FMCG CEOs: Breaking The Code Of Outperformance On Consumer Health Care (CHC), Key Winners & Losers And Seven Predictions Over 2024-2030

'The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge' - Stephen Hawking

'Face reality as it is, not as you wish it to be' - Jack Welch

The objective of this publication is to provide a strategic perspective on:

i) The current state of the CHC vertical per category (size, growth, key countries, channels, channels archetype, market share fragmentation...)

ii) What does it takes to win on each category (success drivers, winners & losers)?

iii) Which strategic approach each type of CHC key players should pursue to maximize their profit capture on CHC?

iv) Who are the key Winners & Losers across each CHC category? What can we learn from them?

v) What are the key strategic challenges for all key players & how best to address them (approach, capabilities, best practices)?

To maximize the relevance & actionability of this publication to most CHC participants, we choose to:

i) Include the following six categories in CHC: OTC, VMS, Dermo-Cosmetic (DC), Mass Oral (MO), Sport Nutrition (SN) & Weight Management (WM)

ii) Cover the following six types of key players:

=> Global CHC pure players - Haleon, Kenvue, Sanofi CHC, Bayer CHC;

=> Global FMCG companies - e.g. Nestle, P&G, Reckitt, Unilever, Church & Dwight

=> Regional CHC pure players - e.g. Cooper CHC; Stada CHC, Karo Health

=> Dermo-Cosmetic pure players - e.g. L'Oreal, Pierre Fabre, Galderma

=> Disruptive new entrants - e.g. Hims & Hers, Hero, Liquid IV, Hero, Nutrafol, Mary Ruth, Ghost

=> Private labels - e.g. Perrigo

Within the above scope, our strategic thesis can be summarized in seven key messages:

i) We see now an imperious need to bring strategic clarity on the CHC vertical for multiple reasons (underperformance of most key players; dynamic competitive landscape; still too limited understanding of key success drivers per category & corresponding winners & losers; poor understanding of respective CHC key players' strategic frameworks)

ii) We acknowledge CHC attractiveness (size, growth, tailwinds) but also unique complexity (extreme fragmentation & heterogeneity)

iii) Owing to the above differences, each CHC category requires very different growth/ operating models & capabilities, with sometimes some variations according to the market archetype (whether or not OTC can be sold everywhere, weight & share of growth of ecommerce, level of fragmentation of the pharmacy channel)

iv) Each type of CHC key players displays not only very different set of strengths/ limitations but also face unique challenges. Nonetheless, there is no shortage of addressable profitable growth for anyone as all type of key players have the potential to develop an ownable strategy leveraging their current strengths

v) Outperformance for each player will come down to their ability to:

• Gain a granular des-averaged understanding of CHC dynamics & success drivers (category fundamentals, success drivers per category/ channel archetype, learnings from key winners & losers)
• Understand objectively their performance, the key drivers behind this performance & their corresponding strengths & areas of improvement
• Define a strategic intent based on a factual right-to-win/ value-at-stake assessment, especially pick their where-to-play areas that leverage best their strengths & derive accordingly their strategic priorities
• Define the right enablers (operating model, talent, right capabilities, right KPIs) to make happen this strategic intent

vi) Specifically, all key players will have to considerably sharpen their approach to portfolio management/ organic growth (cf. Zero-Based-Growth?), Ecommerce (#1 channel per share of growth globally - cf. Ecommerce 2.0?) and M&A (Best Acquirers?) to achieve/ sustain outperformance

vii) Looking at the future of CHC, we do not expect drastic changes (huge acceleration in consolidation, large-scale M&A) but rather incremental changes driven by the respective needs (but also constraints) of all key players

Full details behind those seven key messages below:

Key message #1: We see now an imperious need to bring strategic clarity on the CHC vertical for multiple reasons

Key message #2: We acknowledge CHC attractiveness (size, growth, long-term tailwinds) but also its unique complexity (fragmentation, heterogeneity)

