The rise of the consumer health economy

0:00Patrick Coffey:Welcome to the Barclays Brief. Have you been to the supermarket recently and noticed how food and drinks seem to come with a whole new vocabulary? What used to be just a yogurt is now promoted for its protein content. Coffee is now functional. Drinks talk about gut health and even ice cream can be marketed as high protein. It feels like we're being told less about what a product tastes like and much more about what it does for us. And it's all part of this idea of food as medicine. It's a window into a much broader shift in how consumers think about health, prevention and everyday well-being. That growing focus on self-care is fueling the expansion of the consumer health industry.

0:48Patrick Coffey:And to dig into that today, I'm joined by Warren Ackman, Head of European Consumer Staples Research here at Barclays. Warren, great to have you in the studio with me today. Patrick, delighted to be here and consumer health is fascinating. I've been doing this job almost 30 years and this is one of the most interesting structural growth opportunities I've seen. Yeah. But actually, it's funny you say structural growth opportunities, because in the note you've just published, you described COVID as a structural inflection point for the consumer health industry. What actually changed during that period that's proving so long lasting?

1:24Patrick Coffey:It's fascinating. Yeah, it was a game changer. I think it was just generally more interest in self-health, self-care. You know, consumers back then were scared. And so they were going back to medicines that they have always known. So self-care really picked up. And at the same time, we saw quite a big switch to kind of e-commerce. You know, a lot of education online. People were Googling. They had plenty of time to do that. And we saw some categories like vitamins really spiking during that COVID period as consumers were really thinking about prevention. And lockdown, I think, changed behaviour fundamentally in the sector.

2:04Patrick Coffey:And it's been proven to be very sticky. People bought those vitamins then and still take them now. Consumer health itself is a multitude of different industries. How do you define the industry of consumer health? The way I define it is quite simple. Everything you can buy without a prescription and related to self-care. And if you break the market down, I think of it as four buckets over the counter. So that's medicines without a prescription. vitamins minerals and supplements vms sports nutrition and oral and oral is an interesting one because you wouldn't think toothpaste would be consumer health but we're thinking about therapeutic oral health primarily yeah so that's the definition we're using but some people also include other categories such as infant nutrition derma cosmetics adult nutrition and depending on the the you know the definition you can go from anywhere from a quarter of a trillion dollars market up to about half a trillion.

2:58Patrick Coffey:Okay, so you've got a half a trillion industry, but it's all growing a little bit unequally, isn't it? You talked about vitamins, minerals, supplements growing strongly at the moment. Where else are you seeing the strongest growth today? And how much of that is about new categories versus people simply buying more within existing categories? It's about 50-50, I would say. It's more existing categories for sure, but there are also new categories and there's new science coming to the same category. So it's a mix. Right now, where we're seeing the strongest growth is in areas such as sexual health, magnesium is a big mega trend that we're seeing, smoking cessation, hydration.

3:35Hydration powders are booming. Acne remedies, there's new science that we're seeing in acne, and also hair loss treatment. Those are probably four or five of the fastest growing areas right now in consumer health.

3:47Patrick Coffey:But how do those trends vary by geography? If you think about US, Europe, emerging markets, are they similar or very different? In general, developed markets are more mature, so you would expect those markets to be growing at low single digits. Emerging markets would be high single digit, and combined, the consumer health market grows around 4%, 5%. But in developed markets, certainly, it's more of a market share game. And in emerging markets, it's more about driving penetration and frequency of consumption. Yeah, because in emerging markets, There's a great demand for some of these products, aren't there?

4:24Patrick Coffey:If you think about 50 % of consumers being micronutrient deficient in emerging markets, there's a real need for vitamins, minerals, supplements. How do you think about that structural opportunity in emerging markets? Well, I think micronutrient deficiency is quite a broad-based problem in emerging markets. Emerging markets is a funny word, actually. You need to look at it country by country. In a market like Philippines, you definitely see even higher numbers than that. If you look at China, think about calcium. Calcium intake is less than 50 % of the daily recommended level, yet only 15 % of consumers in China take a calcium supplement.

5:04So yes, it's a widespread problem. And it goes further. Osteoporosis is a big issue in China. So yes, I think the VMS category in particular has got very bright prospects in those markets.

