also will try to keep pace with start-ups in following consumer trends. Start-ups “capitalize on the rise of emerging channels. They don’t just play in the legacy channels but they figure out what are the new shopping behaviors, new emerging channel trends and they [disproportionately] drive growth in those channels,” he said.

Colgate Leads US Online Toothpaste Sales

On Sept. 6, Colgate President and CEO Ian Cook said the firm is “driving very, very hard both by establishing organization and increasing investment to maximize our growth in e-commerce, focused on our performance versus prior months, not prior year, both in terms of market share and absolute growth.”

Cook did not provide Colgate’s e-commerce sales figures or the channel's percentage of total sales, but he noted the firm currently is the toothpaste sales leader in the US, UK and China. In the 2017 first quarter of 2017, Colgate reported its e-commerce business nearly doubled year-over-year.

In the US, Colgate toothpastes are sold through major online retailers; on the Colgate Total branded site, a “buy now” feature connects shoppers to Amazon.com to place orders, while its Tom’s of Maine brand allows purchases directly from its website.

"At the heart of this disruption, there is a new consumer-centric paradigm, and … it's forcing a change in both the retail and the media landscape.” – J&J global consumer chief Jorge Mesquita

The Colgate and Tom’s of Maine brands, according to 1010data.com, accounted for 26% market share of all toothpastes sold online in the US in 2015, although P&G’s Crest toothpaste was the top-selling brand online. Toothpaste was the second-fastest growing consumer packaged goods category in 2015, with 75% year-over-year growth, according to 1010data.

“We’re putting investment ahead of the curve so that we’re ready when that growth accelerates more broadly in our categories,” Cook said, noting that in some markets e-commerce is still in its infancy.

The firm is focusing on “premiumization” of products sold online, attracting shoppers with lower-priced products and over time presenting them with more expensive items.

Additionally, “the use of multipacks, search optimization – a combination of paid and organic – and specific packaging to make the online experience a very good one for the purchaser,” Cook said.

“I think packaging is going to become a discriminating factor for succeeds in e-commerce. Not just the packaging for delivery, but the actual physical packaging itself.”

At the 2016 Barclay conference, Colgate announced it was starting to increase its e-commerce investing to better understand consumer shopping behaviors online.( (Also see "Colgate Weighs Subscription Sales In Oral Care E-commerce Strategy" - Pink Sheet, 13 Sep, 2016.))

P&G Online Sales Surpass $3bn

P&G's 30% e-commerce sales growth for its fiscal 2017, which year ended June 30, “significantly” outpaced its offline sales, President and CEO David Taylor said on Sept. 8.

The firm sells Crest oral care products and other consumer health products including Prilosec OTC frequent heartburn treatment and Pepto Bismol upset stomach remedy online through its P&G Shop and individual branded websites, where sales are conducted by third-party online retailers, and also owns a subscription-distribution platform for men’s grooming products under the GilletteShave Club. (Also see "P&G Talks Digital, Shave Biz Strategy In Light Of Unilever’s DSC Buy" - HBW Insight, 3 Aug, 2016.)

“Our e-commerce sales are over $3bn now, larger than our top two peer competitors combined. These sales are relatively balanced across big e-commerce markets with North America, Europe, and China each delivering about $1bn in sales last year,” Taylor said.

"Any category you looked at online is just growing as more and more people who are moving online." – Church & Dwight CEO Matthew Farrell

In the US, Taylor suggested a strong e-commerce platform is necessary to attract millennial consumers, who number around 80m and make considerable online purchases. “We held a good share in eight of the 10 categories in e-commerce among millennials,” he said.

Asked how P&G's largest brands – some with $1bn in annual sales – are competing against small players who are driving growth in multiple channels and markets, Taylor touted P&G products' areas of strength and said its 10 major brands are growing at a rate above the rest of the market in their respective categories.

“One of the things that’s a misnomer is big brands can’t grow,” Taylor said.

He said P&G brands are strong on sites like Amazon.com because they turn up in the first two pages of search results, where most shoppers choose the products they buy.

The brands also are thriving in discount and club retail doors, he added. “What generally happens, you find the biggest, most popular brand and private label. In those, the middle brands are having a real trouble."

P&G has said while it looks to grow its e-commerce business, it remains primarily focused on selling its health, personal and household products through conventional retailers. (Also see "P&G Keeps Direct-to-Consumer In Perspective, Retail Distribution Primary" - Pink Sheet, 26 Oct, 2016.)

C&D: 'Digital Works'

Church & Dwight President and CEO Matthew Farrell on Sept. 7 said the firm's e-commerce sales, for consumer health lines including Arm & Hammer oral care and Nair depilatory, currently make up 3% of its $3.5bn in sales, compared to 1% in 2015.

"We're getting a lot better at" e-commerce, Farrell said, adding, "We've concluded digital works."

"Lots of CPG companies try to figure that out. It's not that easy to do, as easy as it is around television commercials, and see people run to the stores and buy products, so things have changed. But we've concluded, it does work."

Farrell said sales of C&D's gummy vitamin brands Vitafusion and L’il Critters, Trojan condoms and Rephresh and Replens feminine hygiene brands are strong on major online retail sites. While personal care appears to be a top category for online sales, "any category you looked at online is just growing as more and more people who are moving online," he said.

From the editors of The Tan Sheet. Our dietary supplement industry coverage now is published in The Rose Sheet, with articles emailed to readers daily and available on this page of The Rose Sheet website.