CVS' Strategic Gameplan

Industry OverviewManagerial Structure
As the company to ever create an online pharmacy,Structurally, CVS is just like most companies. It follows
CVS has brought a new flavor to the pharmaceuticala pyramidal style of management with the help of a
industry. Currently, Consumer Value Store is #53 ofCEO, Tom Ryan, and 9 others that report to his office.
fortune 500 companies. The company operatesThomas Ryans charismatic leadership revolves around
primarily from prescription drugs sales which accountsa sense of urgency, openness to new ideas and
for 70% of its total revenues. CVS is actually one ofwillingness to embrace change. As a pharmacy, the
the most pervasive drugstore chains in America; itcompany prides itself on the ability of its pharmacists
operates nearly 4,100 facilities, placing it side by sideand technicians to provide [consumers] with some of
with three of its major competitors, Eckerd, Rite Aidthe highest-quality care in the industry. Basically, the
and Walgreens. Within the Consumer Value Store liescompany has a very autonomous style of
PharmaCare, a subsidiary that is considered key to themanagement whereby each employee represents the
company’s expansion and profit margin becausecompany holistically. Based on that tenet, CVS
of diverse managerial tactics it provides to thedevotes serious effort to hire competent employees
company.combined with proprietary technology and work-flow
enhancement in order to make the drug store more
In the beginning, the first store opened its doors in 1963productive and efficient.
selling health and beauty aids. By the end of that sameIn 2001, however, after the company absorbed a lost
year, the chain grew to 17 stores averaging $3.3 millionof more than $130 million during the fourth quarter, the
per year. Since then, the chain has been growing at aCEO adopted a restructuring plan that guarantees
rather outstanding rate. Today CVS is successfullyprofitable chains selling space and the successful
operating in well over 32 states and it is still expanding.integration of its ProCare specialty pharmacy
During most of the 1990s, CVS has separated itself asoperation which provides PharmaCare prescription
one of the most well managed chains in the nationalbenefits. In addition, the restructuring plan took root at
drug store industry, reaching the 4000 mark and still isthe very top of the organization. Consequently,
growing. The companyregulatory supervision of chains top executives along
Key Competitorswith the other departments becomes more
CVS faces challenges from three major competitors.commonplace.
Specifically, Walgreens which holds 38% of marketTraining Process
share is expanding at a rate of more than 400 newAt CVS the marketing as well as the training
stores per year. Secondly, Eckerd currently the sixthdepartment work closely with each other. The
largest U.S. market at 33% of market share iscombination is done for many reasons primarily to
venturing the Phoenix market which offers long termseamlessly advertise within the stores and to insure
growth. Finally, Rite Aid Corp with 30% of marketthat employees have the necessary knowledge of
share is planning to add around 300 private label SKUscertain products to adequately serve the consumers.
including household chemicals, school supply andAccordingly, the company recognizes its employee
garden items just to name a few.needs in terms that they need the right tools, sufficient
Major Trends in Industrytraining and support. As a result, training seminars are
As a way of reevaluating marketing strategies, CVS isfrequently under way to keep the employees sharp.
closing some of their stores. Approximately 230 hasAlong with constant training, the company is gradually
been shut down so far because it is determined thatautomating some of the basic tasks of pharmacists
disassociating from other chain of stores and malls toincluding electronic telephone refill systems and
individual locations will be much more profitable as thatautomatic dispensing machines in order to make
not only target tourists, but also regular residents.pharmacists more available for customer interactions.
According the 2004 agenda, CVS plans to startFinancial Overview
opening stores in Minneapolis, the 10th largest drugstoreFundamentally, the chain achieves high levels of
market in the US, and high traffic areas such asprofitability by considering several factors namely
Chicago, Florida, Las Vegas, Phoenix and Texas fordriving growth and improving productivity. Based on
expansion.these strategies, the fourth quarter of 2002 can
Marketingaccurately model the chains ability to generate vibrant
CVS marketing strategies revolve mainly aroundsales figures even during economic adversities. The
expansion. As the nations leading pharmacy withsame way productivity is an essential component of a
stores in more than 32 states, CVS is graduallycompany, growth is just as important because before
expanding its chain of stores in Florida. Currently, it hasintegrating the aforementioned aspects, store sales
opened two stores in Central Florida, nine in thewas nearly flat throughout the chain; however, after
Tampa Bay area and eight in South Florida. In addition,incorporating the new tactics sales have climbed about
CVS has several stores under construction including2.5%, shares have gone 49 cents from 34cents the
two more in Central Florida, five in Tampa Bay andprevious year and net income has skyrocketed by
seven in South Florida. According to the Senior Legal730% over a two-year period despite the economy
Counsel, Michael B. Nulman, entry into the Floridaand the competitive nature of the pharmaceutical
market has been profitable beyond normalindustry.
