Retail

The ‘Amazon Effect’ is slicing into Bayer’s U.S. Consumer Business

by Bloomberg

November 2, 2017 | 1:03 am
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Bayer AG, the 154-year-old creator of aspirin, has been ambushed by a growing force: online retailers like Amazon.com Inc.

The German drugmaker’s consumer-health division is struggling, with profit plummeting 17 percent in the third quarter. A big part of the reason is a shift in the U.S. to online shopping — and discounts — leaving a dwindling number of brick-and-mortar stores to sell Bayer’s products. Erica Mann, the division’s chief, called it the “Amazon effect,” saying buyers are shifting to e-commerce and looking for value.

“We continue to see a very rapidly changing retail landscape,” Mann said on a conference call with analysts on Thursday. “We are seeing the number of store closures this year much greater than in 2008-2009, during the financial crisis.”

Bayer’s struggles come as U.S. shoppers change their expectations about how to purchase all kinds of items — a shift that is quickly extending to over-the-counter medicines. With its bargaining power and reach, Amazon has already transformed the market for everything from books, to clothing, to entertainment.

Pricing Challenges

The pricing challenges Bayer faces are clear. On Amazon.com, Bayer’s low-dose branded aspirin costs $12.38 for 300 pills, though shoppers can get $2 off their first delivery. The generic Kirkland version of the drug costs $5.84 for 365 tablets, which works out to less than half the discounted price per pill for Bayer’s band. And the generic has a slightly higher customer rating, with many users citing its affordability.

Cost pressure and retail competition are fueling consolidation among pharmacy chains in the U.S. Walgreens Boots Alliance Inc., which won regulatory approval in September to buy almost 2,000 Rite Aid Corp. stores, said on Wednesday that it would close 600 of its locations.

GlaxoSmithKline Plc’s consumer business is also seeing pressure on prices in the U.S. tied to the growing e-commerce sector, Brian McNamara, head of the unit, told analysts on Wednesday. Glaxo believes it can compete in the area due to its strong consumer brands. Drugstores and other retailers are vying with online competitors to get foot traffic back into their aisles, he said.

“That’s kind of depressing the value growth on the market,” he said.

Pfizer Inc., which makes brands such as the Advil over-the-counter pain pill and Centrum dietary supplements, is looking at whether to shed its consumer health unit. When asked about online competition, spokeswoman Joan Campion pointed to the company’s market position, with 10 brands exceeding $100 million in 2016 sales. Glaxo Chief Executive Officer Emma Walmsley said Wednesday that the company will look at the Pfizer unit, which had sales of $3.4 billion last year.

For drugmakers, the incursions into consumer health could be just a taste of things to come. Analysts have speculated that Amazon could enter the business of selling prescription drugs by 2019. CNBC reported earlier this month, citing unidentified sources, that the internet giant could make a decision about selling such medicines online before Thanksgiving.

Investor concern about Amazon’s plans have hit shares of Walgreens Boots and CVS Health Corp. in recent weeks. Amazon itself has never commented publicly on the matter.

Bloomberg

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by Bloomberg

November 2, 2017 | 1:03 am
  |     |     |   Start Conversation

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