5:16Patrick Coffey:And so you've got this picture where consumer demand is clearly very strong, but one of the most interesting points in your research is to say that the biggest players within the consumer health industry are bleeding market share. Why is that? I think it's multifaceted. I think one reason is that some of these companies have come out of pharma companies, and so they've still got a pharma mindset. And it takes time to actually change to a more consumer-centric mindset, which is about consumer need state rather than about molecules. I think the other reason is e-commerce. E-commerce is booming everywhere in most consumer health subsectors, whereas in pharma, investing in e-commerce perhaps wasn't the highest priority.

5:55So again, it takes time to actually figure out which of the channels that are showing the most dynamic growth. But we're starting to see a shift in that mindset. Yeah. So you've got the channel growth.

6:05Patrick Coffey:How do you think about growth in areas like marketing or education or innovation? Look, I think marketing generally in consumer health is quite high. If I look at marketing spend across consumer staples as a percentage of sales, it averages about 10 % or low double digits, whereas in consumer health it can get as high as 20%. And part of that is all the extra work you need around education, around really explaining to the key opinion leaders, the pharmacists, the doctors about why these products actually work and so yes marketing is part of it education is something that you don't need to do in a you know food or beverage product it's obviously pretty intuitive yeah what about innovation then because you know we were talking on the in the lift on the way up here about example you gave a toothpaste doesn't sound that exciting yeah but it's quite interesting when you've now been able to combine sensitivity products with whitening products for toothpaste any other examples of innovation in product that you're you would kind of flag yeah that is a great example because normally when you have sensitive teeth it's actually you know whitening your teeth makes the sensitivity worse so the science that some companies can bring to it if it works consumers will pay up for that because it's a double benefit the other ones that i think are quite interesting at the moment we're seeing changes in the u.s off-cold market which hasn't really seen any big innovation for a long time i was going to say that doesn't sound that exciting it's not exciting But if you can actually give consumers a 12-hour benefit without re-dosing, then that's exciting because you can continue your day, one dose, and you're done.

7:44So that's a good example. We're also seeing changes in things like sun care at the moment with some really interesting new sun filters, UV filters, that have just been approved. So things are moving. Even in mature categories, if you get a real interesting breakthrough in science, it can drive quite a big uplift in growth.

8:03Patrick Coffey:Yeah. Okay. Well, if they could design something that my children will put sun cream on without complaining, that would be a very good thing. So we put it all together. We've got a potentially very big market, half a trillion. We've got consumer demand being pretty strong. We've got companies in a sort of tricky situation where they're going from pharma companies to consumer companies needing to innovate, but also educate the market. If you look ahead, say five, 10 years, where do you think investors are underestimating the consumer health opportunity today? I think e-commerce is really key. And if you think about e-commerce penetration before COVID in consumer health, it was low double digit.

8:43And now it's already 25 % of the total market. But interestingly, it's already over half the growth. And in some countries, they're skipping the pharmacy channel. They're going straight to e-commerce. And you're particularly seeing that in emerging markets. So I think investors really need to think about where does e-commerce go in consumer health if you're looking forward 10 years. I think the other area that's becoming increasingly interesting is the whole trend around wearables. You know, you can't walk around the streets without seeing people with Fitbits or whoops. And all that data that consumers have, they look at it, but they're not actually then translating that into personalized products.

9:31and companies are beginning to wake up to this. So I think if you look forward five or 10 years, I think the whole ecosystem, taking that data and then creating personalized products is going to boom.

9:43Patrick Coffey:Yeah. Okay. So hyper-personalization through that proliferation of wearables is going to be key. I mean, I'm wearing a Garmin today and I do look at the data, but I'd never think what products could I do to maximize my performance? Growth opportunity. Big growth opportunity. Okay. Well, we're going to have to call it a day there, but Warren, thanks so much. This is a fascinating topic. Thanks, Patrick. A pleasure. Stepping back, consumer health looks like a structurally attractive growth market, but one that's evolving quickly. Strong demand is there, but the competitive landscape is shifting.

10:15Patrick Coffey:The winners will be defined by innovation, digital execution, and exposure to faster growing markets. And with personalization and data starting to play a bigger role, this feels like an industry very much in transition. And in my experience, it's exactly in these periods of transition, where behavior is shifting and business models are adapting, that some of the most interesting opportunities for investors tend to emerge. Thanks for listening to The Barclays Brief. Please hit subscribe and we'll be back at the same time next week.