Inside This Issue - Opinion
CVS, Walgreens should seize moment
October 12th, 2009
by David Pinto
CVS Caremark and Walgreens both opened their 7,000th drug store earlier this fall, within a week of each other.
CVS’ milestone store opened in a suburb of St. Paul, while Walgreens’ landmark unveiling took place in the Coney Island section of Brooklyn, N.Y.
The usual dignitaries put in an appearance at each event. Larry Merlo, president of CVS Caremark’s drug store unit, headed the CVS contingent, while Walgreens president and CEO Greg Wasson led that retailer’s team. The rest of the crowd included several local politicians, most of whom spoke too long and said too little, and a handful of suppliers.
Perhaps the highlight of the Walgreens event was the presence of Cork Walgreen, grandson of the founder and, as the retailer’s chairman and CEO during Walgreens’ halcyon years of the 1970s and ’80s, the man more instrumental in bringing the drug chain to this day than any executive in the company’s 108-year history.
CVS’ road to 7,000 stores was shorter than Walgreens’ and probably more smoothly traveled. Unlike Walgreens, which struggled in the decade before Cork Walgreen ascended to the executive suite, CVS’ history since its founding in 1963 by Stanley and Sidney Goldstein and Ralph Hoagland as Consumer Value Stores has been one of virtually uninterrupted growth. It must be added, however, that the Woonsocket, R.I., drug chain didn’t really get into high gear until Tom Ryan took over in 1994.
Today, CVS and Walgreens dominate the chain drug segment of the mass retailing industry as no two retailers have done since the days two generations ago when Sears, Kmart and Wal-Mart fought for sales leadership among all U.S. retailers. Or, going back still further, when A&P and Safeway wrestled for supermarket sales supremacy in the years leading up to and following World War II.
Moreover, seldom in their history have these two drug chains more closely resembled each other.
Each has staked its future on health care. The CVS drug store chain is now part of a larger entity, one that includes Caremark, one of the nation’s leading pharmacy benefits managers, while Walgreens has also demonstrated a major commitment to the PBM business. Each is committed to immediate-care clinics, and each is busy rolling out innovative prescription drug programs designed to fortify what are already the most compelling pharmacy presentations — with the possible exception of Wal-Mart’s — in all of retailing.
But this emphasis on pharmacy hasn’t come at the expense of the front end. Even now, both retailers are mounting aggressive front-end programs designed to give customers more opportunities to buy the products they need, while eliminating those that shoppers, whether they know it or not, don’t really want.
It can even be said, with some degree of certainty, that each of these two retailers is in the strongest position in its history. The case can be made that this statement is truer for CVS than for Walgreens, given the upheaval the Deerfield, Ill., drug chain has undergone over the past year, one that began with the premature retirement of CEO Jeff Rein late last year.
But it is the belief here that the cataclysm that has reordered the drug chain was not only necessary but long overdue, and the retailer that ultimately emerges will be stronger and more tightly focused than the Walgreens drug chain of the early years of this decade or the latter years of the last.
Only one challenge remains for these two exemplary retailers: to gain the endorsement, support and strength of the supplier community.
Until now, suppliers have, in the main, been on the sidelines as these two retailers have mapped strategies, unveiled programs and rolled out the initiatives they believe will carry them to unprecedented success over the next several years. Generally speaking, suppliers have been little more than observers, watching programs unfold or, more commonly, told how, when and where to support these programs.
Suppliers are unaccustomed to standing by as major customers plan new strategic directions. They are even less accustomed to being dictated to, being told rather than asked.
Make no mistake: The probability is that both CVS and Walgreens will succeed in implementing their new programs with or without supplier cooperation. But the supplier community is a powerful resource for any retailer. Ignored or antagonized, this resource will turn elsewhere, making the retailer’s programs more difficult and, in the long run, costly to implement. Properly utilized, suppliers can smooth the retailer’s path — and, in the long run, provide the customer with huge benefits.
It only remains to be seen which of these two drug chains, if indeed either of them, seizes the moment.