Mapping the Effects of Coronavirus on Consumer Health · allergy remedies, especially in the...

MAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

March 2020

INTRODUCTION

Key findings

Coronavirus is likely to cause a surge in sales of OTC cough, cold and flu products, and immunity supplements

Though it is quite early in the spread of Coronavirus (COVID-19), it is already clear that the outbreak is causing a spike in growth in relevant consumer health categories, like cough, cold and flu remedies, and immunity dietary supplements. In some countries, there has already been a run on these products, which is likely to mean that there will be a cap on near-term growth, as supply is disrupted and shortages occur.

Sales growth is tied to the public health response and quality of health systems

The quality and shape of the public health response to COVID-19 and the underlying structure of countries’ health systems will influence sales of consumer health products. Countries with broad healthcare coverage, like Taiwan, will promote doctors visits and prescriptions, while countries without broad coverage, like the US, will rely more upon OTC remedies.

Consumers will gravitate to the products they know and trust

Consumers report high satisfaction with their current cold and flu treatments, which suggests that COVID-19 will push consumers towards the products they use and trust, rather that experimenting with unfamiliar alternatives.

Industry consolidation can help predict which brands will benefit

OTC cough, cold and flu products have a high amount of industry consolidation in most markets, reinforcing the likelihood that positive sales effects will benefit the leading brands most. This is not the case everywhere, however, with leading Asian markets like China and Japan seeing considerably more fragmentation on OTC shelves.

E-commerce sales are expected to benefit

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 OTC drugs, which are usually purchased in-store, but could signal a broader movement to e-commerce in 2020.

▪ If the incidence of COVID-19 continues to increase in the coming months, OTC drugs like analgesics and cough, cold and flu medicine are likely to see a strong surge in sales. Benchmarking growth is tricky, as interest in COVID-19 has significantly outpaced that in flu at any period over the last 15+ years and has far exceeded searches for terms tied to previous outbreaks (H1N1, swine flu, bird flu), according to Google Trends.

▪ This can already be seen in many countries in the form of panic-induced sales increases for a variety of products intended to limit the spread of COVID-19, such as face masks, gloves and hand sanitisers. In some markets, such as in Western Europe, preparation purchases have extended to bottled water, non-perishable packaged foods, tissue and hygiene products, and OTC drugs.

▪ OTC drugs are especially at risk to sustained shortages as over-purchasing comes at the same time as disruptions to supply chains highly reliant on China. (China was responsible for 32% of all pharmaceuticals produced globally in 2018, up from 27% in 2013). This suggests that the empty shelves occurring at this moment in early March are a sign of more significant difficulties in maintaining supply over the coming weeks and months. If this comes to pass, sustained shortages will act as a cap on growth of OTCs during this period.

Expect surge in OTC sales but shortages will cap growthMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

Source: Google Trends, accessed 9 March 2020

▪ Examining the last significant global pandemic provides a benchmark on how COVID-19 might affect consumer health sales in 2020. The H1N1 influenza pandemic (also known as the “swine flu” or “pig flu”) swept the globe late in the 2009 flu season (with the initial outbreak in April 2009 followed by a rapid global spread through to the end of the year and then a tapering in 2010 after a vaccine was introduced in November 2009).

▪ The H1N1 outbreak raised global sales of cough, cold and allergy remedies, especially in the hard-hit markets in Asia Pacific, with 2009 seeing the region’s fastest annual growth during the period 2005-2019. Western Europe and Latin America also saw sales gains in cough, cold and allergy remedies over this period, albeit at much less dramatic rates than Asia Pacific. Gains in the US, meanwhile, were consistent with a moderate-to-strong flu season, with growth of the category actually falling to 3% from 9% in 2008, when the country saw a particularly severe flu outbreak. On the whole, though, it looks clear than the H1N1 outbreak stimulated growth in OTC purchases at a global level, despite the relative speed with which a vaccine was formulated, raising the likelihood of a similar effect for COVID-19 in 2020.

Year-on-Year growth in Cough, Cold and Allergy Remedies by Selected Regions

2005-2012

World Western Europe

Latin America Asia Pacific

Australasia

The H1N1 influenza outbreak produced a jump in OTC salesMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

Duration of H1N1

pandemic

▪ Government public health initiatives and the quality and cost of health systems will have an effect on the spread of COVID-19, as well as a residual effect on sales of OTCs. China’s experience so far illustrates this effect. China’s central government was able to enforce strict travel and quarantine policies to stem the outbreak in its initial stages, and was able to build medical facilities quickly to address the surge in patients. Additionally, it was able temporarily to stop the retail sale of OTC drugs during the initial stages to encourage consumers to go to hospitals for treatment instead, thereby softening sales of OTCs at the height of the outbreak in early February.