Key message #3: Owing to the above differences, each CHC category requires very different growth models, operating models & capabilities, with sometimes some variations according to the market archetype (whether or not OTC can be sold everywhere, weight & share of growth of ecommerce, level of fragmentation of the pharmacy channel)

i) OTC ($135Bn RSV/ 4% CAGR 18-23):

• Sub-categories: Cough & Cold & Allergy [CCA], Analgesics, Digestive, Dermatologicals, Eye, Sleep, NRT, Wound, Mouth, Emergency Contraception
• Largest CHC category with significant headroom (mostly behind penetration: currently low to mid double digit; but sometimes also frequency – e.g. Sleep/ NRT/Wound) & highest GM%/EBIT% once scale advantage is achieved
• Growth: MSD CAGR (Dermatologicals/ NRT/ Wound lower; Analgesics/ Cough in the average; Sleep/ Emergency Contraception faster) with high standard deviation across markets
• Category/ SKU complexity: high (10 categories with multiple sub-segments in each)
• Level of regulation: high
• Level of fragmentation: relatively high (top 2 local players total on average 30% MS at category level with limited standard deviation across market archetypes) although one of the most consolidated within CHC owing to benefit of local scale
• Rather concentrated geographic footprint: US/ CN (41%), top 10 (65%), top 20 (80%)
• Competition intensity: on average high, highest on largest categories (Analgesics, Cough, Digestive, Dermatologicals) and in omnichannel markets (US/ UK) where PLs are the strongest (but still globally at only 9% MS), pools of lower competition exist & can be both large/ profitable (smallest categories, fragmented pharma-only OTC markets in DMs)
• Brand management/ 4Ps muscles: mostly local owing to strong regulatory considerations making it very difficult to scale brands globally. Exceptions exist though (Sleep/ Zzzquil)
• Dominant success model: owing to unique shopper dynamics (average OTC category frequency > 18 months with few exceptions: hair loss, NRT…), channel archetypes (either fragmented pharma or omnichannel key accounts), importance of gatekeepers (role of HCP, esp. in most regulated markets) & regulatory constraints, OTC remains largely a local scale game (75% of chance to gain MS if #1/ #2 position, highest among all FMCG categories). The smallest is the category, the higher is the double premium for scale (higher relative market share – RMS - & win rate). This is true across all market channel archetypes
• Challenger success model: address unmet consumer needs to build an under-penetrated category (e.g. P&G/ Zzzquil)
• Conclusions:

=> A large, attractive yet fragmented category: its high regulatory constraints, its high premium for scale (#1/close #2 players have the highest MS win rate within CHC ?– all driven by higher barriers-to-entry & specific consumer behaviours – problem/ solution, high value at stake, infrequent purchase, purchase through gatekeepers – the smaller is the OTC category, the higher is the benefit for scale – translating into higher MS win rate & higher absolute MS) & its margin structure (GM%>80%) make it a very attractive

=> It is a category that is on average less impacted by the ecommerce channel shift (only 7% ecommerce weight/ 20% share of growth vs. on average 21%/47% on CHC) protecting then its relatively higher barriers-to-entry

=> Capabilities required: strong local regulatory-driven consumer-centric 4P capabilities, global OTC R&D expertise (incl. switch), local GTM scale (omnichannel in markets OTC can be sold everywhere – 33% of the overall OTC category - ?or own pharma GTM in the rest of markets) & often willingness to manage small brands locally (owing to a fragmented regulatory framework, global OTC brands are rare & hard to scale globally)

=> Most successful players are global CHC pure players that all record more than half of their revenue on OTC, followed by regional CHC pure players (e.g. Stada CHC, Cooper CHC…) that often focus on brands/ markets that receive less attention from global players

=> Global FMCG companies have also outperforming OTC businesses, mostly as a result of acquisitions (Reckitt/ BHI, P&G/ Merck) although success requires minimum viable scale (small bolt-on with no pre-existing OTC platform is objectively very difficult)

=> Last if Private Labels see their highest MS capture on OTC, esp. where the category can be sold omnichannel (US, UK,…), on average, they tend to lose MS highlighting again the premium for scale/ strong brands

