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Kline report: Beauty sales through alternative channels experiencing strong double-digit growth

BY Antoinette Alexander

PARSIPPANY, N.J.  — Sales of cosmetics and toiletries through alternate channels have soared, growing by nearly $1 billion since 2005, according to consulting and research firm Kline & Co., and more double-digit growth is expected as consumers increasingly opt for the convenience of at-home shopping to meet their beauty needs.
 
Posting a 25.4% growth from 2005 to 2010, e-commerce sales are leading the way, followed by such home shopping networks as QVC and HSN posting a compound annual growth rate of nearly 20%, according to the latest Beauty Retailing USA 2010 report by Kline. Similarly, infomercials for such brands as Hydroxatone, ProActive, and Sheer Cover, bolstered by Guthy-Renker and its multimedia celebrity-endorsement approach to marketing, have seen sales grow more than 17%.
 
“Consumers are spending more time at home, either by virtue of unemployment, telecommuting, or merely a desire to save money by not going out so much,” stated Karen Doskow, consumer products industry manager at Kline. “Instead of running out to the store to buy their beauty products, they’re watching home shopping channels and infomercials to get the latest on new products.”
 
Consequently, brand marketers are exploring new tactics to build online buzz. Daily deal sites, such as Groupon, LivingSocial, and so-called “flash sale” sites, such as HauteLook, Rue La La and Gilt Groupe, are fueling e-commerce sales by creating awareness and enticing interest about new products or services by offering one-time discounts in order to create trial.
 
Doskow noted, however, that the bricks-and-mortar front is far from lagging. “Beauty has become the new revenue sweetheart in the traditionally slow-growing drug store channel as pharmacies reinvigorate their beauty offerings to lure customers with a more upscale, specialty-store look. For example, Walgreens’ acquisition of Duane Reade and its high-end ‘Look’ boutiques is expected to promote growth for both the chain and the channel. Meanwhile, CVS, Rite Aid, and others have begun offering new and improved customer loyalty programs and expanding shelf space for their beauty merchandise.”
 
Kline’s study also revealed that as brands increasingly look to leverage mobile and e-commerce to create seamless and ubiquitous purchase options for their customers, single-channel marketing is being rendered less viable.
 
“We expect a great deal of cross-channel promotion that will drive solid growth over the next five years,” Doskow added. “The Internet and mobile technologies are empowering consumers to be even more aggressive in their product and price comparisons and driving marketers to deliver value-based products to meet these demands.”

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P&G targets men shopping at CVS with new ‘Guy Aisle’ prototype in Charlotte, N.C.

BY Antoinette Alexander

CHARLOTTE, N.C. — Looking to further tap into the men’s grooming market, Procter & Gamble has announced the creation of a prototype “Guy Aisle” in a CVS/pharmacy in Charlotte, N.C.

"Men are buyers, not shoppers," stated Michael Norton, director of external relations for male grooming at Gillette, which is owned by P&G. "They want to get the shopping done, and with all their grooming needs in one aisle, it makes shopping easier, quicker and simpler."

The new CVS/pharmacy men’s grooming section includes products specifically designed for men’s unique grooming needs, including Gillette, Old Spice and Head & Shoulders.
 
More than ever, men are interested in products for their grooming needs. In fact, Nielsen predicts the $2 billion men’s grooming business will grow to $3 billion by 2012, P&G stated.

"Men are paying more attention to how they look — a trend being driven by athletes and celebrities," Norton stated. "From the revival of the barbershop to a demand for innovative men’s beauty products, it is clear that men are not afraid to scrub, moisturize and put their best face forward."

As previously reported by Drug Store News, P&G has created in select H-E-B supermarkets a Men’s Zones. The store-within-a-store carves out aisles that are specially tailored to meet his grooming needs, boasting more than 530 products just for him.

In addition to featuring products from P&G, as well as other manufacturers, the Men’s Zone within H-E-B has touchscreens so he can get grooming tips and discover new products. There also are flat-screen TVs that can show sporting events or other information.

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Pharmacy, consumer groups put full-court press on Washington to block ‘pernicious effects’ of ESI-Medco merger

BY Rob Eder

WASHINGTON — Only one stakeholder stands to gain from the proposed merger of Express Scripts and Medco — and that would be the new “mega PBM” the deal would create, not payers, and definitely not patients, either.

That was the message Dennis Wiesner, senior director of privacy, pharmacy and government affairs at H-E-B, had for members of the House Judiciary Subcommittee on Intellectual Property, Competition and the Internet during a special hearing Tuesday to examine potential antitrust issues related to the proposed $29 billion ESI-Medco union.

“I have grave concerns about this proposed merger,” noted Wiesner of the proposed deal, which, if approved, would put control of 135 million Americans’ pharmacy benefit into the hands of a single company, controlling more than 40% of national script volume, 60% of mail order and more than 50% of specialty pharmacy. “It would be a tipping point in PBM consolidation, harming patients, as well as government and private health plans and employers,” he said.