▪ Most countries are not able (or willing) to enforce such strict measures to combat COVID-19, but existing systems will, nonetheless, still act as an influencing variable on resulting OTC sales. Health systems with broader coverage (like Taiwan) will meet a rise in cases with more patient visits and prescription treatments. Health systems without such protections (the US is the most notable example) are more likely to see a rise in OTC sales, as high medical costs, low insurance coverage, lack of sick leave, and a deficit of testing kits suggest that more people will opt for self-care rather than visit a doctor.

Health systems have a role to play in virus spread and OTC growth MAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

▪ The institutional role in consumer behaviour is likely to be amplified by cultural preferences for or against self-care in these markets. Euromonitor International’s 2019 Health and Nutrition Survey asked respondents in 20 markets about their typical approach to treating a cold. The responses differed significantly across countries.

▪ Respondents in Asian countries in general showed a greater preference for visiting a doctor as a treatment option for a cold, with respondents in South Korea and India opting for visits over self-care options like OTC treatments. Consumers in other Asian markets, like Indonesia, Thailand, China and Japan, were equally likely to consider OTC treatment and doctors visits when responding to colds.

▪ Consumers in most countries outside Asia are not nearly as keen on visiting a doctor for a cold and instead opt much more consistently for an OTC solution. This is the case even in countries with established and well-trusted healthcare systems, such as Germany, France and the UK. In the US, the healthcare system is widely regarded as costly and inefficient, thus US respondents were among the least likely to visit a doctor when suffering from a cold.

Asian respondents show higher preference towards visiting a doctorMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

0 200 400 600 800 1,000

Turkey

South Korea

Mexico

Indonesia

Thailand

Middle East

Germany

Colombia

Poland

Brazil

France

South Africa

Australia

Russia

Number of respondents responding affirmatively, 2019

“When I get a cold, I treat it with…”

Taking over-the-counter medicines Going to the doctor

Source: Euromonitor International Health & Nutrition Survey 2019 n:20,163

▪ As COVID-19 spreads globally and more consumers seek out OTC remedies to limit the severity of their symptoms, it is still unclear which specific products they will choose and why. However, recent Euromonitor International surveys can help us build theories on future purchasing behaviour in response to COVID-19. The 2019 Health and Nutrition Survey asked respondents across 20 markets how satisfied they were with their current approach to treating various ailments. Cold/flu received by far the strongest levels of satisfaction among respondents globally, with those “extremely” or “very” satisfied representing 72% of all respondents, compared to 45% for headaches and just 31% for sleeping problems. As a result, we can theorise that increasing sales of cough, cold and flu products brought on by COVID-19 transmission would cause an increase in sales of products that consumers are already comfortable using, rather than of unfamiliar products. There is likely to be a rush towards trust. This linkage is less likely if consumers are attempting to treat other symptoms of COVID-19, like headaches or sleeping difficulties.

0% 20% 40% 60% 80%

Sleeping problems

Obesity/weight management

Memory issues

Men’s health

Stress and anxiety

Incontinence

Depression and mental health

Mobility problems

Joint and muscle pain

Skin health

Women’s health

Lower digestive issues

Headaches

Eye/vision issues

Upper digestive issues

Seasonal allergies

Diabetes

Heart issues and heart disease

Stomachache or digestive issue

Cold/flu

% of respondents

“I am satisfied with my current approach to treating…”

Consumers will treat symptoms with products they are used to MAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

▪ As of early March 2020, the overwhelming percentage of COVID-19 virus cases have come from a handful of countries: China, South Korea, Italy and Iran, with France, Germany, Japan and the US also likely to see strong jumps in caseload over the near term. How do these countries compare with global responses on satisfaction with approaches to treating a cold/flu?

▪ On the whole, these markets tend to cluster below the global average rates of satisfaction, with respondents from Japan, South Korea, Italy, France and China all less likely to be satisfied with their current approach to treating cold/flu. That said, over 70% of respondents in each of these markets aside from Japan and South Korea still professed satisfaction with their current approach to treatment. Taken together, it is less clear whether an outbreak of COVID-19 would necessarily result in the rush towards familiar products as posited in the previous slide for these markets. It is likelier in China, France, and Italy, but in all cases it is possible that increasing rates of COVID-19 transmission might result in category growth that is slightly more fragmented than the average, producing a small group of winners rather than concentrating on a few selected products.

