J&J Earnings Show Even Pharmaceuticals See Consumer Trade-Down Amid Inflation

As consumers rein in their spending amid rising prices, even their medical purchases are affected.

On a call with analysts Tuesday (Jan. 24) discussing the company’s fourth-quarter and full-year 2022 financial results, healthcare giant Johnson & Johnson discussed the competition it faces from lower-priced alternatives to its products.

For example, its Stelara medication for Crohn’s disease, ulcerative colitis and other conditions may see increased competition from less established brands. CEO Joaquin Duato addressed the sales threat posed by the “evolution of the biosimilar market” (i.e., emergence of comparable competitors) and the “potentially interchangeability” of the product.

“In 2023, when we think about the Stelara in the U.S., we see sales of Stelara flat to declining, obviously, given the given the price pressures that will be offset also by continuous volume growth,” Duato said.

This trend shows that even necessities such as medical expenses are subject to the same trends as discretionary retail purchases, contending with consumer trade-down to cheaper options. Findings from PYMNTS’ study, “Consumer Inflation Sentiment: Consumers Buckle Down on Belt-Tightening,” which drew from a survey of more than 2,600 consumers, found that 40% had purchased lower quality retail products in an effort to reduce their spending, and 37% had opted for lower quality grocery items.

Granted, not all Johnson & Johnson products are subject to the kind of trade-down the company may see this year with Stelara. Duato noted that he is less worried about the sales of its Remicade treatment for similar ailments because the medication is administered by medical professionals, such that it cannot be as easily swapped out at as a self-administered treatment.

Notably, some brands are arguing that the bulk of consumer trade-down is in the past. Take, for instance, consumer packaged goods (CPG) giant Procter & Gamble. The company’s chief financial officer Andre Schulten told investors on an earnings call Thursday (Jan. 19) that lower-priced store brand products have not put much of a dent in P&G’s business.

“If you look back over the past six months, private label’s share in the U.S. has been relatively steady,” Schulten said. “There hasn’t been a significant shift in consumer behavior in terms of trade down.”

Yet, PYMNTS research suggests that consumers are continuing to be cautious with their spending. Research from the latest edition of the Consumer Inflation Sentiment report,  “Consumer Inflation Sentiment: Perception Is Reality,” which draws from a December survey of more than 2,100 U.S consumers, looks at grocery spending as an example of how they approach spending. The study finds that the vast majority — 69% — of grocery shoppers have made changes to their shopping lists in response to inflation.

The interchangeability that Johnson & Johnson highlighted with Stelara makes a significant difference, as brands with sufficiently differentiated products do not feel the impact of trade-down as much.

On a call with analysts in November,  Mondelēz International CEO Dirk Van de Put said the distinctiveness of the company’s products generally protect from the shift to lower-priced alternatives.

“Because of [our customers’] enduring brand loyalty, private label share is either flat or down in the vast majority of our markets,” Van de Put said. “Shoppers continue to say they are much less likely to switch to private label in chocolate and biscuits compared to other categories.”