Alternate Distribution Channels Claim OTC Growth

C-stores, dollar stores, web, warehouse clubs grabbing 15% of retail sales

Published in CSP Daily News

PARSIPPANY, N.J. -- Manufacturers' sales of over-the-counter (OTC) medicine through alternate retail channels--including convenience stores--have grown by a compound annual growth rate (CAGR) of 9.4% from 2006 through 2011, far exceeding the 2.4% overall growth rate through all retail outlets. Retail sales online saw the highest increase with a CAGR of 16.1%, according to the recently published OTC Retailing: U.S. Alternate Channel Analyses & Opportunities report by global consulting and research firm Kline & Co.

Expanding sales through alternate retail channels is viewed as an opportunity for OTC drug manufacturers to increase their revenues.

Although among the eight alternate retail channels profiled in this study, sales of OTC drugs--estimated at just 2.2% of total corporate sales in 2011--are relatively small, total corporate sales in these alternate channels have experienced strong growth of 13.3% in 2011.

The U.S. retail industry remains highly consolidated with a fairly small number of large retail chains that continue to dominate OTC distribution. The three main retail outlets consisting of drug stores, mass merchandisers, and food stores combined account for about 84% of OTC sales; however, other outlets such as the Internet, convenience stores, dollar stores, and warehouse clubs are offering noteworthy competition across several categories and account for nearly 15% of the OTC retail market.

The Internet is increasingly becoming a popular distribution outlet driven by convenience, as online shopping through websites allows consumers to quickly compare prices of products and offers direct and discreet shipping to the consumer's home. As a reflection of the Internet's ever growing importance and to expand its online reach, Walgreens acquired Drugstore.com in 2011.

Online sales of OTC drugs are growing at a rapid pace, but not equally for all OTC categories. For example, vitamins, minerals, herbal products, and OTCs such as pain relievers--products that consumers like to stock in their medicine cabinets--have a high rate of online purchase; however, OTC products for an immediate need, such as allergy relief, cough and cold preparations and digestive products tend to be purchased more often at brick-and-mortar stores.

Kline's healthcare practice industry manager Laura Mahecha cautions that "growth opportunities within the retail environment should be explored on individual channel and category bases. While some of the alternate channels, such as warehouse clubs, dollar stores, convenience stores and online can offer opportunity for growth in select categories and for certain brands, several other alternate retail channels ostensibly aren't prime candidates for an increase of branded OTC sales."

She did not elaborate on those channels.

Kline is offering a free webinar on OTC retailing on Sept. 12, 2012. Click here for details.

Parsippany, N.J.-based Kline is a worldwide consulting and research firm for the chemicals, materials, energy, life sciences and consumer products industries.