Accenture recently published our High Performing Business (HPB) research note, The Changing Future of Consumer Healthcare, which highlighted the significant changes expected in the consumer health marketplace over the next five years. While we expected that changes would happen, the recent torrent of activity amongst consumer health companies shows how dynamic this market is becoming and indicates that our observations were on the mark. Specifically, two major events announced in April and May:
Bayer Consumer Care outbids Reckitt Benckiser to acquire Merck Consumer Care at a purchase price of $14.2 billion, well above the initial estimates of $10-12 billion. Industry observers were surprised with the outcome, as the odds-on favorite has been Reckitt Benckiser given its aggressive purchase of Schiff Nutrition in 2012. The acquisition vaults Bayer as a #3 global consumer healthcare player with $7 billion revenue increasing its brand portfolio and scale across key regions, especially the US.
GlaxoSmithKline (GSK) and Novartis announced the formation of OTC joint venture, with over $11 billion in combined sales, under the name GlaxoSmithKline Consumer Health. It was reported that the announcement was kept very quiet even within the consumer health leadership of both organizations until the very last minute. Similarly, this new joint venture expands both the brand portfolio and scale across key regions.
These two events together are the most significant realignment of the consumer health market in a long time, and it’s not a coincidence. The key findings we identified in our HPB research provided ample rationale for these events, such as:
Massive Market Expansion - The $502 billion consumer healthcare market is expected to grow by nearly 50 percent over the next five years to over $737 billion, and much of this growth is forecast to come from outside the traditional OTC market. And the gap is widening between the High Performers and their peers. It is clear that High Performers (and those that aspire to be) recognize the potential of the expanded consumer health market and are adapting their strategies in response. Of the $235 billion expected increase in the next five years, here’s the breakdown by sector:
Changing Consumer Needs - Consumers want to take charge of their own health and wellness, as evidenced by an increase in health club spending, retail clinics, wearable fitness devices, in-home diagnostics, mHealth apps in smartphones/tablets, etc. And this is not just a developed market phenomenon – markets like China, India and Brazil are facing a major aging of their population, so preventive health is increasingly important. Product innovations designed specifically with health or aging in mind are a rapidly growing concept, and leading companies are listening closely to their consumers to bring them products aligned with their needs.
New Players - Non-traditional consumer health companies like Samsung, Nike and Google are entering the market, looking to tap into the new health conscious consumer, with enabling technologies that deliver real-time monitoring for the connected healthcare consumer.
High Performers Stand Out - Reckitt Benckiser and Mead Johnson Nutrition emerged as High Performers in our performance analysis of the 17 consumer health peers. Reckitt Benckiser was also a top performer in our 2010 HPB study, and this year, CEO Rakesh Kapoor stated: “Consumer health is one of the most fragmented markets in the world, and that is a real issue/opportunity. The fragmentation will result in consolidation – the only question is who, when, and how.” Clearly, Reckitt Benckiser’s aggressive bidding for Merck Consumer is evidence that they agree with the opportunity in consumer health, and are willing to spend significantly to gain market share.
New Capabilities are Required to Win – As the needs of the consumer are rapidly changing, so too must the capabilities of those that want to win. Five distinctive capabilities are identified to achieve High Performance and enable companies to outperform their competitors:
Advancing analytics to integrate across the organization, driving continuous, rapid innovation aligned with deep customer insights
Engaging in 1:1 marketing through innovation that delivers a seamless customer experience
Delivering the seamless customer experience across all channels, anytime, anywhere
Evolving to a more dynamic operating model that serves growing emerging markets
Focusing on winning in high-value categories and high potential markets
These fundamental changes to the consumer health landscape will force both traditional and new OTC players to significantly ‘up’ their game to achieve high performance. Check out my next blog post to hear about other shake-ups occurring in this exciting market.
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