Red Alert

Retailers scramble to keep pace with an unexpectedly difficult flu season, brand shortages and an elevated demand for cough-cold products.

It came earlier than expected and was going gangbusters in early January, with widespread momentum across 47 states. Some health experts were calling it the worst cough, cold and flu season in a decade.

As the severity of the flu season goes, retailers, not surprisingly, can expect increased demand for cough and cold products, according to a Mintel report on cough and throat remedies.

"The incidence for suffering from a cough or sore throat becomes elevated during more severe cold and flu seasons. As a result, fluctuations in market sales correspond to the severity of flu seasons," says Molly Maier, category manager for health, household, beauty and personal care for Chicago-based Mintel.

Despite public flu health-surveillance forecasts, the cough-cold season is often a crapshoot for retailers. "It's a huge challenge," remarks an HBC buyer for a chain in the Pacific Northwest, who declined to be identified.

Adds David Gerhardt, VP sales for Asheville, N.C.-based King Bio, "If I were a buyer, I'd be scared to death right now."

On the cusp of fiscal years, retailers are concerned about being stuck with excess product or not having enough to fill demand as they struggle with just-in-time inventory mandates.

"You really need to order in June or July for a season that may or may not happen in a big way," says the unidentified buyer, adding that cough-cold sales for the month ending early January were up 40 percent at his chain.

Going into the season, Gerhardt says retailers were wary of buying quantities and having excess product in their warehouses to back up their needs, because the past few cough-cold seasons have proved disappointing.

"It is difficult for retailers to plan for upcoming cold-flu seasons, because the severity from one season to the next is difficult to predict. For example, 2012 was one of the warmest years on record, and along with it was a mild flu season. However, the 2012-13 winter has also been relatively mild, and yet the current flu outbreak is a pandemic in some areas. Therefore, it is difficult for retailers to know how much product to stock," notes Emily Kroll, health and wellness analyst for Mintel.

Pipeline Breaks

In addition to to the unpredictability of the season, some retailers are still facing shortages of brand-name medications on the shelf due to recalls and plant closures by Johnson & Johnson's McNeil Consumer Healthcare, a division of Fort Washington, Pa.-based McNeil-PPC Inc., and by Swiss company Novartis.

Among various brands affected by the supply disruptions were McNeil's children's and adult Tylenol, Motrin, Benadryl, Sudafed and Zyrtec. For Novartis, supplies of Theraflu and Triaminic were among the medications disrupted when Novartis shut down of its Lincoln, Neb., plant in late December 2011 because of manufacturing problems.

McNeil's problems have been ongoing since 2009, when quality issues caused the company to voluntarily recall certain lots of children's and infants' Tylenol. Four years and dozens of recalls later, McNeil is still struggling to fill its pipeline.

The company's Fort Washington, Pa., manufacturing facility, shut down in April 2010, is undergoing a lengthy upgrade, and other plants in Lancaster, Pa., and Puerto Rico have been operating at reduced levels under a court-ordered consent decree, in effect since March 2011, to resolve a complaint that McNeil allegedly violated U.S. Food and Drug Administration regulations regarding the manufacture of drugs at the facilities. Media reports say the Fort Washington facility may not be operational until this year or next. McNeil could not be reached for comment on its current supply situation.

The anonymous HBC buyer says "things are not back to normal. We are selling a lot more private label and other brands. Other retailers are doing the same, so demand for the other brands is also off the charts."

King Bio, which sells a homeopathic line, including Multi-Strain Flu Relief, priced at $14.99, is benefiting. Sales are up; late orders were placed. The company extended its temporary price reductions on the shelf through February, "just to get more product out there and stay on the front lines," Gerhardt notes.

For supermarkets, a cough-cold season like the present one puts extra strain on the pharmacy department, where labor costs are among the most expensive in the store, notes Jim Hertel, managing partner at Barrington, Ill.-based Willard Bishop.

During the high flu season, multiple recalls and product safety concerns are driving confused consumers to the pharmacy counter, where some cough-cold medications are sold behind the counter.

"This places a premium on the pharmacy staff to be available, knowledgeable and engaged with shoppers to maintain sales," Hertel says. "It is hitting [the supermarket pharmacy department] at exactly the wrong spot, at exactly the wrong time. It raises the cost of doing business."

"If I were a buyer, I'd be scared to death right now."

—David Gerhardt, King Bio