January 15, 2007
CVS CEO Looks to Build an Empire
Since 1998 when he took over as the chief of CVS, Tom Ryan has been focused on growing the company. Under his leadership, CVS has aggressively gone after acquisitions of smaller drugstore chains and independents to increase the number of stores operated by the company by 50 percent.
The company launched itself into the in-store medical clinic business with its takeover of MinuteClinic last year. Another deal negotiated last year but not yet finalized — the acquisition of pharmacy benefits manager Caremark — faces some hurdles but Mr. Ryan is said to be confident that it will go through.
"What’s distinguished CVS has been their size and their aggressiveness. When they see an opportunity to purchase more stores or have a bigger presence in an area, they move on it…people try to keep up or follow his lead." Carmen A. Catizone, executive director of the National Association of Boards of Pharmacies, told The Boston Globe.
For all its clout, CVS does face internal performance challenges. Massachusetts’ Board of Pharmacy, for example, had CVS sign an agreement to have its pharmacies monitored by an independent agency after what the Globe described as "scores" of complaints from consumers about prescription errors.
For his part, Mr. Ryan said the issues faced in Massachusetts are not confined to CVS but the company "can always look to do better."
Discussion Question: What is your assessment of the path Tom Ryan has taken CVS on?
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Growth by acquiring other chains is certainly one approach to growing the volume but with rare exception it has also resulted in major issues as the acquired chain is absorbed. One only has to look at Safeway to see the problems; even Kroger is not immune as they’ve had more than a few bumps while traveling the merger highway. Long-term, will CVS be successful? Yes, but I doubt their results will be as good as if they had pursued a strategy of growing organically.
I think, from a customer service standpoint, Walgreens has the upper-hand. Although, I think CVS puts more emphasis on customer needs and convenience through their merchandise selection. I am skeptical of their ability to fill the shoes of their recent acquisition of Sav-On Drugs. I believe that Sav-On was extremely adapted to their market and offered goods that benefited their customers a great deal. It will be interesting to see exactly the way this all plays out, especially here in Southern California.
Five years ago, CVS stock was $14. Two years ago, it was $24. A year ago, it was $27. Today, it’s $32. Although CVS stock fell after the Caremark announcement came out, it bounced back. And if Express Scripts gets Caremark, CVS gets a $675 million breakup fee. So it’s clear that investors like CVS. Not many other retailer stocks have beaten CVS’s stock performance.
We have CVS and Walgreens across from each other in our neighborhood. Having shopped at both the stores, I have concluded that Walgreens’ prices are better/lower than CVS’s even with CVS’s customer loyalty card! With Walgreens, I do not have to worry about having a customer loyalty card, while I would have to remember to have my customer loyalty card when going to CVS.
CVS should be careful to not become a large pharmacy without a unified identity among the “acquired” stores. Walgreens, growing via the construction of new stores, will have better control in creating and maintaining their already strong emphasis of customer service in their new stores/communities.
In the NY area, CVS has a long way to go. There are many competitors–individual, existing and new–including Walgreens, Eckerd, Wal-Mart, and insurance company-direct pharmacies. Non prescription medications are sold in grocery stores and gas stations. It might just be me, but quality seems to be slipping too.
CVS does a good job, but is not great. They seem to be trending in the wrong direction for numerous reasons. 1. Pharmacist tend to avoid CVS due to working conditions. 2. Merchandising “tricks” like non-standard packaging sizes are finally being discovered by CVS customers. 3. GM and service (photo) is higher than competition. 4. Reliance on coupons and gimmicks to convey a low price image. CVS seems to do everything that the old line grocery chains did. Most of the old line grocers are now out of business.
Why can’t today’s retailers look to Costco for direction? No tricks, great employee relations, superior product, fantastic customer service. And, realize this…you don’t have to be a Costco member to have your prescription filled at their pharmacy!
I agree with many of my fellow BrainTrust panelists that CVS needs to focus more on making their company work better, rather than growth through acquisition. This type of tactic often results in misguided resources, poor performing company employees and lack of a coordinated company focus. For these reasons acquisitions often “cost” a company more than just the paper price. If CVS instead focused on growing their core business (like a Costco or Wild Oats) they would probably realize greater efficiencies and a better return to the bottom line, which would drive their stock price up.
Being a member of the company, I may present a bit of biased thought process but shall try to avoid the pitfall.
