3 reasons why consumer health is critical to J&J

RANCHO PALOS VERDES, Calif. — The Johnson & Johnson recalls of a few years ago may finally be behind them, Sandi Peterson, group worldwide chairman for J&J and responsible for the company's consumer business, told analysts Thursday at the Goldman Sachs Healthcare Conference here. 

 

“A number of years ago, we unfortunately had a serious challenge with our U.S. OTC business. And it required us to take many of those products off the market to remediate all of our plants and facilities and to bring those products back to the market over a period of time,” Peterson said. “And that has had been a large part of why the business, the consumer business has underperformed historically over the last couple of years.”

 

But J&J's consumer business, McNeil Consumer Health, has significantly rebounded Peterson said, with more than 80% of its recalled products back on shelf. And while that consumer business represents $1.4 billion in sales today, vs. the $2.5 billion book of business J&J OTC represented before the recalls, J&J is making great strides toward reclaiming its lead role.

 

"We are making huge progress,” she said. “Later this year, we are going to be re-launching Tylenol Arthritis and the retailers are very excited about getting that product back on shelf. ... The rest of the portfolio has been completely re-launched and re-launched well and very well accepted by retailers and also by our consumers as you can see by our growth rate.”

 

Peterson outlined three reasons why consumer is so important to J&J.

 

First, the consumer division of J&J is quite literally part of the company's DNA.

 

“I like to say it’s the heart and soul of the company, which is really true,” Peterson said. “[J&J's] heritage comes from the consumer business. And we are known globally in part with most people around the world because of our consumer business.”

 

But it's also a profitable business. Before J&J's recall issues of a few years ago, the profit margin for J&J's consumer business was 15.4% on average. Today, it's 14.1%.

 

“The consumer business in and of itself is a very successful business. It’s really critical,” she said. “As you think about our consumer portfolio related to the rest of our business, consumer businesses have less volatility and cyclicality to some of the other things in our portfolio [and] it is a very important part of how we go to market in emerging markets.”

 

Emerging markets are particularly critical for global healthcare companies, Peterson noted, as a billion consumers in those regions are entering the middle-class.

 

“Our first point of entry into those emerging markets and interaction with people in those countries is through our consumer portfolio,” Peterson said.

 

Lastly, the consumer insights gleaned from J&J's OTC business can help inform J&J partners on how to best approach the healthcare market.

 

“More and more, our customers, whether they're hospitals, PBMs, other forms of payers, are trying to figure out how do [they] work with patients in a much more consumer-centric way,” she said. “They come to us and say, ‘Help us because you have great insight into consumers, how do we transform who we are?’ ... It’s a very unique point of differentiation that we have and it’s a very important way in which we partner with payers and providers around the world.”

 

J&J's retail partners also benefit from the company's consumer insights, Peterson noted.

 

“The other thing that’s really important is that we are actually the category captain with many retailers in many of the parts of our business,” Peterson said. J&J has a significant market share differential against its competitors in beauty and skin care, Peterson said. “[And] in our OTC business, we are the category captain with retailers in those four categories in which we are focused, which is cough/cold, allergy, digestive health and pain.”

 

Peterson noted that J&J “worked very diligently with our retail partners to partner with them, to redesign what the category looks like, to help bring these products back in a way that brings consumers back into the category.”

 

For example, as J&J's products were brought back to shelf, the company wasn't incredibly promotional in an effort to reinduce trial.

 

“We partnered with retailers to say, how do we bring these back to bring consumers back into these stores to get consumers to pick up these products again and start using them in a meaningful way?,” Peterson said. 

 

And as these products have returned to the OTC mix, J&J has shifted its marketing mix to about 30% digital. That drives improved efficiencies, Peterson said, and greater accountability for how each marketing dollar is generating a return on investment.

 

“We have reinvented the whole way we think about marketing and how marketing happens at J&J,” Peterson explained. “We used to manage our brands very regionally or in some cases very locally. We now have 12 brands that we manage globally and we have eight brands that we manage regionally, because they are very relevant in just certain parts of the world. That means that we get a massive amount of better consumer insight and efficiencies and better reach and frequency and how we market our products to all of our consumers around the globe.”