National Retail Trend: Creating Your Own Brand of OTC Products

National Retail Trend: Should Pharmacies Create Their Own Brand of OTC Products?

Costco has Kirkland; Walmart, Great Value; Target, Good & Gather. Think of any major retailer and fill in the blank. They all have their own private brands, which span categories: household goods, apparel, pharmaceuticals, health and beauty.

If there’s a unanimous trend among the large chain retailers across industries, there are probably good reasons. Costco’s Kirkland Signature brand is worth $40 billion, Walmart’s Great Value $27 billion, and Kroger’s private brands $23 billion. Store brands account for more than a quarter of many of these retailers’ total sales.

In a recent poll, 63 percent of American consumers said they plan on buying more private label goods in the future. According to CB Insights, a technology data platform, private label sales are poised to account for a quarter of all sales for packaged goods in a few years.

Store brands are often a product of “white labeling,” which is the process of purchasing goods from a manufacturer and branding them with your own label. These products are referred to as private label, store brand, or owned brand. For example, Walmart, Target, and Amazon all get their acetaminophen from the same manufacturer (Perrigo) but put their own brand’s logo on their bottles.

On average, private labels earn margins 20 to 35 percent higher than brand names. Creating a store brand also allows retailers to funnel purchases to their products. The retailer controls the positioning, the in-store marketing, and the prices of those products—meaning they have all the means to direct shoppers to their brand over the competitors. Moreover, consumers who trust the retailer are likely to trust their brand.

Though this practice is seen at major corporations, some independent retailers are getting in on the trend, including pharmacies. Whit Moose, owner of Moose Pharmacy in North Carolina, had noticed a lot of demand for probiotics, but he wasn’t satisfied with the quality of the available brands and generics. At the same time, he had been thinking of ways to promote his pharmacy. That’s when he had the idea to invest in his own line of high-quality probiotics, branded with his pharmacy’s logo. “When patients go home and take their vitamins or supplements, that’s our name and our logo they see when they open that bottle every day,” he said. “Just the name recognition part of it is huge.”

Looking at the current landscape of store-branded products, Moose’s strategy was ahead of the curve. In the past, private labels were seen as inferior but much more affordable than their brand peers. But now, store-branded products have grown into legitimate competitors in quality and variety while still winning the pricing battle.

In general, Moose makes more money selling his own brand than he makes selling generic versions. But he earns about the same as the pharmaceutical-grade and name brands because of his commitment to quality. “It’s not like you’re buying it for pennies and selling it for a huge amount,” he said. “We wanted it to be a quality brand and a product we could expand on.”

But quality not only elevates the pharmacy’s brand, it also makes the products more desirable. He’s found that over time patients prefer his products over the cheaper alternatives because they provide the greatest benefit.

“All in all, I’m pleased with how it’s gone,” Moose said. “It is a great opportunity to put your name out there, and as independent pharmacies we want people to see our name on people’s shelves, not Walgreens and CVS.”

“When patients go home and take their vitamins or supplements, that’s our name and our logo they see when they open that bottle every day.”

The hardest part of getting Moose’s private label off the ground was finding a supplier. Many manufacturers that he preferred couldn’t or wouldn’t provide a private label. It would have been easier if he was willing to settle for lower quality, but Moose prioritized products that he knew would benefit his patients the most.

He began by picking up the phone and contacting vendors he already used and liked, asking if they could make him a private label. Most were worried about increasing competition with their branded products or lacked the production capacity to supply a private label. Eventually, after much Google searching and cold calling, he found a quality brand to partner with.

“It’s been a good choice and a good relationship,” he said. Since then, he has broadened his partnerships to expand his assortment and has changed some suppliers after they stopped servicing the pharmacy. “One thing we learned was to make friends, find other vendors that you can use,” he said. “Because you never know what might happen with your current vendor.”

After seeing the success of his probiotics, he started adding more supplements based on popularity and trends. “As we would see a product that was about to take off, and we felt like it would be a good fit with what we were doing, we would add additional ones.”

Now the pharmacy offers 15 products branded with Moose Pharmacy’s logo, all in the supplement category. Although he adds products based on demand, he is cautious before making any decisions because of the volatile nature of the supplement industry. “Most of what we have are tried-and-true. They’re not fads,” he said. “You have to be nimble enough to strike when it’s hot, but at the same time, supplements come and go. By next year something new will come along and everyone will have forgotten about it.”

Most vendors that offer a white label option can also print and apply your pharmacy’s labels for you. Moose decided to produce his own labels through a marketing firm for more creative capabilities and more control over the final product. “What we were looking for was more advanced than what a lot of these folks were willing or capable of doing,” he said. “We wanted ours to look like a professional product.”

Making the private label successul

The most important decision for store-branded products is how to price them. Pricing varies depending on the retailer’s goals and what else is on the shelf. Because Moose chose to focus on quality, he must walk a fine line. “With our community, we try to be price-conscious, but this is not the cheapest product you can get,” he said.

The pharmacy sells the generic and brand name versions alongside theirs, giving patients a “good, better, best” option to suit people of every financial situation. Moose’s version is the “best” in each category, but its price point lands between the generic and the brands.

When someone comes in for brand-name products, Moose educates them on the alternatives, noting many of them aren’t going to give them nearly the benefit that Moose’s will. “This is not the cheapest product you can get, but quality-wise you can’t beat it,” he said. “You are more likely to get the results you’re looking for.”

Much of Moose’s private label success has come through prescriber referrals, which began unexpectedly. During a meeting about his compounding service, he offhandedly mentioned his probiotics. To his surprise, the prescribers were much more interested in those than in his compounding.

“The one we offered was so much better than what they were recommending to patients,” he said. “So we were able to get on their formulary and in their dispensing or prescribing software, and now we get referrals from the local GI doctor group. When that happened, it really took off.”

Moose wishes he would have been more confident when he started out. A part of making this work, he said, is “taking a leap of faith.” As an independent, the risks aren’t as great because you can adapt quickly. You don’t even have to revamp your entire inventory. Moose said many of these vendors will let you buy just a dozen of the items to test out. “If you get a deal like that, what’s the worst that can happen?”

In the end, Moose thinks most independent pharmacies can create a private label that works. “Give patients a good reason to buy,” Moose said. “And if you can do that, if you believe in it, if you understand the products, then I think you can be successful.”

From the Magazine

This article was published in our quarterly print magazine, which covers relevant topics in greater depth featuring leading experts in the industry. Subscribe to receive the quarterly print issue in your mailbox. All registered independent pharmacies in the U.S. are eligible to receive a free subscription.

More articles from the December 2021 issue:

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