expectations because not only has customerLiquidity
acceptance of the Florida stores been incredible, butThroughout the beginning of first quarter of 2003, CVS
sales figures in these new areas have been betteranticipated an increase in cash flows form operations.
than many previous locations.As a result of improve working capital management,
Marketing Strategythe chains net cash provided by operating activities
Altering the format of the stores is another strategyjumped from $133.9 to $183.6. Although the increase of
that generates high profit margins. Moving from the$49.7 million in the early stages of the quarter is an
convention 9600-square-feet prototype, CVS planinteresting move, it will adversely impact the chain
toward bigger and better free-standing facilitiesbecause of future lease payment associated with
resulted in 22 billion dollars in sales and ranked itstores shut down as part of the restructuring plan.
second of top pharmacy in 2002 among itsDuring the quarter, a cash payment of $6.5 million has
competitors. As opposed to the smaller stores, thebeen made to offset partly the effects of the
10,885 and 12,150-square-feet prototypes allowrestructuring. Based on a long-term perspective, the
drive-through pick up that simultaneously serve twochains liabilities is bound to extend until 2024 mainly
cars and provide a great deal of convenience which isfrom noncancelable leases totaling $185.6 million.
what the CVS chain is seeking to achieve accordingThroughout the last five years, CVS has been either
to Alfred J. Callegarri Regional Director of Real Estate.head to head with its competitors or way ahead of
Basically, the CVS chain tries to succeed where itsthe game. For instance, over a 52-week period there
competitors have failed.has been relatively small market fluctuations with the
Productshighs of approximately 34 points and lows of 22.
Along with medicine, CVS sells a variety of otherCurrently, the market value of the chain can be
items. As a pharmacy, it sells the very things that oneestimated at $10,283.5 million which offers 14.4% return
would find at a convenient store. CVS along with aof equity, 9.89 cash flow ratio and a 14.5 earnings ratio.
number of supermarkets is responding to customerIn terms of growth, revenue has been increasing rather
demands by providing one-stop-shopping andnicely along the 5-year spectrum. Specifically in 1999,
convenience to the shopping experience. According torevenue reached 7.4%, three years latter, it went up to
the Food Marketing Institute, the vast majority of new8.5% and subsequently after 5 years it skyrocketed to
stores and remodeled ones offer an ever-wider12.3%.
variety of services and products in one place includingConclusion
wine, ATM services and greeting cards just to name aCVS is one of the most stable companies within the
few.drug store chain today. Reflecting on the company's
Pricefinancial statement over the last five years, it has
Although CVS product line sells at market price, itmanaged to keep a relatively stable flow of income
manages to attract more customers than itsoverall and best of all, profit is continuously growing at
competitors. As a pharmacy, CVS is the only drugvirtually all levels. Historically speaking, achieving great
store that uses scannable consumer discount cards.success was not only the culmination of endless years
Conversely, Rite Aid has a reward program thatof painstaking dedications, but it was the devotion to its
offers a discount on specific markets, meaning onlyconsumers that seemed to overcome most of the
very few stores participate in that program whichobstacles that stood before its path. Based on that
renders it largely ineffectual. On the other hand, CVSkind of commitment, Consumer Value Store is a great
card-scanning strategy helps it win even the finickycompany to invest in because of its loyalty, dedication
customers. In addition, the pharmacy gives 2% off onand stability.
non-prescription items and one dollar off every twoSources
prescriptions. Finally, the card enables CVS to not onlyOverview. Media General Financial Services, Inc. Dec.
keep track of the buying habits of customers, but to2002. Hoovers Online. 26 May 2003.
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concert with the Boston-based Inter-public Group toCVS Reinvents Itself to Meet Changing Market Place
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front end as well as the very back of the stores thatQuarterly Report SEC Form 10-Q. Biz Yahoo. 12 May
way food, beverages and cosmetics are at the2003. NYSE. 4 June 203.
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stores and most importantly, they buy more.