Hitting its Stride
By Jill Bruss
Reporting a banner year, CVS brings Eckerd into the mix, doesn’t skip a beat and earns PL Buyer’s Retailer of the Year Award.
In the 20 years since CVS hit the $1-billion sales milestone, the leading drug store retailer has hit its stride and set a sales record at $30.6 billion for its fiscal 2004.
“2004 was an excellent year for CVS and one that will probably be remembered as a pivotal year for our long-term success,” Tom Ryan, president and chief executive officer, said recently.
Total sales for one of the leading drug store retailers increased 15 percent to reach that $30.6 billion, up from $26.6 billion last year. Reflecting share growth in front-end sales and pharmacy, same-store sales increased “a healthy” 5.5 percent. Total sales of exclusive brands and private label products generated more than $1 billion in 2004, with a combination of CVS brand items offering innovative solutions and remedies and exclusive brands introducing new customers to private brands.
Of course the big news in the drug store industry was CVS Corp.’s acquisition of 1,268 Eckerd retail stores and Eckerd Heath Services, which includes Eckerd’s mail order and pharmacy benefit management business, from the J.C. Penney Co. Inc. in a deal tagged at about $2 billion.
July 31, 2004, was the official acquisition date, bringing Eckerd into the CVS mix and starting a new growth phase for CVS corporately and in the eyes of consumers. The acquired Eckerd stores, primarily in Florida and Texas, bring CVS into new strategic markets and give the company the largest retail store base of any pharmacy retailer in the United States. Eckerd signs throughout Florida, Texas and other Sunbelt locations were replaced with CVS/pharmacy signs, and renovation of store interiors ranging from lowering store shelves to laying the well-recognized CVS carpet and stocking stores with the CVS assortment have become a top priority and are currently underway. Eckerd store conversions and remodels are expected to be complete by this July, while new stores continue to open, staying on course with CVS’s corporate growth strategy. Company execs say an expected 275 to 300 new or relocated stores will be added in 2005, finishing the year with approximately 5,500 stores.
Corporately, a huge accomplishment was achieved when less than four months after closing, and months ahead of schedule, CVS had completed all store and financial systems conversions. “It’s important to note that the systems integration process of any transaction is the biggest risk factor, and now that’s totally behind us,” Ryan told investors proudly.
While working on transitioning the Eckerd stores in the second half of 2004, CVS continued to open new stores — 225 new or relocated CVS stores in 2004 — and opened a new distribution center in Ennis, Texas. The facility uses state-of-the-art storage and retrieval systems that are 30 percent more efficient and require half the space of traditional distribution centers. The facility directly and positively effects in-store productivity, as it selects and ships products customized to the layout of each destination store.
And through all the tumult of acquisition, transition and rapid growth, CVS stayed focused on nurturing and improving the company’s private label lines and exclusive brands, giving them the attention they deserve and quickly introducing the CVS brands to former Eckerd shoppers. And earning CVS PL Buyer’s Retailer of the Year Award for its commitment to private label.
Into Eckerd They Go
CVS private labels and exclusive brands already have been integrated into the converted Eckerd stores, leaving Eckerd’s former private brands to be part of the remaining Eckerd stores acquired by the Brooks Co. Eckerd’s private label brand played a significantly smaller role in the Eckerd environment than the CVS brands do in the retailer’s assortment, according to Ryan. Eckerd’s program was “underdeveloped,” he said, giving CVS “a significant opportunity to bring to bear the CVS private label line and proprietary brands.”
“We have better growth at CVS than in the overall channel and private label business,” says Judy Sansone, vice president merchandising, consumer health care, personal care, CVS store brands and photo imaging.
“In our core categories – health and beauty care and OTC — we have much higher penetration than our competitors,” adds Jason Feingold, director of CVS store brands.
It has been published that CVS has about 12 percent penetration, but the team is now keeping growth goals close to the chest, simply asserting the growth initiative as top priority.
“The target is where the customer wants it to be,” Feingold says. “We want to grow as far as the customer lets us — wherever the customers’ needs will be happily met with private label. We’re not going to push beyond that point because that doesn’t help anybody.”
CVS brand items sit prominently on the retailer’s traditionally lower store shelves and span health and beauty and OTC core categories, as well as other departments including baby, paper goods, snacks and some general merchandise. From shampoos, conditioners and hair styling products to baby care and OTC, the CVS brand name pops from bright, easily readable packaging.
CVS proprietary brands relay a high-end image and also cross a number of categories with the health and beauty segment. Skin products, makeup, salon-quality hair care and men’s products make up an effective and powerful mix, with more room to grow.
“We see incremental opportunity in proprietary brands where we can build brands that resonate with the customer more than a store brand might,” Feingold says.
“Proprietary brands create loyalty – the only place you can find them is at CVS,” Sansone adds. “And obviously they offer expansion of sales and margins.”
Lumene, the No. 1 cosmetics brand in Finland, is available in the United States exclusively at CVS, bringing into play a department store-quality lineup of items to the mix. The company reports that 40 percent of Lumene customers are new to the skin care category at CVS, a great way to ease potentially private label-leery customers into the private label customer base.
