P&G Acquires Merck’s Consumer Health Business as FMCG Giants Expand into Wellness

Procter & Gamble Completes Acquisition of Merck Group’s Consumer Health BusinessProcter & Gamble has recently completed the acquisition of the consumer health business of Germany’s Merck Group. This marks Procter & Gamble’s entry into the therapeutic sector, an area it had not previously ventured into. The acquired business will be rolled out sequentially across regions including Europe, Latin America, and Asia.

The consumer health sector is a vast market, encompassing over-the-counter (OTC) drugs, vitamins, nutritional supplements, weight management products, and fortified foods and beverages. According to data from Euromonitor International, a strategic market information provider, the global retail sales of consumer healthcare products were estimated at $233.2 billion in 2017, with an annual growth rate of approximately 4%.

Procter & Gamble’s acquisition of Merck’s consumer health business aims to identify new growth opportunities in the broader healthcare sector, particularly in the Chinese market, which P&G highly values.

Reclaiming the Chinese Market Through the Greater Health Sector

According to Procter & Gamble’s previously released financial statements, in fiscal year 2018, the company’s global revenue increased by 2.73% year over year to $66.832 billion. However, due to a 5.33% year-over-year rise in operating costs to $34.268 billion, net profit fell by 36.01% year over year to $9.861 billion. In the first quarter of fiscal year 2019, Procter & Gamble’s revenue growth further slowed to 0.22%, reaching $16.69 billion. Since hitting $80 billion in 2012, Procter & Gamble’s global revenue has stagnated, with total sales amounting to only $65.1 billion in 2017.

Procter & Gamble, the traditional FMCG giant, is declining at an alarming rate, particularly in the Chinese market. In 2009, during its peak, Procter & Gamble held an overall market share of approximately 47% in China, with its hair and personal care products once reaching 50.5%.

With the rise in living standards among Chinese consumers and the dawn of the internet era, distribution channels in the Chinese market have undergone dramatic changes. The younger generation of consumers shows a stronger preference for personalized products, while the emergence of high-end domestic fast-moving consumer goods (FMCG) has further intensified competition. Under the combined pressure of these factors, Procter & Gamble’s performance in the Chinese market has been steadily declining.

David Taylor, Global CEO of Procter & Gamble, stated bluntly at the 2016 annual conference of the Consumer Analytics Group in New York: “In China, our second-largest market, none of our core categories are gaining users; in fact, most are still declining.”

Regarding Procter & Gamble’s acquisition of Merck’s consumer health business, an industry insider who requested anonymity analyzed that, at present, P&G will focus its greater health initiatives in Asia on the Chinese market, making it highly likely that these efforts will be prioritized for implementation there.

Research reports indicate that the global consumer health supplement market was valued at approximately USD 233 billion in 2014. In 2017, China’s health supplement market size approached RMB 150 billion, and it is projected to reach RMB 181.6 billion by 2020. Under the “Healthy China” strategy, China’s broader health industry represents a vast market opportunity, with the scale of the healthcare and medical industry expected to reach RMB 8 trillion by 2020.

“If Procter & Gamble can leverage its consumer business segment, it can identify new profit growth drivers, enrich its brand portfolio, and expand its distribution channels and business scale. Moreover, from a financial perspective, this would help the company increase its revenue and net profit,” the source told Health界.

Regarding Procter & Gamble’s acquisition of Merck’s consumer health business, Cheng Minqi, an investor at Invus Capital, told Health界, “How to achieve effective integration will be the key.” Moreover, with multiple fast-moving consumer goods companies currently entering the consumer health sector, it remains to be seen whether Procter & Gamble can leverage this new business to achieve growth and regain market share.

Pharmaceutical Companies Divest Consumer Healthcare Businesses

For a long time, the consumer health market has been dominated by traditional pharmaceutical companies, with Johnson & Johnson, Bayer, GSK, Pfizer, Abbott, Sanofi, Mylan Pharmaceuticals, Merck, Ipsen, Sanofi S.A., Piramal Enterprises Ltd., Sun Pharmaceuticals Ltd., and Glenmark Pharmaceuticals Ltd. being industry leaders.

However, as more and more fast-moving consumer goods (FMCG) companies recognize the growth potential of the consumer health industry, they are gradually entering this sector, leveraging their consumer insights and advanced marketing capabilities.

Nowadays, in pursuit of higher consumer loyalty and greater profits from health brands, fast-moving consumer goods (FMCG) companies are increasingly showing interest in consumer health. In addition to Procter & Gamble, companies such as Unilever, Nestlé, Danone, and Coca-Cola are all expanding their businesses in the consumer health sector.

In March 2018, Unilever announced its intention to acquire the consumer healthcare nutrition business of British pharmaceutical giant GlaxoSmithKline. Data showed that in 2018, the total turnover of GlaxoSmithKline's HFD portfolio was approximately €550 million.

On April 19, the news that Merck KGaA was selling its consumer health business for $4.2 billion flooded social media feeds; several months later, the deal was ultimately closed with Procter & Gamble Company.

Pfizer’s consumer health business, valued at over $20 billion, is also seeking a buyer.

“Competition among pharmaceutical giants is fierce, with each company striving to enhance management standards and focus on core businesses while divesting non-core segments,” Zhao Heng, founder of the medical strategy consulting firm Latitude Health, told Jiankangjie.

Cheng Minqi believes that for traditional fast-moving consumer goods (FMCG) companies, leveraging their consumer health businesses to enter the broader healthcare sector is a prevailing trend. Compared with starting a new business from scratch, acquiring ready-made business units divested by established pharmaceutical companies is clearly an attractive option.