=> To summarize on OTC, we favor players with strong #1 or close #2 positions that have strong regulatory-/ R&D- driven consumer-centric 4P capabilities & local GTM scale. We also like the M&A optionality on smaller OTC categories within the top 10 largest OTC markets (many players are still not part of global CHC companies and are still ‘up for grab’)

• Selected success cases:

=> Brand start-up from incumbents: P&G/ Zzzquil on Sleeping Aid

=> Brand start-up from new entrant: HERO Acne Patch (then acquired by Church & Dwight)

=> Brand scale-up: Reckitt/ Lemsip local occasion-based expansion on Cough & Cold

=> Acquisition: P&G/ Merck

ii) VMS ($132Bn RSV/ 6% CAGR 18-23):

• VMS is the second largest CHC category globally & likely the most fragmented category owing to a high number of sub-categories & a huge SKU complexity
• Its lower level of regulation, its higher weight (31%) & share of growth (70%) of ecommerce, its preventive (vs. curative nature), its more frequent consumer usage drives lower barriers-to-entry than OTC which translate into a need for higher A&P, more fragmented MS%, lower profitability (GM% closer to the ~50-60%) & lower benefit for scale
• Unsurprisingly the most red-ocean category within CHC, especially in the US
• The overall creates an environment where it is relatively easy to start-up but extremely difficult to scale-up
• Key success drivers are a science-based consumer-centric value proposition addressing noticeably unmet consumer needs, clearly differentiated vs. private-labels/ commoditized ingredients-based VMS, activated with a digital-first omnichannel strategy & a stand-out FMOT
• This is often the category chosen by Global FMCG companies that seek to increase their exposure to CHC (Nestle Health Science with its many US VMS acquisitions; Unilever with Olly, Liquid IV, Nutrafol, K18; Reckitt with Schiff) although some Global CHC pure players have also large VMS businesses (Centrum/ Haleon)
• Winners are objectively a minority & the ones respecting the above list of success drivers (mostly Unilever & NHS/ Vital Proteins among our key players coverage )
• To summarize on VMS, we see benefit for scale to be lower than on OTC along with success being much harder to predict than on OTC. At such, key players should participate extremely selectively & cherry-pick carefully assets. Synergies with OTC should also not be over-estimated. VMS in emerging markets (high growth headroom, fragmented channel landscape) could well be an exception
• Selected cases:

=> Winning acquisitions: Unilever/ Liquid IV & Nutrafol

=> Hit & miss acquisitions: Nestle Health Science (Vital Proteins vs. rest)

=> Difficulty to renovate/ differentiate large incumbent brand: Haleon/ Centrum

=> Successful new entrant: Mary Ruth

iii) Oral Care: $51bn RSV, 4.5% CAGR

• Growth: the lowest within our the CHC perimeter (4.5% CAGR) with also the highest standard deviation (LSD in top CHC markets vs. HSD in EMs) translating on average into a much higher growth fragmentation (mouthwash is the exception)
• High headroom both behind penetration & frequency gains in EMs. On average, high GM%/ EBIT% owing to greater scale (global brand leverage & mass distribution)
• Dominated by toothpaste ($28bn RSV, 5% CAGR) & manual toothbrush ($9bn, 4% CAGR). Most dynamic categories are whiteners ($11bn RSV, 6% CAGR) & power brush ($6bn RSV, 6% CAGR). Mouthwash accounts for $6bn RSV and displays a 6% CAGR
• Comparatively much lower complexity (level of regulation, skus)
• Level of fragmentation: second lowest after Dermo-Cosmetics with 49% MS with top 2 players owing to scale advantage on both physical (mostly grocery distribution, category with most consolidated channel footprint within CHC) & mental (ATL game) availability front
• Geographic footprint: the least concentrated ones within CHC following a ‘Household Personal Care – HPC’ distribution (US/CN: 35% WD; Top 10: only 45% WD)
• Competition intensity: high owing to oligopoly structure, high promotional intensity & falling barriers-to-entry (eCom >100% SOG in US/CN)
• Brand management/ 4Ps muscles: global operating model
• Dominant success model: scale matters less & less (#1/#2 globally on average not winning MS) in a falling barriers to entry context. Winners are players managing to both leverage their scale while keeping relevant their value propositions & addressing effectively/ credibly key consumers barriers/ drivers: Church & Dwight is a key winner in the area on the back of well executed differentiated M&A (TheraBreath, Waterpik, Orajel) to complement its historic portfolio (Arm & Hammer, Spin Brush). Loser has been Listerine/ Kenvue globally & esp. in the US
• Conclusions: attractive mostly for incumbents owing to its high addressability (low MS fragmentation, mass growth model) but much lower growth (although some sub-segments display large penetration headroom like mouthwash & sensitive toothpaste) & much more geographically fragmented (except mouthwash). At such, key to determine granularly where-to-play within MO & adopt consumer-centric 4Ps, complemented by selective M&A in a context of falling BTE
• Selected cases on mouthwash:

=> Success: TheraBreath (acquired by Church & Dwight)

=> Failure: Listerine (Kenvue)

iv) Dermo-Cosmetics: $30bn RSV, 12% CAGR

• High headroom behind penetration, frequency & basket gains. On average, higher GM%/ EBIT% owing to greater scale-effect
• Growth: the fastest within CHC (12% CAGR) with limited standard deviation (JP/FR/Taiwan at LSD)
• Low level of regulation
• Category/ SKU complexity: medium considering the high number of need states/ sub-segments
• Level of fragmentation: the lowest (top 2 global players with 57% vs. LDD for OTC/VMS/SN/WM)
• Competition intensity: very high omnichannel, manageable if follow the pharma centric growth model with digital leverage (broad complementary pharma-centric portfolio, own pharma GTM, HCP focused science-based detailing, pharma channel near exclusivity – depending the brands - with digital leverage to create brand awareness/ desirability & expand selectively availability)
• Brand management/ 4Ps muscles: global operating model
• Dominant success model: pharma-centric with digital leverage, ie. L’Oreal Laroche-Posay/ CeraVe; Pierre Fabre Avene/ Ducray; Galderma/ Cetaphil?
• Challenger success model: digital native with hybrid distribution (DTC/ Beauty specialists) & quality/ value positioning with ‘no-marketing’ marketing (Deciem/ Estee Lauder)
• Conclusions: most attractive category within CHC (size of the prize, addressability) but requires beauty expertise (if play on core need states such as face cream) & consumer-centric 4Ps respecting strictly the pharma-centric model with digital leverage. Outside of this, rather difficult if stuck in the middle positioning (e.g. Neutrogena) or need to own a niche (e.g. Bepanthen on nappy rash/ tattoo/ wound) or need to have a really mass model (Nivea). Super premium skincare brands obey to Prestige rules (Prestige distribution, high A&P, desirability brand building) & have a much lower penetration potential/ size of the prize
• Selected cases:

=> Winner: L’Oreal Dermatological Division & CeraVe in particular

=> Relative underperformers: Stuck-in-the-middle Neutrogena & Pierre Fabre (missed the affordable Dermo-Cosmetic wave & lagging behind on both ecommerce execution & desirability brand building

v) Sport Nutrition: $28bn RSV, 10% CAGR

• Comparatively smaller yet very dynamic category at the crossroad with Food & Beverage
• 60% of the category sits in the USA
• Its lowest level of regulation, its higher weight & share of growth of ecommerce, its lower profitability (GM% closer to the 50%) & its synergies with F&B make it a where-to-play mostly for digital-first new entrants (cf. below selected success cases) and F&B incumbents (e.g. MDLZ on protein/ functional bars) although pure-players exist (e.g. Gambia)
• Main success model requires strong consumer-centric 4Ps, digital-first marketing/ sales activation & sometimes specific omnichannel execution (e.g. sports clubs for some segments)
• Despite its ‘apparent’ attractiveness/ addressability, we do not see SN as a key where-to-play for most of the companies we cover in this publication (low to no R&D/ regulatory/ supply chain/ category synergies coupled with limited benefit for scale)
• Selected cases:

=> Scale-up success on the back of a unique DTC/ digital first model powered by a global world-class infrastructure: MyProtein/ THG

=> New entrant success case: Ghost or the art to leverage strategic partnerships to promote/ grow its brand

=> Incumbent success case: Glanbia & On Optimum Nutrition success

vi) Weight Management: RSV $21bn, CAGR 5%

• By far the least attractive CHC category:

• Smallest size
• Extremely fragmented growth from a geographic point of view with the world largest market – US - in structural decline & most of the growth taking place outside the world largest two markets US/ CN
• Most fragmented channel footprint within CHC with importance of speciality channel and direct-selling (e.g. Herbalife)
• Losing share of occasions to F&B (esp. ‘better-for-you’)/ Sport Nutrition categories
• GLP1 poses both large risks & opportunities

• Our views:

=> Continue to stay away for players not participating

=> If already present, lead hypothesis is to under-weight & renovate leveraging Sport Nutrition & GLP1 mega-trends

Key message #4: Each type of CHC key players displays not only very different set of strengths/ limitations but also face unique challenges. There is no shortage of addressable profitable growth for anyone as all type of key players have the potential to develop an ownable strategy leveraging their current strengths

i) Global CHC Pure Players

• Those are the carved-out pure players (Haleon, Kenvue), soon to be carved out one (Sanofi CHC) & ‘maybe to be carved out one day once ready’ (Bayer CHC)
• Strengths: OTC and for some Oral positions, own pharma GTM in selective markets, varying R&D/ regulatory/ switch capabilities
• Limitations: not most consumer-centric 4Ps and best omnichannel execution incl. ecom/ category mgmt. preventing them to win big on VMS, Sports Nutrition & wt. mgmt. and fully leveraging their OTC positions. Lack of mastery of the Dermo-Cosmetics playbook
• Strategies: execute carve-out/ exit TSA; transition fully from pharma to FMCG operating model/ culture; sharpen where-to-play/ how-to-win choices & clean-up portfolio to drastically improve organic performance; exceed guidance & gain financial markets trust; deleverage & prepare growth acceleration through ownable M&A (OTC-focused, switches…)
• This is objectively difficult, especially considering that each of those players have very different category & geographic footprints, market leadership positions, growth footprints, market share performance & overall portfolio strength. We see large improvement areas across all those dimensions requiring very active portfolio management
• In terms of where-to-play:

a) We see the largest opportunities on OTC on brands with local leadership positions (organically & through M&A) where those players can leverage their often ownable regulatory/ R&D/ GTM capabilities as long as they pursue a local regulatory-led consumer-centric 4P strategy

b) We like brands with leadership positions on niche segments in categories with scale-benefits (mouth-wash & sensitive toothpaste in Mass Oral; baby cream in Dermo-Cosmetic) as long as they pursue a global innovation-led consumer-centric omnichannel 4P strategy

c) On Dermo-Cosmetic, we see it as very difficult to compete on the largest segments (e.g. face & body cream) against the Dermo-Cosmetic pure players (L’Oreal, Pierre Fabre, Galderma…) and the mass skin care players (Beiersdorf, L’Oreal…). Risk is high to end up being ‘stuck in the middle’ (cf. Neutrogena). Only way forward is to find ownable segments within Dermo-Cosmetic, lead them with innovations & execute with digital-first omnichannel strategy with world-class Beauty talents

d) We acknowledge the difficulty to outperform on categories with much lower barriers-to-entry (demonstrating by the fast that those players underperform most in those environments) especially when ecommerce accounts for most (if not all) of total category growth (VMS; Sports Nutrition; Weight Management) & we recommend for those players to under-weight presence on those segments with rare exceptions (VMS in large EMs) where barriers-to-entry remain high & scale/ brand power matter

e) US needs to be addressed with a bespoke strategy (different from the global strategy) considering its size, the fact that all categories are sold across all channels, the weight/ share of growth of ecommerce across categories, the retail dynamics (structural decline of drugstore chains). Unsurprisingly most US units of the world largest CHC pure players underperform

f) If all of the above is executed well, there is a bright future for global CHC pure players as there is no shortage of ownable profitable growth opportunity. They ‘just’ need to dramatically sharpen their where-to-play/ how-to-win choices based on a rigorous right-to-win/ value-at-stake assessment on their top brand/ country couples ?(easier said than done – cf. the ‘how to make it happen’ section)

