As the company to ever create an online pharmacy, CVS has brought a new flavor to the pharmaceutical industry. Currently, Consumer Value Store is #53 of fortune 500 companies. The company operates primarily from prescription drugs sales which accounts for 70% of its total revenues. CVS is actually one of the most pervasive drugstore chains in America; it operates nearly 4,100 facilities, placing it side by side with three of its major competitors, Eckerd, Rite Aid and Walgreens. Within the Consumer Value Store lies PharmaCare, a subsidiary that is considered key to the company’s expansion and profit margin because of diverse managerial tactics it provides to the company.
In the beginning, the first store opened its doors in 1963 selling health and beauty aids. By the end of that same year, the chain grew to 17 stores averaging $3.3 million per year. Since then, the chain has been growing at a rather outstanding rate. Today CVS is successfully operating in well over 32 states and it is still expanding. During most of the 1990s, CVS has separated itself as one of the most well managed chains in the national drug store industry, reaching the 4000 mark and still is growing. The company
CVS faces challenges from three major competitors. Specifically, Walgreens which holds 38% of market share is expanding at a rate of more than 400 new stores per year. Secondly, Eckerd currently the sixth largest U.S. market at 33% of market share is venturing the Phoenix market which offers long term growth. Finally, Rite Aid Corp with 30% of market share is planning to add around 300 private label SKUs including household chemicals, school supply and garden items just to name a few.
Major Trends in Industry
As a way of reevaluating marketing strategies, CVS is closing some of their stores. Approximately 230 has been shut down so far because it is determined that disassociating from other chain of stores and malls to individual locations will be much more profitable as that not only target tourists, but also regular residents. According the 2004 agenda, CVS plans to start opening stores in Minneapolis, the 10th largest drugstore market in the US, and high traffic areas such as Chicago, Florida, Las Vegas, Phoenix and Texas for expansion.
CVS marketing strategies revolve mainly around expansion. As the nations leading pharmacy with stores in more than 32 states, CVS is gradually expanding its chain of stores in Florida. Currently, it has opened two stores in Central Florida, nine in the Tampa Bay area and eight in South Florida. In addition, CVS has several stores under construction including two more in Central Florida, five in Tampa Bay and seven in South Florida. According to the Senior Legal Counsel, Michael B. Nulman, entry into the Florida market has been profitable beyond normal expectations because not only has customer acceptance of the Florida stores been incredible, but sales figures in these new areas have been better than many previous locations.
Altering the format of the stores is another strategy that generates high profit margins. Moving from the convention 9600-square-feet prototype, CVS plan toward bigger and better free-standing facilities resulted in 22 billion dollars in sales and ranked it second of top pharmacy in 2002 among its competitors. As opposed to the smaller stores, the 10,885 and 12,150-square-feet prototypes allow drive-through pick up that simultaneously serve two cars and provide a great deal of convenience which is what the CVS chain is seeking to achieve according to Alfred J. Callegarri Regional Director of Real Estate. Basically, the CVS chain tries to succeed where its competitors have failed.
Along with medicine, CVS sells a variety of other items. As a pharmacy, it sells the very things that one would find at a convenient store. CVS along with a number of supermarkets is responding to customer demands by providing one-stop-shopping and convenience to the shopping experience. According to the Food Marketing Institute, the vast majority of new stores and remodeled ones offer an ever-wider variety of services and products in one place including wine, ATM services and greeting cards just to name a few.
Although CVS product line sells at market price, it manages to attract more customers than its competitors. As a pharmacy, CVS is the only drug store that uses scannable consumer discount cards. Conversely, Rite Aid has a reward program that offers a discount on specific markets, meaning only very few stores participate in that program which renders it largely ineffectual. On the other hand, CVS card-scanning strategy helps it win even the finicky customers. In addition, the pharmacy gives 2% off on non-prescription items and one dollar off every two prescriptions. Finally, the card enables CVS to not only keep track of the buying habits of customers, but to communicate with them more intimately and advertise accordingly.
It is ironic the way CVS becomes a pharmacy because the owners, the Goldstein brothers, did not have any design on pharmacy. To mention the least, they were not even pharmacist to begin with; they were mere distributors. From 1963 until today, the same distribution model has evolved to make CVS a successful corporation. As a way of managing deliveries from 22,000 different locations, CVS reanalyzes its flow of inbound supply strategies by improving logistics and monitoring inbound shipment in order to prevent order failures. In fact just to strengthen the viability of the plan, the chain anticipates an inventory reduction of approximately 17% over the next 12 months. Unlike some other businesses, CVS follows an expedited distribution program whereby a variety of distribution channels are utilized such as warehouses, the Internet and in some cases certain manufacturers. In fact, last autumn, the chain formed and alliance with Merck Corporation to facilitate a seamless distribution of prescription drugs throughout the country.