0% 20% 40% 60% 80% 100%

South Korea

Thailand

Middle East

France

Turkey

Germany

Poland

Indonesia

Australia

Colombia

Russia

Brazil

Mexico

South Africa

“I am satisfied with my current approach to treating a cold/flu”

Most-affected COVID-19 countries have lower satisfaction than averageMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

Industry consolidation is important in gauging who will benefitMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

% Share of Top Five Cough, Cold and Flu Brands in Leading Countries* 2019

Note: * Share of Cough Cold and Allergy (Hay Fever) Remedies minus Antihistamines/Allergy Remedies and Paediatric Allergy Remedies

▪ If consumers are largely content with their current approach to treating a cold or flu, they will return to these same products if they show symptoms of COVID-19. So, how many brands stand to benefit in each market? Studying the top 32 countries in cough, cold and flu sales can pinpoint how broadly distributed potential industry gains will be over the coming months. On average, the industry is quite concentrated, with the top five brands in cough, cold and flu in these markets representing 41% of total category sales, though variance within regions is considerable. Many of the leading Asian markets suffering from COVID-19 spread at the moment (including South Korea and Singapore) have particularly concentrated cough, cold and flu marketplaces, but Japan, Taiwan and, especially, China are considerably more fragmented. Since we expect purchasing behaviour to be consistent with consumer preferences before COVID-19, a market like South Korea will see benefits accrue exclusively to its top performers while China’s gains will be more widespread.

▪ Among the top 32 countries, 20 brands had more than USD100 million in sales in 2019, with an additional 21 exceeding USD50 million. Given the high concentration of the cough, cold and flu marketplace in these countries and the high level of reported consumer satisfaction in treatment approaches, these core brands stand to benefit greatly from increased incidence of COVID-19.

▪ These powerbrands are led by combination cough, cold and allergy products – brands that by their nature are used to treat the multiple symptoms that may arise from COVID-19. These brands include Vicks, Mucinex, Pabron, 999 and Tylenol.

▪ How these brands achieve their strong sales in these leading markets varies considerably, with 12 of the top 20 selling brands only having top five sales in one or two of the markets (including major powerbrands like Mucinex, Pabron, Flonase and Tylenol). Meanwhile, seven of the top 20 selling brands are top five in five or more of the leading 32 countries (including Vicks, Halls, Strepsils and Otrivin). Given the spread of the virus, it is likely to be better to be top-of-mind in more markets than fewer, but we will not know the full effects on brand growth for some months.

Leading Brands in the Top 32 Cough, Cold and Flu Countries

Brand name GBO

2019 sales(USD mn)

Top 5 in how

many markets

Vicks Procter & Gamble 1,329 12

Halls Mondelez 1,129 12

Mucinex Reckitt Benckiser 789 1

Pabron Taisho 427 1

Flonase GlaxoSmithKline 377 1

999 China Resources 361 1

TylenolJohnson & Johnson

Strepsils Reckitt Benckiser 335 16

Nin Jiom Nin Jiom 319 5

Ricola Ricola 272 7

Fisherman’s Friend

Lofthouse of Fleetwood

Powerbrands are likely to benefit from spread of COVID-19MAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

▪ Global consumers do not take just OTC cough, cold and flu remedies when they have a respiratory illness like COVID-19; instead, in many markets, consumers are used to taking dietary supplements positioned around immune system support. This is especially the case in Asia, where herbal/traditional dietary supplements that have proliferated over generations have been used to combat the effects of colds and flu. In these cases, where these products are easily recognisable and trusted, increased incidence will cause a rush towards supplements rather than OTCs.

▪ The countries with a high ratio of sales of dietary supplements positioned around immunity support to sales of OTC cough, cold and flu are predominantly in Asia. Immunity supplements actually outsell OTC cough, cold and flu in South Korea, while the Asian average of 29% of immune support sales to cough, cold and flu is significantly higher than the global average of 17%. The proliferation of culturally-important ingredients in these markets that are used for immunity like cordyceps (a common Traditional Chinese Medicine ingredient in China) and ginseng (an ingredient with long-standing popularity in South Korea) is only expected to deepen in response to rising rates of COVID-19 infection.

Immunity Dietary Supplement Sales as a % of Cough, Cold and Flu Sales 2019

Immunity supplements to gain in AsiaMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

▪ As with OTC cough, cold and flu remedies, increased interest in immunity-positioned supplements is likely particularly to benefit a handful of leading Asian companies.