• Winners & losers: for now, HALEON is leading the pack (growth footprint, market share performance, portfolio strength). Others underperform most vs. their respective growth footprint

ii) PE-Owned Regional CHC Pure Players

• Non-exhaustive/ illustrative list: STADA CHC, COOPER CHC, KARO HEALTH
• Those players have often outperformed their peers over the recent years acquiring the ‘too small/ too complex’ brand/ country couples of the global players. They often focus exclusively on OTC & VMS. Best examples in Europe will be STADA CHC & COOPER CHC
• Strengths: They leverage their unique assets (local scale with own pharma GTM & broad enough portfolio, trade/ HCP marketing & regulatory) to drive outperformance on acquired brands that were often neglected by their previous owners (tail brands)
• They thrive in regulated environment where OTC can be sold only in fragmented pharmacy channel. The essence of their competitive advantage is to manage the fragmentation/ complexity within OTC/ VMS that no one else wants to (can?) manage
• Limitations: neither fully the strength of global CHC pure players (leadership positions in large markets, R&D…), nor the capabilities of FMCG incumbents (geo & omnichannel footprint, consumer-centric 4Ps, B/S). Sub-scale brand/ country couple. Question marks on exit strategy (mostly secondary) & growth outperformance sustainability beyond one-off growth acceleration
• To sustain outperformance (beyond the first-years one-off improvement in performance) those players will have to scale their local brands to adjacencies whenever possible to reach minimum critical mass, strengthen their consumer-centric 4P capabilities, especially their omnichannel execution (on ecommerce but also in drugstores/ outside pharmacies) while continuing to nurture their unique assets (local GTM scale & HCP-centric trade/ marketing)
• No shortage of profitable growth behind focusing on OTC (& in a lesser extent VMS) in the top 20 world largest markets through building local scale, especially in the smallest OTC categories where the premium for scale is the highest (& the M&A bite-size remains manageable for their PE owners)
• Beware of companies piling-up assets across too many CHC categories (mixing-up OTC, VMS, DC & more…) & markets that could well struggle to not only scale their acquisitions but also find a focused acquirer
• Winners & losers: In EU, mostly STADA CHC and COOPER CHC. Karo Health remains in our views a question mark regarding their size & category/ brand/ country footprint

iii) FMCG Companies

• An increasing number of players have increased their participation to CHC (large, faster-growing, often profit-accretive). Those are mostly Nestle, P&G, Unilever, Reckitt and Church & Dwight
• Strengths: extensive geographic & channel footprint; consumer-centric brand building/ innovations; large B/S
• Limitations: often limited own pharma GTM in pharma dominated markets; often weaker R&D/ regulatory/ switch capabilities
• Strategies: mostly M&A on synergistic where-to-play although successful build cases exist (Zzzquil/ P&G)
• Winners & losers: Unilever with Liquid IV/ Nutrafol, P&G with Merck/ Zzzquill, Church & Dwight through M&A are all generally great success cases; Reckitt has islands of excellence on Cough; Nestle Health Science results are far more contrasted (Vital Proteins vs. rest); Reckitt/ Scholl-Schiff-Mead Johnson have been (relative) failures
• Those players need clearly to understand their appetite for complexity & determine accordingly their where-to-play. We see OTC as a fake good idea (or at least a hard one to crack requiring minimum viable scale – small bolt-on is hard) for global FMCG companies (too local regulatory driven, too fragmented, hard to leverage their unique GTM & brand-building scale, too HCP driven) although success cases exist (P&G/ Merck – owing to the sufficient scale of the target at acquisition time)
• Key challenges for those players are to pick-up the right assets (e.g. on VMS: science-based consumer-centric value proposition addressing noticeably unmet consumer needs, clearly differentiated vs. private-labels/ commoditized ingredients-based VMS, activated with a digital-first omnichannel strategy & a stand-out FMOT) & scale them leveraging their unique assets (GTM scale & consumer-centric 4P execution)
• No shortage of profitable growth opportunities if right assets are picked on synergistic where-to-play in environment where premium for scale is the highest
• Beware ‘shiny’ assets (fast growth but small absolute net revenue with in fine low penetration potential, low defendability & challenging P/L dynamics), e.g. unscalable VMS niches (hard for consumers to see the benefits, not backed by science, not claimable), most of Sport Nutrition

