Newell Rubbermaid Goes After $127 Billion Health Market: Retail
With sales of medical equipment and services projected to grow 36 percent in the next five years, companies best known for detergent and diapers are cashing in.
Newell Rubbermaid Inc. (NWL) is making a push into telemedicine. Clorox Co. and Kimberly-Clark (KMB) Corp. are both angling to become go-to suppliers of disinfectants for hospitals. Procter & Gamble Co. operates a concierge medicine service for patients willing to pay as much as $1,800 a year.
Consumer-product companies have poured billions of dollars into innovation and are struggling to find growth in their traditional businesses so it makes sense to “bleed into something that’s scientific or health-and-wellness related” said Ali Dibadj, a Sanford C. Bernstein analyst.
The “medicalization” of P&G, Newell and Clorox will accelerate as they try to move beyond such easy-to-replicate products as detergent, said Dibadj, who’s based in New York.
As the U.S. population ages, spending for “other medical products,” a category that includes some medical equipment and professional services, will expand 36 percent to $127.2 billion in the next five years, according to projections from the Centers for Medicare and Medicaid Services.
The new Patient Protection and Affordable Health Care Act, with its mandates to reduce hospital stays and readmissions, coordinate care and boost efficiency and access, will accelerate demand, too.
When Inova Health Care Services was looking for telemedicine equipment for its chain of hospitals in Virginia recently, it bought it from Newell, a company best known for storage containers, Sharpie pens and Aprica strollers. Newell has built a thriving business selling portable systems that allow doctors to treat patients hundreds of miles away.
Ten of the 12 analysts covering Newell rate the company buy, according to data compiled by Bloomberg. The shares have gained 25 percent in the 12 months through Jan. 29, compared with 15 percent for the Standard & Poor’s 500 Consumer Staples Index. Newell fell 0.9 percent to $23.44 at 10:22 a.m in New York today.
Newell Rubbermaid’s move into telemedicine evolved out of a decade long business of supplying medical record carts to hospitals. With the technology, several doctors in various locations can communicate at once. The telemedicine carts sell for $8,000 to more than $30,000 apiece.
When Mike Polk became chief executive officer in 2011, he identified health care as a priority and late last year appointed a strategist and a team to steer growth in the area. Telemedicine will be a “much bigger” and faster-growing market than medical records, Dave Pirkle, head of the healthcare division, said in a telephone interview. The company’s medical unit is “rapidly approaching” annual sales of $100 million, the company says.
Clorox (CLX) has been acquiring companies that make infection- control products. The company’s health-care business is now generating $100 million in sales a year, according to Chief Executive Officer Don Knauss.
In an interview last year, Knauss called health-care “the No. 1 priority” for acquisitions and said he expects the sector to become a $300 million business. Kimberly-Clark has its own hospital disinfection unit and says health-care sales grew to $1.6 billion, or 7.7 percent of total revenue, last year, compared with $1.2 billion, or 6.3 percent, in 2008.
Kimberly-Clark shares have gained 24 percent in the 12 months through Jan. 29, compared with 15 percent for Clorox.
Compared with its peers, P&G (PG) has taken the most radical departure with its move into upscale concierge medicine. MDVIP, as the service is called, charges patients an annual fee of $1,500 to $1,800 for access to primary care doctors with limited caseloads, sophisticated screening tests for such conditions as cardiac disease, and affiliations with leading hospitals, including the Mayo Clinic. Within the next decade, P&G plans to turn MDVIP into a $1 billion brand to rival such franchises as Tide and Gillette.
MDVIP is still small for a company that had $84 billion in sales last year. To put the medical services in perspective, P&G has 26 brands that each pull in $1 billion in sales a year, or more. Pampers alone accounts for $10 billion in annual sales. Still, finding higher-growth businesses could be key longer term and medical services holds particular promise as affluent baby boomers age.
P&G bought a stake in MDVIP in 2007 and full ownership in late 2009 for an undisclosed amount, part of its push into services that include Tide Dry Cleaners and Mr. Clean Car Washes. While executives won’t disclose revenues, MDVIP has 200,000 patients paying a minimum of $1,500 and is already tallying sales in the hundreds of millions.
Unit president Mark Murrison says the business has a 92 percent renewal rate -- higher than Costco’s U.S. rate of 90 percent -- and is adding about 100 doctors a year. MDVIP is a natural extension of P&G’s push in health-care, Murrison says. With fourth-fifths of medical spending on the non-product side, “if you’re going to be a strong player, playing in services is a critical piece.”
“These household-products companies are in categories that aren’t growing that much,” said Jack Russo, an analyst at Edward Jones & Co.
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