Janaki Padmanabhan

Consumer health witnessed its slowest growth over the last five years, at 1.5% in 2019, according to Euromonitor International. The growth of both O-T-C and vitamins and dietary supplements (VDS), which account for more than 85% value sales of consumer health, was slow, leaving the industry with weak growth.

A large part of the slowdown in VDS came from China. At the start of 2019, the Chinese government cracked down on direct sellers in China, leading to contracted supply of VDS. While this is not expected to have a long-term effect on category sales, the imposition of U.S. tariffs on China could lead to a global slowdown, impacting future growth from key markets such as the U.S., the U.K., China and Germany.

However, global consumers continue to look to VDS for prevention. Euromonitor International’s “Health and Nutrition Survey 2020” (fielded before the onset of COVID-19) supports the fact that consumers globally are looking for immune support from a basket of products rather than one dominant super-ingredient. The survey found that 33% of all vitamins and dietary supplement users reported taking at least one VDS product to boost their immune system (these users are called “immunity seekers”). Usage was spread across several ingredients, led by vitamin C (38% of immunity seekers) and multivitamins (29% of immunity seekers).

Additionally, the COVID-19 outbreak has seen consumers in many countries prioritize the purchase of pain relievers, cough/cold, immunity and general health medication. Some of these products are O-T-C treatments to manage reported COVID-19 symptoms like fever, dry coughs and sore throats. Others are vitamins and dietary supplements positioned as helping with broader immunity (e.g., vitamin C, ginseng, zinc) or are positioned around general health and nutrition (like ­multivitamins).

Store-based retailing still accounts for three-quarters of global consumer health sales

Health and beauty specialist retailers (which includes chemists and drug stores) account for 67% of all store-based sales of consumer health products, according to Euromonitor International. Retail sales reached $137 billion out of $205 billion of consumer health store-based sales in 2019.

Drug stores/parapharmacies accounts for 37% sales within health and beauty specialist retailers. It includes brands such as Walgreens, CVS, Boots and dm. Drug stores/parapharmacies as a channel for consumer health products benefits in countries where there is a higher evolution of self-care and fewer regulations restricting development of the channel. For example, liberal regulations in the U.S. have enabled drugstores to benefit from selling a much broader range of prescription, O-T-C, beauty and food products.

Like any other store-based channel, drug stores face increasingly tough competition from online retailers. Since prescription drugs are at the core of this channel’s products and services, these retailers are focusing their efforts on offering faster and more seamless experiences to customers from product selection and ordering to delivery. Before the 2020 COVID-19 outbreak, these companies were focusing on creating in-store touchpoints to engage with customers, and these retailers were turning to value-added services to differentiate themselves from online ­retailers.

However, as countries experiment with suggested or enforced quarantines, restrictions on travel and work-from-home policies, consumers will opt for purchases through e-commerce rather than store-based retailers. This is atypical for O-T-C drugs, which are usually purchased in-store, but could signal a broader movement to e-commerce in 2020. As consumers are looking to get in and out of shops as quickly as possible, many in-person shopping experiences have suddenly lost their impact. Companies must find new ways to engage and educate consumers via virtual touchpoints and experiences.

For example, second-ranked U.S. drug store/parapharmacy CVS Health continues to aggressively expand health, wellness and beauty services through Beauty in Real Life experience areas, SmileDirectClub partnership and HealthHUB concept stores. In April 2020, CVS announced an expansion of its Calm & Comfort store sections. Originally launched in 2019, Calm & Comfort is a curated assortment that panders to consumers’ comfort-seeking impulses.

Growing e-commerce sales support development of preventative categories

In 2014, the prominent nonstore channel was direct selling. However, e-commerce has gained strongly in the last five years. Over 2014-2019, e-commerce added $16 billion to consumer health sales, while direct selling added only $4 billion. As consumers lead busier lifestyles, they move away from direct selling as they prefer the convenience and flexibility offered by e-commerce.

