‘Downturn Generation’ adopts frugal OTC shopping habits

Over-the-counter medicines may be somewhat recession proof—especially as more consumers continue to take a detour from their doctors’ offices to the self care aisles in an effort to save—but the economy is still negatively impacting the category.

With the recession has come a greater emphasis on the need for sharper promotional pricing in light of marketshare erosion to store brands, and higher performance hurdles at a time when retailers are optimizing their planograms. OTC manufacturers need to drive more sales across fewer consumers—a challenge especially among branded OTC suppliers.

“The overall domestic OTC consumer market was down 3.1% in the quarter [ended March 28] versus last year,” noted Perrigo chairman and CEO Joe Papa in a conference call last month. “National brands fell 7.3%, while store brands gained 11.7%. The data is showing that consumers are making the value judgment as store-brand share continues to grow,” he added, to the benefit of such private-label manufacturers as Perrigo.

The recessionary economy is placing greater pressure on performance across branded products, consumer shopping behaviors are changing, and many say those changes may be permanent—carrying through any future economic recovery.

Information Resources Inc. released a report in April identifying this new consumer as the “Downturn Generation,” which is a new generation of Americans who are adopting practices similar to Depression-era shoppers. “[Consumers] have made obvious behavioral and attitudinal changes, and many admit they intend to prolong the use of their new methods,” stated IRI consulting and innovation president Thom Blischok.

Nearly 64% of shoppers characterized their financial condition as a little or a lot worse than last year; and as few as 30% believed their finances will be a little or a lot better one year from now. More than 69% said they are more likely to look through retailer ads for deals, nearly 82% were more likely to look for sale prices once in the store and just under two-thirds of consumers say price is becoming more important than convenience in brand purchases.

“Financial pressures are causing shoppers to give up favorite brands, buy smaller quantities of preferred items or postpone nonessential purchases for entertainment in order to save money for their most important needs,” Blischok said.

Newly identified approaches include consumers turning to the plethora of information available on the Internet to help prepare for purchases; clipping online coupons; and researching reviews, commentaries and opinions on products and services before making purchases.

More than 44% of shoppers are using online resources to find coupons today, and 55% of them plan to continue this practice into the future. Approximately 59% visit multiple stores for the lowest prices, and 42% of those will continue to do so. Almost one-third of consumers are making bulk purchases with others not in their households to secure low unit prices, and 35% of those shoppers intend to continue doing so.

It’s not all bad news, however. Consumers also are cutting back on their healthcare costs, opting to treat themselves at home versus visiting a doctor, and increasing their use of OTC medications. Nearly 44% of surveyed consumers are trading their doctor for information on the Internet, and half of those will use this strategy in the future. Just more than 51% are trying the OTC-in-place-of-a-doctor-visit approach today, while just under 43% of those shoppers report they will continue this approach into the future.

That focus on promotional buying coupled with the increase in private-label sales, while certainly a plus for retailer margins, is beginning to take its toll among branded manufacturers, even among some of the larger companies. “Sales of our OTC products were nearly 4% below the first quarter of 2008,” acknowledged Werner Wenning, Bayer CEO and chairman, in an April conference call with analysts. “For the first time, we felt the effects of the economic crisis more strongly, especially in North America. For that reason, sales of Aleve were down by 18% and aspirin by 16%,” he said, reporting on the Bayer quarter ended March 31.