Wiesner drew lawmakers’ attention to what he called the “opaque manner” under which PBMs operate.

“Do PBMs actually reduce costs?” he posited, “There is no proof that hey pass along their purported savings to health plans, employers or consumers. In fact, the PBM industry has been fraught with allegations of extensive deceptive and fraudulent practices. In recent years, cases brought by a coalition of more than 30 state attorneys general, have resulted in over $370 million in penalties. It has been found that PBMS have accepted rebates from manufacturers in return for placing higher priced medications on prescription drug plans’ formularies, switched customers to the higher-priced drugs and benefited from both the rebate received and the higher priced drug payment without passing along the enrichment to the health plan or employer.”

Amplifying Wiesner’s comments was the testimony of Pennsylvania-based independent pharmacist Joe Lech, who noted that, ultimately, the deal likely would force more pharmacies like his own to go out of business, drive up drug costs, and force patients into mail-order programs.

“ESI and Medco say that this merger will drive out so-called ‘waste’ in the healthcare system. Frankly, these are just code words for squeezing my pharmacy reimbursement as far down as they can and trying to shift as many of my patients as they can to their own mail-order facilities,” Lech said. “My pharmacy has no leverage … [i]n my pharmacy, this merged company will pay for more than half of the prescriptions filled.”

Another myth of the deal, Lech told members of the House Subcommittee, “ESI and Medco will tell you that this merger will lead [to an increase in] adherence. To the contrary, the evidence tells us that face-to-face interaction with their community pharmacist is the best way to modify patient behavior and increase medication adherence, not putting large quantities of drugs through the mail, hoping that they get to the patient, and then hoping that the patient takes them properly,” he said.

And while, ESI and Medco executives insist the deal would lower costs for patients and payers, Lech testified it would do just the opposite. “Everyone knows the fastest way to reduce drug costs is to maximize the proper utilization of less-expensive generic drugs,” Lech said. “Yet, community pharmacies dispense generics at a much higher rate than the PBM-owned mail-order outlets because we do not have incentives, such as kickbacks from manufacturers to dispense brand-name drugs. The generic rate at the ESI mail facility is 60%. It is 62% at the Medco facility. By contrast, community pharmacies dispense generics on average 72% of the time.”

Important, Lech ran the numbers on what the cost of a pharmacy closing could mean in terms of lost tax revenues — a sobering message at a time when Congress wrestles with rising debt and out-of-control spending. “For each pharmacy clerk laid off, there is $3,000 in reduced tax revenue,” more than $4,000 for each pharmacy technician laid off and almost $16,000 for each pharmacist, Lech explained.

Wiesner and Lech’s testimony came directly on the heels of a letter co-signed by five different consumer interest groups sent Tuesday to Federal Trade Commission chairman Jon Leibowitz, urging the agency to reject the merger. The group, which included the National Consumers League, Consumers Union, the Consumer Federation of America, U.S. PIRG and the National Legislative Association on Prescription Drug Prices, argued that the deal would “harm consumers in four significant ways,” including:

  • Substantially reducing competition in the PBM market resulting in increased costs to plans, employers, and ultimately, consumers;

  • Increasing the incentive and ability for the merged company to create highly restrictive pharmacy networks, thereby restricting patient choice;

  • Establishing tremendous dominance for Express Scripts in the specialty pharmacy area, likely resulting in decreased access to care for our most vulnerable patient populations; and

  • Limiting access to new and innovative drugs by creating a market landscape more conducive to deal making between PBMs and pharmaceutical manufacturers.

Important, the deal would have “two particularly pernicious effects on the retail pharmacy industry,” the group noted in its letter. “First, the combined firm will control the contracts that allow retail community pharmacies in the Express Scripts-Medco to serve patients. Secondly, Express Scripts-Medco will be able to tie its dominant market power in the pharmacy PBM market into the mail-order dispensing market. This would allow Express Scripts-Medco to restrict patient choice to drive patients to their own mil-order facilities.”

The consumer groups also drew particular attention to the enormous share the deal would afford ESI-Medco in the fast-growing specialty pharmacy market. “The merger is of particular concern to the 57 million Americans that rely on specialty drugs,” the group noted, especially “given the rapidly increasing cost of … specialty drug prices,” which it said increased 19.6% in 2010, versus the 1.4% rise in the overall pharmaceutical market, and is expected to increase by as much as 27.5% by 2013.

Also, as it relates to the area of specialty drugs, and the prevalence of limited-distribution networks for certain drugs, “the dominance of post-merger [ESI-Medco] would give the company the unique power to increase the cost of specialty pharmaceuticals at will,” the consumer coalition stressed.

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