CVS’s aggressive growth plan is directed at areas destined for peak retirement communities. They did advance heavily on the NY urban and suburbs well ahead of their main competitor at the time, Walgreens. Prime real estate was gathered as well as opportune sites.
Tackling the southern regions with a buy of Eckerd has not gone as well as one would hope but it’s less a direction issue than a IT systems problem.
Savon is a much bigger dilemma as it has hit a different market that has yet to embrace CVS and is seen as an alien entity.
Caremark, if all falls in place, will provide access to another group of customers, some that may be a bit apprehensive to seeing CVS on the monthly statement, but time heals most wounds.
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Growth by acquiring other chains is certainly one approach to growing the volume but with rare exception it has also resulted in major issues as the acquired chain is absorbed. One only has to look at Safeway to see the problems; even Kroger is not immune as they’ve had more than a few bumps while traveling the merger highway. Long-term, will CVS be successful? Yes, but I doubt their results will be as good as if they had pursued a strategy of growing organically.
I think, from a customer service standpoint, Walgreens has the upper-hand. Although, I think CVS puts more emphasis on customer needs and convenience through their merchandise selection. I am skeptical of their ability to fill the shoes of their recent acquisition of Sav-On Drugs. I believe that Sav-On was extremely adapted to their market and offered goods that benefited their customers a great deal. It will be interesting to see exactly the way this all plays out, especially here in Southern California.
Five years ago, CVS stock was $14. Two years ago, it was $24. A year ago, it was $27. Today, it’s $32. Although CVS stock fell after the Caremark announcement came out, it bounced back. And if Express Scripts gets Caremark, CVS gets a $675 million breakup fee. So it’s clear that investors like CVS. Not many other retailer stocks have beaten CVS’s stock performance.
We have CVS and Walgreens across from each other in our neighborhood. Having shopped at both the stores, I have concluded that Walgreens’ prices are better/lower than CVS’s even with CVS’s customer loyalty card! With Walgreens, I do not have to worry about having a customer loyalty card, while I would have to remember to have my customer loyalty card when going to CVS.
CVS should be careful to not become a large pharmacy without a unified identity among the “acquired” stores. Walgreens, growing via the construction of new stores, will have better control in creating and maintaining their already strong emphasis of customer service in their new stores/communities.
In the NY area, CVS has a long way to go. There are many competitors–individual, existing and new–including Walgreens, Eckerd, Wal-Mart, and insurance company-direct pharmacies. Non prescription medications are sold in grocery stores and gas stations. It might just be me, but quality seems to be slipping too.
CVS does a good job, but is not great. They seem to be trending in the wrong direction for numerous reasons. 1. Pharmacist tend to avoid CVS due to working conditions. 2. Merchandising “tricks” like non-standard packaging sizes are finally being discovered by CVS customers. 3. GM and service (photo) is higher than competition. 4. Reliance on coupons and gimmicks to convey a low price image. CVS seems to do everything that the old line grocery chains did. Most of the old line grocers are now out of business.
Why can’t today’s retailers look to Costco for direction? No tricks, great employee relations, superior product, fantastic customer service. And, realize this…you don’t have to be a Costco member to have your prescription filled at their pharmacy!
I agree with many of my fellow BrainTrust panelists that CVS needs to focus more on making their company work better, rather than growth through acquisition. This type of tactic often results in misguided resources, poor performing company employees and lack of a coordinated company focus. For these reasons acquisitions often “cost” a company more than just the paper price. If CVS instead focused on growing their core business (like a Costco or Wild Oats) they would probably realize greater efficiencies and a better return to the bottom line, which would drive their stock price up.
Being a member of the company, I may present a bit of biased thought process but shall try to avoid the pitfall.
CVS’s aggressive growth plan is directed at areas destined for peak retirement communities. They did advance heavily on the NY urban and suburbs well ahead of their main competitor at the time, Walgreens. Prime real estate was gathered as well as opportune sites.
Tackling the southern regions with a buy of Eckerd has not gone as well as one would hope but it’s less a direction issue than a IT systems problem.
Savon is a much bigger dilemma as it has hit a different market that has yet to embrace CVS and is seen as an alien entity.
Caremark, if all falls in place, will provide access to another group of customers, some that may be a bit apprehensive to seeing CVS on the monthly statement, but time heals most wounds.