How Easily Can J&J Regain Lost Shelf Space?

Johnson & Johnson may be a venerable brand name among countless generations, but replacing its lost stature on store shelves may prove more difficult than some may assume. Between the sour economy, which has trained consumers to look for private-label bargains, and the ongoing lack of some J&J products, shoppers may take some convincing before they return to such stalwarts as Tylenol and Motrin, among other brand names.

For instance, sales of private-label acetaminophen for adults rose nearly 14 percent last year from 2010, while J&J's Tylenol was often out of stock. In the children’s pain category, sales of private-label acetaminophen rose more than 30 percent compared to 2010. Meawnhile, competing brands - Pfizer's Advil, and Bayer's Aleve and Bayer Aspirin - rose 7.3 percent, six percent and 8.9 percent, respectively, over 2010.

Meanwhile, Tylenol pain relievers declined 28.1 percent from 2008 to 2011 and J&J Cold brands, which include Tylenol Cold and Sudafed for both adult and children’s, declined 47.3 percent during the same period, according to Kline & Co., a market research firm that conducted the analysis by collecting online data from over 300 consumers during thie past winter.

“The analysis suggests that consumers, challenged by the recession and the fragility of brand loyalty, have been able to replace the recalled brands adequately over the past two years. At the relaunch of recalled brands, Johnson & Johnson will need to invest heavily in brand marketing and even after doing so it may take several years to regain a fraction of the brand’s previous sales and market shares,” says Laura Mahecha, healthcare industry manager at Kline.

This is unlikely to come as a surprise. The J&J consumer business was down worldwide 4.6 percent in the second quarter (see this). Of course, J&J presumably has the marketing muscle to compensate for lost shelf space and many consumers may be quick to forget the myriad reasons - such as musty odors and assorted quality problems - that caused their usual brands disappeared for so long.

But such forecasts may only add additional chatter to the speculation that J&J ceo Alex Gorsky may be tempted to consider unloading a unit that no longer provides a dependable cash flow during times when other businesses - notably, the cyclical pharmaceutical and device operations - remain challenged by pipeline needs and distracting litigation.

For the record, in recent remarks following the quarterly earnings report, Gorksy said that "we're clearly focused on remediation of our OTC business. That's been a very clear priority that we set for the organization. And we're continuing to make strides, although we realize that it does present challenges and that there are learnings along the way.

"We believe, and what we've seen frankly is, that when we do get product back on the shelf, the consumers demand it, and so we want and we will get the consent decree remediation completed. And we're very optimistic about the brands going forward, particularly when you look at our skincare line, you look at our baby care line, they are overall, they're doing well. Our oral care line also.

"Also, regarding our Tylenol brand, I would tell you that our consumer surveys show that while overall brand equity has softened, it remains strong with consumer's relative to our competition. Within the infant's and children's market segment, we have seen some declines in many equity measures due to lack of product, but even in these segments, we remain 2x or more times stronger than store brands in all equity measures. We will invest as appropriate as we restore consistent supply reliability."

In other words, J&J can benefit from the legacy names, but will have to work hard to compensate for the gaffes.