Among the more challenging jobs in retail these days is CVS Caremark’s ongoing efforts to convince its various constituencies that the corporation, rather than its two individual components, is the entity of record — and the entity that must be evaluated.

CVS Caremark, Analyst Day, David Pinto, Larry Merlo, CVS Caremark’s senior managers, PBM, Cardinal Health, Helena Foulkes, drug chain, chain drug industry

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Inside This Issue - Opinion

CVS Caremark spotlights ‘ability, agility’

January 20th, 2014
by David Pinto

Among the more challenging jobs in retail these days is CVS Caremark’s ongoing efforts to convince its various constituencies that the corporation, rather than its two individual components, is the entity of record — and the entity that must be evaluated.

The most recent example in this ongoing campaign was on display at an Analyst Day event in New York City last month. In this context, Analyst Day is the annual gathering of financial executives and CVS Caremark’s senior managers wherein the company’s executives lay out their plans, initiatives, strategies, projections and forecasts for the period ahead.

It should be said at the outset that the CVS Caremark executives gave a forceful, upbeat and thoroughly impressive performance, telling the financial people that the outlook for the corporation over the next several years is a positive one indeed. Framing their presentation around an “ability and agility” theme and positioning the future around a “retailing of health care” scenario, to quote chief executive Larry Merlo, the CVS executives painted a picture of steady growth going forward, growth equally distributed by, and dependent on, the drug store chain, the pharmacy benefit manager and the in-store health care clinics that the company is rapidly rolling out. Throughout the presentation the CVS Caremark executives repeatedly asked the analysts to evaluate the corporation, not its individual parts.

Simple as that concept is for financial people to grasp, it has proven elusive for those chain drug store suppliers that provide the CVS drug stores with merchandise and services. Understandably, they continue to view CVS Caremark as a drug chain with a PBM appendage. Viewed this way, CVS is sometimes unfavorably compared to Walgreens, a drug chain that rolls out new retail concepts, new prototype stores and new alliances so often they have become routine.

So it is that the recently announced alliance between CVS and Cardinal Health, significant and game-changing as it was, was dismissed within the supplier community as no big deal, while a similar alliance announced last year between Walgreens and AmerisourceBergen was hailed as a landmark event.

The retailing landscape is littered with failed attempts by retailers to convince their various constituencies of realities these constituencies refuse to accept. A recent example can be found in Target’s efforts to convince customers and financial people that its prices are equal to those at Walmart. Regardless of the evidence, these groups refused to accept the premise that any retailer could out-price Walmart.

To that chain drug community, CVS was, is and always will be a drug chain. That tight-knit, supplier-dominated community has never really grasped what a PBM is or does — and that viewpoint will not easily be changed. To chain drug industry people it’s all about the stores — how they look, how much traffic they draw, how many tubes of Crest toothpaste or bottles of Bayer aspirin they sell, how those sales compare to the competition.

That said, CVS’ most daunting challenge going forward is not about performance. Rather, it’s about documenting that performance, especially as it relates to the drug stores. Truth is, the CVS drug stores are doing just fine, gaining sales at the rate of between 2.5% and 3% annually, opening stores on a pace that will shortly give it 8,000 units, opening MinuteClinic in-store health clinics at a rate designed to have 1,500 units in 35 states open by 2017, dramatically increasing its strength in a generic drug market that is projected to add $50 billion in volume by 2016, and projecting healthy profits over the next several years.

The problem with all this is that, in some respects, Caremark is projected to record more impressive numbers than the drug stores. That’s why the CVS Caremark executives correctly implored the financial people present for Analyst Day to view the corporation as “a pharmacy innovation company,” one with a unique model that at once enhances access to health care while lowering costs and improving outcomes.

That positioning will serve CVS Caremark well in the years ahead, especially given the retailization of health care. Not surprisingly, analysts left the Analyst Day event suitably impressed with the company’s strategic plans going forward and the belief that the CVS Caremark executives, left to implement those plans, will produce appropriate returns.

But that still leaves the chain drug community looking for the same answers or, more particularly, a reassurance that the CVS drug chain will be as important going forward as it has been in the past. As Helena Foulkes assumes the presidency of the drug chain, this reassurance agenda will emerge as among her most pressing priorities. She is, after all, president of the drug chain, a $63.65 billion drug chain that is among the 10 largest general merchandise retailers in the U.S. Her job is to tell the CVS story — and make certain her constituents believe her.

Happily for CVS Caremark, no one in the corporation is better equipped, both professionally and personally, to do so.