CVS uses many of the conventional ways of advertising. To begin with, the pharmacy does not handle its own advertising campaign; rather, it works in concert with the Boston-based Inter-public Group to target consumers whereby the most rudimentary methods are used namely radio, ads and TV commercials. Generally, ads are a really effective way to target potential consumers; however, during economic fallouts ad budgets are normally the first to be discarded to reduce expenses. Another strategy the store uses to sell its products is through its layout; that is putting most of the everyday-use items in the front end as well as the very back of the stores that way food, beverages and cosmetics are at the customers fingertip. As a result, the new settings not only attract customers, but they stay longer in the stores and most importantly, they buy more.
Structurally, CVS is just like most companies. It follows a pyramidal style of management with the help of a CEO, Tom Ryan, and 9 others that report to his office. Thomas Ryans charismatic leadership revolves around a sense of urgency, openness to new ideas and willingness to embrace change. As a pharmacy, the company prides itself on the ability of its pharmacists and technicians to provide [consumers] with some of the highest-quality care in the industry. Basically, the company has a very autonomous style of management whereby each employee represents the company holistically. Based on that tenet, CVS devotes serious effort to hire competent employees combined with proprietary technology and work-flow enhancement in order to make the drug store more productive and efficient.
In 2001, however, after the company absorbed a lost of more than $130 million during the fourth quarter, the CEO adopted a restructuring plan that guarantees profitable chains selling space and the successful integration of its ProCare specialty pharmacy operation which provides PharmaCare prescription benefits. In addition, the restructuring plan took root at the very top of the organization. Consequently, regulatory supervision of chains top executives along with the other departments becomes more commonplace.
At CVS the marketing as well as the training department work closely with each other. The combination is done for many reasons primarily to seamlessly advertise within the stores and to insure that employees have the necessary knowledge of certain products to adequately serve the consumers. Accordingly, the company recognizes its employee needs in terms that they need the right tools, sufficient training and support. As a result, training seminars are frequently under way to keep the employees sharp. Along with constant training, the company is gradually automating some of the basic tasks of pharmacists including electronic telephone refill systems and automatic dispensing machines in order to make pharmacists more available for customer interactions.
Fundamentally, the chain achieves high levels of profitability by considering several factors namely driving growth and improving productivity. Based on these strategies, the fourth quarter of 2002 can accurately model the chains ability to generate vibrant sales figures even during economic adversities. The same way productivity is an essential component of a company, growth is just as important because before integrating the aforementioned aspects, store sales was nearly flat throughout the chain; however, after incorporating the new tactics sales have climbed about 2.5%, shares have gone 49 cents from 34cents the previous year and net income has skyrocketed by 730% over a two-year period despite the economy and the competitive nature of the pharmaceutical industry.
Throughout the beginning of first quarter of 2003, CVS anticipated an increase in cash flows form operations. As a result of improve working capital management, the chains net cash provided by operating activities jumped from $133.9 to $183.6. Although the increase of $49.7 million in the early stages of the quarter is an interesting move, it will adversely impact the chain because of future lease payment associated with stores shut down as part of the restructuring plan. During the quarter, a cash payment of $6.5 million has been made to offset partly the effects of the restructuring. Based on a long-term perspective, the chains liabilities is bound to extend until 2024 mainly from noncancelable leases totaling $185.6 million.
Throughout the last five years, CVS has been either head to head with its competitors or way ahead of the game. For instance, over a 52-week period there has been relatively small market fluctuations with the highs of approximately 34 points and lows of 22. Currently, the market value of the chain can be estimated at $10,283.5 million which offers 14.4% return of equity, 9.89 cash flow ratio and a 14.5 earnings ratio. In terms of growth, revenue has been increasing rather nicely along the 5-year spectrum. Specifically in 1999, revenue reached 7.4%, three years latter, it went up to 8.5% and subsequently after 5 years it skyrocketed to 12.3%.
CVS is one of the most stable companies within the drug store chain today. Reflecting on the company’s financial statement over the last five years, it has managed to keep a relatively stable flow of income overall and best of all, profit is continuously growing at virtually all levels. Historically speaking, achieving great success was not only the culmination of endless years of painstaking dedications, but it was the devotion to its consumers that seemed to overcome most of the obstacles that stood before its path. Based on that kind of commitment, Consumer Value Store is a great company to invest in because of its loyalty, dedication and stability.
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