Good Health Is Bad for Business

When Consumers Don't Sneeze, K-C and Other Tissue, Medicine Manufacturers Catch Cold (Sales)

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BATAVIA, Ohio ( -- After years of media worry over the threat of avian flu or some other long-overdue flu pandemic, a few marketers are facing a difficult reality: This isn't shaping up to be the year of the big bug or even of many little ones.
Nationwide, sales of facial tissues were down 5.2% in the fourth quarter from a year ago, and cold remedies took a bigger hit.
Nationwide, sales of facial tissues were down 5.2% in the fourth quarter from a year ago, and cold remedies took a bigger hit.

Flu shots are up this year, according to the U.S. Centers for Disease Control, and perhaps as a result, cases of the flu are down. So, too, are colds. And when fewer people catch colds, marketers of facial tissue and cold remedies -- and the retailers who sell them -- get a chill.

Cold and flu symptoms were down 9% in the fourth quarter from a year ago in data tracked by Kimberly-Clark Corp., maker of Kleenex. The brand was a relative soft spot in a quarter of otherwise strong top-line growth for K-C, which saw organic sales rise 6%.

Less prescriptions
CVS/Caremark, the nation's biggest drugstore retailer, blamed the light cold and flu season in part for weak December comparable-store sales growth of 1.8%. Walgreens also blamed fewer flu cases for reducing the number of prescriptions filled by 2.6% in December over a year ago, though overall same-store sales were still ahead of its rival, at 3.3%.

"Unfortunately, people have not been getting sick at a rate we would all like yet," P&G Chairman-CEO A.G. Lafley joked on the company's Jan. 31 conference call with analysts.

"The flu season was the weakest it's been in nine years," said Thomas Ryan, chairman-CEO of CVS at a JPMorgan investor conference Jan. 7. "It has an impact on front-store sales and obviously pharmacy sales." He did note that both he and JPMorgan analyst Lisa Gill were coming down with colds, "so I think it's on its way."

But on a Jan. 24 conference call, K-C Chairman-CEO Tom Falk wasn't so sure, noting that the lower incidence of cold and flu had continued into the new year.

Healthier consumers
That leaves marketers in the sticky position of bemoaning the effect of fewer people getting sick without rooting for disease. "We are never happy when our volumes go down," Mr. Falk said. But he added: "I guess the good news for our consumers is they were generally healthier in the fourth quarter, and there [weren't] any big flu pandemics floating around."

He said K-C hasn't seen a clear trend indicating whether this year's vaccination rate is a one-off or will keep climbing.

A K-C spokesman did note a radio report that Dallas, where the company is headquartered, has had a recent spike in flu cases. Unfortunately for K-C, Texas is one of only five states, also including New York and New Jersey, where the CDC listed the flu as "widespread" the week ending Jan. 19.

Chill in the air
Fourth quarter sales

Facial tissues

Cold/allergy/sinus medicine

Cough syrup

Sore-throat/cough drops

Sore-throat-remedy liquids

Sources: Information Resources Inc. and Deutsche Bank
Nationwide, sales of facial tissues were down 5.2% in the fourth quarter from a year ago, and cold remedies took a bigger hit. Sales of cold/allergy/sinus medications were off 5.4%, cough syrup down 16.4% and sore-throat remedies down 13.1%, according to Information Resources Inc. data reported by Deutsche Bank.

The problem may not just be fewer people getting sick. Walgreens in a December sales report also cited the impact of a Food and Drug Administration recommendation in September that cough and cold remedies never be administered to infants or toddlers and that antihistamines not be given to children under 6.

The rub
The one cough-cold category that's booming may be a beneficiary of the shift away from children's products. Sales in the relatively tiny chest-rubs category rose 21.1% in the fourth quarter to $22.9 million, while still down 13% for the full year. A spokesman for Procter & Gamble Co. said it's "our hypothesis" that Vicks Vaporub is benefiting from parents who've switched their kids from other products.

For its part, K-C may not entirely be helping category sales, either. Kleenex Anti-Viral tissues, designed to kill 99.9% of cold and flu viruses and thus prevent the spread of illness, launched in 2004. To the extent they're working, they're drying up the market.

"I'm not sure whether we can take credit," the spokesman said.

But the brand is still working hard to give people fewer reasons to blow their noses. On the back cover of the February issue of Prevention magazine, it's trying a new tack, a "French zipper gate" ad designed to look like a box of Kleenex Anti-Viral tissues. It opens to reveal tips on how to avoid spreading germs and a 40ยข coupon.
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