▪ Firstly, ginseng producers are already seeing a significant rise in sales in affected Asian markets, especially South Korea and China. Packaged ginseng, usually in the form of dried red ginseng, saw jumps in online ordering in both markets during the first weeks of the virus’s spread. This sales growth is overwhelmingly going to benefit the region’s sales leader, Cheong-Kwan-Jang from the Korean holding company KT&G Corp, which alone represented 50% of Asia Pacific’s ginseng marketplace in 2019.

▪ Interest in TCM remedies has also ballooned since the beginning of the outbreak in China, with interest extending to other affected markets in the region, like Singapore. As with ginseng, immunity-positioned TCM products are highly concentrated, with Infinitus (China) Co Ltd’s flagship brand Infinitus dominating the Asia Pacific tonics market, with over 20% of regional sales.

▪ Asia Pacific has also witnessed a jump in sales of vitamin C, both in single vitamin tablets (boosting sales of global brands like Redoxon and Blackmores) and as an immune-system booster in combination dietary supplements.

Leading Asian companies in immune support are already boomingMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

KT&G Corp’s Cheong-Kwan Jang red ginseng extract, source: www.kgc.co.kr

Infinitus (China) Co Ltd’s Infinitus tonic brand, source: eproduct.infinitus.com.cn/

▪ E-commerce penetration in consumer health tend to be very lopsided, with consumers in most markets gravitating towards online purchases of vitamins and dietary supplements but more reluctant to buy OTCs online. This is chiefly due to the nature of OTCs, as they are typically used for immediate treatment of health conditions, thus consumers tend to opt to go to a store-based retailer rather than wait for delivery.

▪ COVID-19 could, however, help sustain the movement towards e-commerce across the industry, especially in countries that have recommended or enforced quarantines and work-from-home policies. In China, this seems to have already occurred, as consumers forced to stay in their homes during the initial wave of infections responded by purchasing consumer health products overwhelmingly via China’s dominant e-commerce vendors, like Tmall and JD.com. Additionally, many of the markets most affected by COVID-19, from China and Singapore to Western Europe and the US, now have under two hour shipping as the norm 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.

OTCs Cough, Cold andAllergy Remedies

Vitamins andDietary

Supplements

% of Sales Through E-commerce by Selected Consumer Health Categories

and Regions 2019

North America Asia Pacific Western Europe

E-commerce to benefit across affected marketsMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

▪ 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 shortages and supply chain interruptions as store-based retailers. Though such shortages for consumer health have not yet occurred in most markets, other essential goods have seen shortages online, with smaller markets more tied to imports being more at risk to sudden interruptions in supply. Euromonitor International’s global e-commerce products and price monitoring platform, Via, demonstrates how this effect has worked in recent weeks. The large, diversified e-commerce market of China saw a jump in the share of products that were out of stock during the weeks of peak COVID-19 spread, but shortages paled in comparison to those in Hong Kong, which saw dramatic shortages in staple goods after just a few weeks of spread.

E-commerce at risk to shortages as wellMAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

Screenshots from Via, Euromonitor International’s e-commerce product and price monitoring platform, for selected categories in China and Hong Kong, date range, 1 January 2020 – 10 February 2020

▪ Obviously, the biggest variable in predicting COVID-19’s effects on consumer health sales is the virus itself, in the form of the ultimate spread and length of the outbreak. As we seem to be in the early stages, it would be irresponsible and unrealistic to predict how long this will last into 2020, and whether infections will continue at the same pace once the weather begins to warm in the Northern Hemisphere. We do know that a potential vaccine will not be ready until next year’s flu season at the earliest.

▪ As a result, the effects of COVID-19 on sales of consumer health for the duration of 2020 can take a number of forms. It can either be a short-term spike that will be stronger than but reminiscent of a typical flu season (and this is on the back of what was already a severe 2019-2020 cold and flu season); or it will be much more than that, especially if the virus is sustained past spring in the Northern Hemisphere. The longer the spread of COVID-19, the longer the season for cough, cold and flu remedies, which typically see sales shrink starting in April. Extending the selling period for these products could result in unprecedented category growth in 2020.

Final question: how long will the pandemic last?MAPPING THE EFFECTS OF CORONAVIRUS ON CONSUMER HEALTH

FOR FURTHER INSIGHT PLEASE CONTACTMatthew Oster

Head of Consumer Healthmatthew.oster@euromonitor.com

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