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With overall sales on the rise and an increasing number of mass merchandisers and club stores selling national brand over-the-counter medications at lower prices, grocers are finding that boosting private label OTC products is the best way to compete in the category.
"If you are a supermarket and are going to have an OTC program using national brands, and you cannot be cost-competitive with the mass merchandisers, then what in the world are you doing it for?" asks Brian Sharoff, president of the Private Label Manufacturers Association in New York City.
It wasn't always this way. Supermarkets initially went with national brand OTC products to create the one-stop-shopping concept. "This was very important in the 1970s and 1980s," says Sharoff. "Supermarkets were using OTC as a convenience to customers, but they were not the reason people went to the supermarket. It was food, and food got primary attention in advertisements and circulars."
In the late Eighties and early Nineties, grocers began realizing that OTC could be an important profit generator if private label was used as a merchandising tool. During that time, some grocers began creating solid private label alternatives in the major OTC categories.
The growth of mass merchandisers and supercenters stepped up the private label offerings at many grocery chains that could not compete with the lower prices of the discounters. Indeed, any grocers that do not have a private label program running today have consciously decided against one, says Sharoff. "If there is a supermarket chain that does not have a private label OTC program, it is because they do not want it; it is a corporate decision."
Running such a program is one thing. Getting the most out of it in terms of profitability is a completely different story. To optimize a private label OTC program, promotion is the most crucial element, says Sharoff. "You can make it a crucial part of your store brand message, which starts at the center store and works its way through peripheral food departments and then housewares, household goods, and OTC. And that message would be similarity of graphics, shelf presentation, and it would include promotion in various advertising vehicles."
The other way is to categorize and departmentalize the OTC message so that the name in the OTC department is different from the name in the food department. "What is important is that whichever way the grocer decides, they promote the private label extensively, so that the consumer has an opportunity to make the purchase, see that the ingredients are the same, like the product, and buy it again," says Sharoff.
Ukrop's Super Markets, Inc., based in Richmond, Va., implemented its Brand Bonanza program to support its own brand products and reward customers for purchasing them. During the six-week program, which ran from April 1 through May 11, whenever a customer purchased a Ukrop's brand item (Ukrop's, Pet Club, Top Care, Top Crest, and Full Circle) and used her loyalty card, she was automatically entered into the Brand Bonanza.
The weekly qualifying household received $200 for each Ukrop's brand item found within the home, up to a $5,000 maximum. Odds of winning depended on the number of times each card was scanned. Customers buying the grocer's Top Care brands—the banner for all of Ukrop's private label health and beauty care products, including OTC—received double points toward the sweepstakes.
"The Brand Bonanza builds excitement around Ukrop's brands and creates awareness of all the savings opportunities available through those brands," says president and c.e.o. Bobby Ukrop. "By sending out the Brand Gang each week for five weeks, we can have some fun while personally thanking our customers for shopping Ukrop's brands."
In addition to promotions around the store brands, packaging is an important aspect of a successful private label OTC program, says Sharoff. "When you get to the nonfoods side, and OTC in particular, there are a lot of visual cues which accompany the product, and when the consumer doesn't see these cues, they think the product is different from its brand equivalent."
One example of this is Pepto-Bismol. The upset-stomach reliever manufactured by Procter & Gamble is known for its pink color, which is easily identifiable through a clear plastic bottle. All private label versions of the product that contain the active ingredient, bismuth subsalicylate, are pink. Private label versions of this product are always pink, usually going by the brand name and the active ingredient, such as Giant Eagle Pink Bismuth. If it were to be sold in another color, say blue or yellow, consumers would think that it serves a different purpose than intended and might pass it up.
For tablets and other non-liquid OTC products, the colors on the boxes or jars, as well as the text printed on them usually resemble their branded equivalents. "It is this type of packaging that helps grab the customer, because if you go to the ingredient statement, it may not necessarily be clear," says Sharoff. "The private label product may use a generic form of the active ingredient used in the national brand, and though they will have the same effect, the customer may not be aware of it. But the visual cues like color and packaging are very identifiable."
Packaging cannot be too similar, however, he warns. "While copycats of a brand may be annoying to the brand manager of the product, in most cases it is within the law. You cannot take a color out of the spectrum and forbid everybody else to use it in their packaging, because there are a finite number of colors in the spectrum," he says. "The crucial test in law is whether or not there is confusion on the part of the customer between the brand and the private label equivalent. If the customer cannot distinguish one from the other, there will be a problem."
That is why store brands and national brands are usually positioned side by side on the shelves, with the store brand to the right. "Ukrop's positions their Top Care OTC products to the immediate right of the brands—since we read from left to right—at a price point usually 20 percent to 25 percent less," says a spokesman for the grocer. "We want them to compare the two and see for themselves how Top Care brand is a better value."
The conversion of prescription brands to OTC has created new opportunities for grocers in the private label arena. "This makes more products available to the consumer—not necessarily in the same dosage—and therefore adds to the health solutions they can provide to the consumer. These change the nature of what were the traditional brands leading the category," says Sharoff.
The Claritin case
Claritin is a case in point. Leiner Health Products, a manufacturer of private label vitamins and OTC products based in Carson, Calif., secured the marketing rights to the antihistamine Loratadine Immediate Release 10 mg tablets (Claritin 10 mg tablets). Through an exclusive licensing agreement with Genpharm, Inc., an affiliate of Merck KgaA, and Pharmaceutical Resources, Leiner expects to be shipping product to retailers after July 21, when the "first-to-file" company's exclusivity period is exhausted.
The Claritin switch to over the counter was the largest in history, converting more than $2 billion in prescription sales to OTC. The 10 mg tablets, which represent more than 65 percent of Claritin OTC brand sales, are expected to generate a combined $500 million in branded and private label retail sales. Anticipating the large demand for private label programs, Leiner has begun coordinating retailer store brand artwork, inventory and promotional programs.
"When this happens, the brand that was dominating up until that point is suddenly facing competition, as newer products make their way down the pipeline," says Sharoff. "This can strengthen private label offerings, but it also puts more pressure on the shelf space. These are decisions the retailer has to deal with: Which products are going to be dropped as a result of other products coming off prescription and going onto the shelf, particularly as private label?"