With investors looking for safety in consumer staples, one of the few bright spots in the sector is consumer health, which as a category is holding up better than the traditional fmcg sectors of food, beverages and HPC. It is a sub-category that is still emerging for investors but is already valued at £200bn globally and expected to grow 3%-4%.
It has favourable megatrends such as ageing populations and the shift to emerging markets. Since Covid there has been more interest in health and wellness, and the relentless pressures on public health institutions have forced consumers to think more about self-medication.
It is also a defensive sector when you consider that nine out of 10 consumers experience up to 10 types of pain per year; something that doesn’t change with economic cycles.
Consumer health is broad, and spans categories including coughs, cold and flu; vitamins, minerals and supplements (VMS); pain relief; respiratory and digestive health; sexual health and even therapeutic skin and oral health.
Consumer health global market leader Haleon was spun out of GSK three years ago, itself formed from the mergers of GSK Consumer Health, Novartis Consumer Health, and Pfizer’s Consumer Health unit. Number two consumer health player Kenvue, listed in the US, was created by spinning out of J&J. Sanofi last year separated its consumer health business, now called Opella, and joined forces with private equity, with its parent company Sanofi remaining a shareholder. Bayer Consumer Health, still part of the Bayer parent company, is watching proceedings closely.
Health: pharma or fmcg?
As the sector emerges out of pharma, it has been evident that supply chains are far from optimal. Typically more geared towards a pharma infrastructure than fmcg, they need to be leaner and far less complex – a prerequisite for scale. Haleon, for example, announced a new £800m cost-saving programme out to 2030, which will drive its gross margins higher and allow flexibility to reinvest for growth.
The reason there is so much activity in the space is because the merits of consumer health were underappreciated inside big pharma companies, but also because consumer health is fundamentally more of an fmcg business than a pharma business.
However, the fmcg industry also has a significant presence in consumer health, with the likes of Nestlé, Unilever and P&G all with sizeable consumer health businesses. The traditional fmcg players like the category because growth is typically higher than for their core businesses – gross margins are superior in part because price points are higher and private label lower, but also because consumer health demand is stickier, with more brand loyalty due to the importance of expert recommendations.
Pharmacies play a big role here, and are considered a primary point of care, largely down to convenience. In the UK, 80% of the population lives within minutes of a pharmacy and, when a pharmacist recommends a brand to a consumer, almost nine consumers out of 10 make that purchase.
Room for growth
Attending the Haleon’s capital markets event last week was a real eye-opener. They expect to grow 4%-6% ahead of 3%-4% industry growth, citing three growth drivers.
Firstly, closing the incidence versus treatment gap across its categories and through innovation. Management made the point that only one in three tooth sensitivity sufferers use a sensitivity toothpaste, and despite 53% of adults experiencing bleeding gums, most don’t use specialist gum toothpastes.
Secondly, innovation-led premiumisation and thirdly, better penetration of lower-income consumers, especially in emerging markets.
Consumer health is a highly nascent category in emerging markets, with per capita consumption low. In many cases, branded consumer health players are often competing against traditional herbal remedies, meaning the opportunity to both create and grow the consumer health space is significant.
With 50% of emerging market consumers deficient in micronutrients, this provides a big opportunity for the vitamin and supplements category, with calcium deficiency a particular issue in countries such as China.
However, getting it right in consumer health is far from easy. The regulatory landscape around the world is not homogenous, and consumers’ expectations around efficacy of products are rising. Companies need to be competent in traditional bricks and mortar retailers, but also in channels such as pharmacies and digital, which means advertising requirements are elevated – as is education of key opinion leaders.
All that said, consumer health is also one of the most fragmented categories still left across consumer staples, and synergies from deals tend to be higher than average fmcg deals.
The top 10 players globally in consumer health represent less than a quarter of the global market, with the rest made up of small and local players.
Back in 2022, Unilever made a £50bn approach to Glaxo Consumer Health (now Haleon) that was rebuffed, and even if there are no big transactional deals short term, we still expect the industry to look very different in a decade’s time. The jockeying for position has only just started.
Warren Ackerman, head of European consumer staples research at Barclays
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