iv) Dermo-Cosmetics Pure Players:

• Those are the L’Oreal, Pierre Fabre & Galderma…
• Strategy: pharma centric growth model with digital leverage (broad pharma-centric brand portfolio, own pharma & dermatologist GTM, HCP focused science-based detailing, pharma channel near exclusivity – depending on the brand - with selective omnichannel expansion; digital & social media leverage to create desirability at scale, world-class beauty R&D and innovation capabilities) enabled by a tailored operating model (separate organization, specialized talent)
• Limitations: sometimes hard to renew/ update the traditional pharma-centric growth model in a context of blurring frontier on dermo-cosmetic with the rise of truly omnichannel affordable power-brands (e.g. CeraVe, Deciem, Cetaphil) & with the ever rising importance of social media and ecommerce (e.g. Pierre Fabre's challenges)
• Winners & losers:

=> Generally, L’Oreal, through M&A, has been the clear winner

=> Specifically, value brands outperformed (CeraVe/ LOR, Deciem/ EL, Cetaphil/ Galderma)

=> Pierre Fabre missed the affordable dermo-cosmetic wave and has been struggling to fully leverage ecommerce & digital marketing to renew its traditional growth model

=> Anyone not respecting the pharma-centric growth model with digital leverage rules underpeform (Colgate/ Filorga – $1bn write out of out $1.7bn acquisition; Neutrogena with its stuck-in-the-middle positioning)

• Dermo-Cosmetic remains one of the largest growth potential (penetration, frequency, willingness-to-pay) within CHC but requires drastically different strategy & operating model/ talent than OTC/ VMS

v) New Entrants:

• Start-ups with no pre-existing strategic assets
• Strengths: consumer-centric 4Ps; mastery of low barriers to entry sales (Ecommerce) & marketing (Social Media) channels
• Limitations: no strategic assets (omnichannel & geo footprint, R&D and regulatory capabilities); easy to start but hard to scale stand-alone beyond >$200m mark
• Strategies: focus on both fastest growing & lowest barriers-to-entry categories/ countries with lowest regulatory complexity & highest scale-up/ exit potential (VMS and Sports Nutrition in the US)
• Winners & losers: many visible winners (HERO on wound care, Mary Ruth on VMS, Ghost on Sports Nutrition to name very few) but plateau at ~$200m revenue p.a. mark for a countless number of losers
• Critical for those players to go deeper on unmet needs to keep differentiating value propositions while adopting fit-for-purpose Point Of Market Entry (POME) strategies (how to recruit the right consumers at scale & cost effectively) – cf. Zero-Based-Growth? approach in ‘how to make it happen’ section below

vi) Private Labels:

• Only 5% MS level globally, mostly on large OTC categories in omnichannel OTC markets (US, UK), mostly losing MS in a context consumers prefer brands (most OTC purchases are distressed, cheap & infrequent purchases, when it is not the case private labels fare better – e.g. NRT)
• Private labels players on CHC tend to have robust regulatory, supply chain & cost management capabilities but most have rather limited consumer-centric 4Ps/ innovation & brand building capabilities
• Most try to rapidly copy brand leaders in a context of increasing margin pressure from retailers while expanding to branded CHC to derisk exposure to PL but the latter requires drastically different set of capabilities
• Our views:

=> Master first the profitable Private Label playbook (selective where-to-play choices to maximize margin, disciplined portfolio management based strictly on value-at-stake & right-to-win, ruthless cost management AND consumer-centric innovations/ 4Ps)

=> Expand very selectively to the most synergistic areas while ensuring to develop progressively the right capabilities

=> Companies die from indigestion (too many acquisitions with limited integration/ execution capabilities), not from starvation

• Perrigo is one of the key failure cases within PL (EV of $3.5bn post $4bn acquisition of Omega & $2bn acquisition of HRA)

Key message #5: Outperformance for each player will come down to their ability to:

• Gain a granular des-averaged understanding of CHC dynamics & success drivers (category fundamentals, success drivers per category/ channel archetype, learnings from key winners & losers)
• Understand objectively their performance, the key drivers behind this performance & their corresponding strengths & areas of improvement
• Define a strategic intent based on a factual right-to-win/ value-at-stake assessment & derive accordingly their priorities (where-to-play/ how-to-win choices)
• Define the right enablers (operating model, talent, right capabilities, right KPIs) to make happen this strategic intent

Key message #6: Specifically, all key players will have to considerably sharpen their approach to portfolio management/ organic growth (cf. Zero-Based-Growth?), Ecommerce (#1 channel per share of growth globally - cf. Ecommerce 2.0?) and M&A (Best Acquirers?) to achieve/ sustain outperformance

i) Zero-Based-Growth? - considering CHC high expandability (penetration, frequency, willingness-to-pay) & rising competition, it is critical to adopt a new approach to growth that starts with a disciplined portfolio management & with a rigorous consumer-back approach to 4Ps backed by granular consumer research/ segmentation work, that is what we call Zero-Based-Growth?. More details in the publication below on the approach we developed with our clients over the last years & its unique track records in different context (type of categories/ markets/ brand situation)

ii) Ecommerce 2.0? is a unique approach to ecommerce designed to maximize holistically incremental omnichannel value in the FMCG industry and on the most ecommerce friendly/ expandable categories like CHC. It is granular (focus on the top power-couples accounting for >80% of ecommerce weight/ growth/ potential), consumer-centric (consumer research heavy), action-oriented (in-depth e4Ps & eSales fundamentals assessment), KPI-led & execution-focused (identify the decisive enablers across operating model, talents to enable the newly defined intent) to maximize impact. More details in the publication below & in the few selected slides below summarizing the approach

iii) Best Acquirers? (M&A): in a context the majority of M&A transactions failed to deliver any ROI, we see the need for all participants to integrate all available M&A learnings in the FMCG/ CHC industry over the last 15 years (see below publication) and adopt a rigorous 7-steps approach to ensure M&A is deeply rooted in strategy & acquisition targets fully master the category's success drivers

Key message #7: 7 Predictions for CHC over 2024-2030

Bringing it all together:

As we close this publication, we should remember the below quotes. Maybe those are the first barriers CHC players need to overcome to achieve outperformance:

'The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge' - Stephen Hawking

'Face reality as it is, not as you wish it to be' - Jack Welch

Exciting times ahead for CHC

Get in touch:

To follow Frederic, please click Here, To start a conversation, email at: [email protected]

To get the full deck of this publication, please write us at [email protected]

To subscribe to our newsletter and receive all our CEOs Insights, sign-up at the following link: FMCG CEOs: Managing For Growth

About the Firm:

Frederic Fernandez & Associates (FFA) is a global bespoke Strategy Consulting Firm exclusively focused on Strategy, Organic Growth (Zero-Based-Growth? approach), Digital GTM (Ecommerce 2.0?, DTC & Ecosystems and EB2B) and M&A serving the world largest FMCG companies. Its purpose is to help its clients win today while renewing their competitive advantages to win tomorrow. 14 out of the top world 20 largest FMCG companies are repeat Clients.

The Firm's team intervenes all across the globe and across all FMCG categories. To know more about the Firm, please visit our websites:

www.fredericfernandezassociates.com

www.exponentialfmcg.com

No FFA employees own any stocks or financial instruments of any FMCG companies or companies mentioned in the above article. All the above information are public information