Given the preventative nature of VDS, it is no surprise that most e-commerce sales come from this product category, reaching a value of $18.9 billion in 2019. Globally, Asia Pacific is the largest market for VDS and benefits from the sheer size of the population base in the region. Specifically, in China, the government launched the Healthy China 2030 strategy in 2017, with a focus on prevention rather than cure and looking at the health of individuals in a holistic sense to include diet, exercise and habits. As the government continues to promote this strategy, there has been a direct positive impact on sales of dietary supplements in the country.

Additionally, China’s strong growth in e-commerce is due to strong consumer engagement online. Several self-medication apps have emerged in allowing Chinese consumers to self-diagnose and track health conditions online. As a result, many consumers are increasingly becoming more comfortable using the e-commerce as a channel to purchase VDS, O-T-Cs and other consumer health products from online players to match their busy lifestyles.

COVID-19 could help sustain the movement towards e-commerce across the industry, especially in countries that have recommended or enforced quarantines and work-from-home policies. Many of the markets most affected by COVID-19, from China and Singapore to Western Europe and the U.S., now offer two-hour shipping for household staples like cough medicines and analgesics. If consumers are unable or unwilling to shop in person, there are increasingly quick and easy online options for them that will drive category growth.

Alibaba and Amazon dominate the e-commerce ­landscape

Amazon has expanded its private label offering since 2017. After its acquisition of Whole Foods Market, the company introduced the 365 Everyday Value line. Through this and its Elements line and its Basic Care O-T-C products, the company is testing several approaches to see which resonates the most with its customers. Additionally, through the acquisition of PillPack in June 2018, Amazon entered the prescription drug delivery market. As PillPack’s business grows under Amazon’s leadership, it will likely create a shift in O-T-C purchases like that of Germany, where ordering O-T-C products along with prescription products is a norm. As the population in the U.S. gets older and it brings on the growth of chronic illness in the country, such services are expected to bring a long-term change in consumer buying ­behavior.

Alibaba is using its focus on health to change the health care system in China at the grassroots level. The country is challenged by high demands on its health care system, which is further exacerbated by the COVID-19 pandemic. In September 2018, Alibaba launched online medical consultations and 24-hour medicine delivery through its TaoBao Marketplace platform. The website allows customers to access medical advice as well as providing suggestions on O-T-C products, offering a delivery window of as little as 30 minutes if the customers are based in Hangzhou. The company aims to use brick-and-mortar pharmacy networks for expedited delivery; to this end, the company acquired a 25% stake in the Guizhou Ensure Chain in August 2018 that owns over 1,000 pharmacies in the country.

Opportunities in e-commerce have not been explored in consumer health as much as other consumer products industries. Regulatory restrictions and long delivery windows continue to be challenges on this front. Online players are trying to create a universe of seamless experiences, where a customer can consult a doctor, search for medication, buy the medication and get it delivered efficiently. To create such seamless experiences, partnerships among retailers, consumer health companies and technology providers will be critical.

The aftermath of COVID-19 will lead to changes in where and how consumers shop

COVID-19 has brought health awareness to a new level. Fear of infection and virus spread make consumers focus on hygiene, safety and immunity, and health risks that can lead to complications in the case of infection.

Once the threat of pandemic has fully passed, consumer-facing companies across the board are likely to find that certain components of these consumer behavior shifts become permanent. While acute concerns about the safety of shopping in stores are likely to ease, consumers who have tried services such as click-and-collect and e-commerce delivery services are likely to continue to use them based on convenience. Digitalization of health distribution is set to accelerate due to social distancing.

E-commerce is set to see significant sales gains in consumer health in COVID-19-affected countries, although the channel is also at risk from shortage of supply. E-commerce vendors are just as vulnerable to panic-induced purchases and supply chain interruptions as store-based retailers. Though such shortages for consumer health have not yet occurred in most markets, smaller markets tied to imports are more at risk to sudden interruptions in supply.

Janaki Padmanabhan is senior research manager at Euromonitor International.