Why OTC drugs could be the next hot CPG category

Over-the-counter (OTC) drugs undergo a VC-backed startup branding process.

Over the past few years, direct-to-consumer brands like Harry’s and Quip have redefined categories such as beauty, food, personal care, and household products.. Recently, clean-label, sustainably packaged over-the-counter drug start-ups have attracted investors, helping big box retailers and drugstore chains reinvent the OTC aisle.There was a particular interest in the category with similar waves In the vitamins and supplements segment, high profile acquisition In the last few years; for example, Bayer purchased a majority stake in the DTC supplement brand Care/of, Nestlé acquires vitamin subscription startup Persona.

Both VCs and large retailers are eyeing smaller players. Brands like Wonderbelly, Cabinet Health, and KinderFarms for kids have made big moves in recent months, raising millions of dollars. For example, Wonderbelly, a gastrointestinal health medicine startup that launched in November, is coming to Target this week. Cabinet Health is poised for similar expansion following his $17 million funding round, which closes in late 2022. KinderFarms, on the other hand, was launched two years before him. It is owned by Venice Brands, the holding company behind consumer brands such as Joolies medjool dates and men’s skincare line Only Skin.

Major retailers take note

Wonderbelly’s line of chewable antacids will roll out in over 650 Target stores and on Target.com on March 27, marking the company’s first major retail partnership. The brand does not sell through his DTC channel, but does have his Amazon store for online sales. Wonderbelly products sit in his OTC aisle at Target, next to traditional antacids like Alka-Seltzer and Tums.

According to the company, the digestive health pills are free of unnecessary additives and plastic packaging. Wonderbelly uses the same active ingredients found in domestic products like Tums, including calcium carbonate, but with a version without talc, dyes and artificial sweeteners.

The brand’s origins were inspired by co-founder Lucas Kraft’s struggle with stomach problems since childhood. When antacid maker Zantac was recalled in 2020 over claims it contained compounds allegedly carcinogenic, Wonderberry CEO and brother Noah Kraft and his “I had an entire shelf dedicated to Zantac, and that pushed me even further to see the big brand labels,” said co-founder Noah Kraft. Founder Lucas Kraft said.

Now the company has its first opportunity to join the big players. Ahead of Target’s launch, Wonderberry redesigned the packaging from a minimalist all-white can to color versions that reflect flavors such as strawberry milkshake, watermelon his mint, and new Target-exclusive fruity cereal flavors.

“Historically, pharmaceutical packaging has been sterile, so we wanted to bring it to life and add some humor,” Lucas Kraft said. “[Target has] They provided side and end caps for me to get creative with merchandising. ”

The company’s goal is to sell 90% in physical stores, with Amazon complementing its online business. The company eventually has plans to add adjacent products such as laxatives and gas relievers.

investor interest

OTC continues to be a popular category among venture capitalists, despite longer return investment timelines.

“CPG investors see this category as a huge opportunity and are catching up,” said Noah.Last summer, Wonderberry Raised $3,375,000 Casper’s Luke Sherwin, Magic Spoon founder, and Justin Gold of nut butter company Justin’s participated in a seed round to help launch it. After Wonderbelly signed a deal with Target, Noah Kraft said one of the first things the founder did was get more cash from investors to fund needed inventory. said it was.

For years, obvious CPG categories like beauty and personal care have been disrupted by digitally native brands, said Mike Duda, managing partner of Bullish, an early investor in supplement brand Care/of. I was. “But now we’re seeing a shift towards sleepier categories filled with old-school brands,” he explains Duda. This includes over-the-counter drugs that most Americans buy at their local drugstore chain.

“Additionally, retailers have gotten smarter about new brands creating excitement in the aisle. But Target is a leader in bringing these new brands to the fold, Duda. increase.

Startups try to scale

Cabinet Health, an online over-the-counter and prescription drug startup launched in 2020, is also poised to grow amid the boom in the category. The company sells OTC flagship products such as cold and flu, allergy relief, and pain reliever packs.

Cabinet Health raised $17 million in December, and its founders starred in “Shark Tank” in January. That boost increased brand awareness. Cabinet Health is now selling his two limited-edition “Shark Tank” bundles of best-selling medicines at a discounted price.

In 2022, Cabinet Health will launch its first domestic distribution partner, Grove Collaborative, to use the new funding to further its retail presence alongside its prescription business. These products were previously available only on the company’s consumer website.

Russell Gong, co-founder and president of Cabinet Health, says the road to building a sustainably packaged pharmaceutical brand is a bit bumpy. Gon said. Research and development involved sourcing and testing different variations of each cabinet, requiring a large upfront investment. Gong did not name the Cabinet’s upcoming retail partnerships. However, “I am pleased to say that the cabinets will be available in physical stores starting this year.”

In particular, over-the-counter pain relievers represent a huge area of ​​opportunity for young companies looking to modernize their formulations and branding. Even subcategories like children’s medicines are seeing disruption by startups.

KinderFarms, an OTC company for children, was co-founded in 2021 by actress Jessica Biel. The company started by selling medical-grade oral electrolytes and plant-based protein shakes. Last fall, KinderFarms launched his KinderMed. KinderMed is a children’s pain reliever made without artificial sweeteners, flavors or colors. In his first year, KinderMed entered his 19,000 stores nationwide, including major retailers such as Walmart, CVS and Walgreens.

The value proposition offered by this new class of OTC companies will be put to the test as they enter mainstream retail. “It’s still unclear whether the clean ingredients and sustainability aspects are big issues for consumers buying these brands,” Duda said. for sale An eco-friendly sunscreen that leaves the customer’s tan.

Still, the interest in OTC companies is expected to continue. “We are currently accepting OTC pitches, but we will scrutinize them before investing,” Duda said. “I think we will see more OTC brands emerge, especially in long-neglected areas like women’s health.”

Cabinet Health’s Gong hopes that medical care will catch up with the turmoil in beauty, fashion and food. Until recently, “it felt like the healthcare industry wasn’t starting these conversations,” he said.

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