Matrixx bullish in tough market

SCOTTSDALE, Ariz. A recession economy and one of the worse cough/cold seasons on record haven’t deterred Matrixx Initiatives from being bullish on the cough/cold category.

In a conference call last week with analysts, the makers of Zicam took the offensive in addressing market issues — in order to combat consumer diversion to store brand, the company is innovating with two new product introductions this fall; the company is taking advantage of the advertising vacuum created by absence of traditionally heavy advertisers like auto companies; and Matrixx is looking for acquisitions outside of cough/cold to help diversify its portfolio.

Last year’s cough/cold season represented a new record low in the number of colds people actually had, Bill Hemelt, Matrixx acting president, CFO and COO, noted. 

“The cold/flu season continued at a relatively low level in the fourth quarter, such that for the entire season ended down 7.6% from last year’s historically low season,” he said. “Or in other words, we established a new record low incidence level.”

Couple a low incidence level with a recession economy that’s driving more and more consumers toward private label, and you have a recipe for poor performance. Matrixx is bucking that trend.

“Generic competition did negatively affect our Zicam oral cold remedy products,” Hemelt said. “We recognize that generic competition will expand further in coming years and we will continue to take steps including improvements to our product line to stay a step ahead of it. Our nasal products registered strong double-digit growth this past year paced by our proprietary swab technology in the form of Zicam cold remedy swabs and Zicam allergy relief swabs. Those two swab products now constitute almost 35% of our entire sales.”

All told, as little as 20% of Matrixx’s product line is open to generic competition.

“Most of those products have been competing against our oral cold remedy line and that’s why we will continue to innovate heavily in that category to try to keep them a little off balanced,” Hemelt said.

Incidentally, that store brand competition is not impacting its swab delivery form.

The soonest the patents protecting that delivery form expire is 2018, Hemelt noted. And thanks to a 26% increase in demand of the swab delivery form, an investment in a $5 million manufacturing machine to help increase production is justified.

And while Matrixx has a plan to combat store-brand market erosion, lower incidence of coughs and colds in any particular season is expected to be a constant going forward, especially as consumers become more aware around prevention tactics.

“You do have this incidence level which has now declined for three or four years and no one seems to be able to have a good handle as to why,” Hemelt said. “It may be that people are just washing their hands more frequently, which cuts down on the illness level,” he noted, especially as awareness around illness-prevention tactics are well-advertised by health agencies in the wake of this year’s novel H1N1 flu outbreak.

Hemelt also announced that Matrixx has placed its advertising program out for bid, marking the first time the company has done this. “We continue to believe the Zicam brand has significant growth potential,” he said.  “We are very pleased by the strong interest among various agencies in wanting to take on this business. From my perspective, it’s another sign [of] the growing significance of the brand in the category.”

As the company seeks to beef up its advertising heft, Matrixx may also explore more localized marketing — it’s cheaper, and coupled with intelligence that a local market may be experiencing an uptick in illness, it’s more productive.

“We know when certain areas are going on alert for the colds and flu that maybe we might run a very heavy dose of local advertising in those markets,” Hemelt said. “Everybody is aware that … automobile companies have cut back on their national advertising which, has affected national advertising rates. But you also have a even greater cut back on the local markets of local automobile dealerships that have dropped local rates I think even further. We think we can take advantage of that and really have a very heavy, heavy dose of advertising … right before [markets] go into an alert state.”

Finally, Hemelt told analysts that Matrixx is looking to diversify its portfolio, possibly through acquisition thanks to some $40 million in available cash.

“We are looking much more closely at acquisitions of either a company, a brand or a platform,” he said. “[We are] trying to look for items that would leverage our strengths, which we think is in the marketing and in the R&D arena. Ideally it would not be in the cough/cold category.”