Within the same high-end strategy comes Christophe of Beverly Hills, a hairstyling line boasting salon-quality products and the premium image to boot. Recently, CVS added new products for color-treated hair — the Color Extending line complete with shampoo, conditioner and shine spray. And one of the newest items, PreVentin is one of the chain’s top beauty SKUs and has only been part of the mix for less than a year. PreVentin-AT is capitalizing on the trend toward fighting wrinkles and aging in anti-wrinkle therapy products. The cream compares with department store products carrying price tags of more than $100 with its less-than-$30 price point and “amazing results,” according to Sansone.
Looking to further develop the lineup of exclusive brands, new proprietary lines are on the drawing board and expected in 2005 and 2006.
Under the banner brand, CVS not only offers a thorough lineup of national brand equivalents, but aims to innovate and complement the traditional private label offerings necessary in any mix. The company’s assortment of BloodStop bandages are a stellar example of stepping out of the NBE mindset. The product is designed with M-doc technology that actually aids in stopping bleeding. With no similar national brand item, these predominantly displayed products relay the CVS commitment to offering added value and serving its customers’ needs to make life “CVS easy.”
CVS boasts of a digital blood pressure monitor that also goes steps beyond national brand equivalent. The CVS brand blood pressure monitor uses MAM (Microlife Average Mode) technology – the same technology as monitors in doctors’ offices. Three blood pressure readings are averaged to generate a more precise measurement, and the item carries the validation of the British Hypertension Society with an A/A grading.
To help the growing arthritis-inflicted population, CVS worked with a major pharmaceutical company to develop an arthritis pain relief gel with a patented barrier to keep gel on longer. There’s no national brand equivalent, Feingold asserts.
When it comes to over-the-counter drugs, innovating becomes a challenge with ingredient requirements and Food and Drug Administration guidelines coming into play. The key to differentiation here for CVS is the recent acquisition of the exclusive rights to the Nuprin brand. Nuprin’s reputation as a once-leading national brand in pain relief grants CVS the opportunity to capture former Nuprin users, as well as those whose purchase decisions rely heavily on name recognition. CVS also plans to leverage the Nuprin brand equity and introduce a line of allergy, cough and cold and external pain-relief products, of course exclusive to CVS.
In general merchandise, there’s no doubt that in consumers’ minds CVS offers a strong photo program, a part of the store generating a lot of loyalty for CVS. Beyond photo services, advanced digital capabilities and top-quality customer service, CVS brand one-time use cameras have stayed on pace with camera technology and the retailer offers one-time use digital cameras. The technology is “completely new to market,” Sansone says.
New products, packaging
When it comes to growing the private label mix, both Feingold and Sansone say it’s the customer that drives product development decisions. Line extensions, new products and national brand equivalent items all play an integral role in the new product development process but need to tackle a defined consumer need for the CVS private label team to take action.
“New products have to be meaningful,” Sansone says. “Bringing in a new product is expensive for everybody and so we’re focused on only adding meaningful line extensions. Our big focus is still on innovation and value.”
Feingold adds, “We are aggressively adding new items. We are adding items in our core categories faster than anybody else. And we’ll continue to do so.”
In health and beauty care, in particular, Sansone points to the relevance of consumer thought process when making a purchase. “In health care, people can very quickly see ingredient comparison, they have a very high comfort level,” she says. “When something is an emotional purchase – such as cosmetics, beauty products and fragrance – there is a different thought process.”
“It’s much more difficult to make the connection on an emotional product,” Feingold adds.
Early this year, CVS introduced a new brand identity for its line of health and beauty aids. The new packaging, designed by MLR Design, intends to relay the retailer’s brand message that CVS knows how to help people take care of their family’s health and beauty needs. The graphics are colorful and bold, with readable type and specific product descriptors and usage information.
“CVS/pharmacy is ahead of the curve in understanding the power of private brand strategy,” Christy Russell, president of MLR Design, told PL Buyer’s sister publication Brand Packaging.
The new product development process is a science, of course, but getting products – whether innovative or NBE — on the shelves is of equal caliber when timing, placement and relevance to consumers are critical pieces of the process.
“Being first to market with NBE items that are not offered elsewhere is one of our primary goals,” Feingold says, referring proudly to last November’s launch of ibuprofen liquigels and more recently chewable fiber tablets. “Anything that’s not available yet – with untapped opportunity – we want to be first, and we’ll continue to be first.”
Both Feingold and Sansone say the CVS supplier base recognizes the company’s willingness to jump at new opportunities, grab new ideas and push them through the system in an effort to achieve their first-to-market goal. “First to market doesn’t mean a week or two. For us, it means really leading the industry,” Sansone says. “But it takes a lot of effort to be first, with lots of behind-the-scene work that happens before the product hits. Without a national brand, there’s nothing to ‘copy’ or use elements from — we’re inventing something new. It’s a big process.”
Extra Efforts from ExtraCare
Having been around for about five years, CVS’s loyalty card program called ExtraCare is particularly unique in the drug channel. Early 2005 marked the launch of ExtraCare in the newly converted Eckerd stores, and in the first few weeks the acquired stores had already seen 40 percent of sales using ExtraCare, Ryan said.
With now more than 50 million cardholders, ExtraCare offers invaluable resources for targeted marketing by demographics and purchase behaviors, including private label purchasing patterns.
“The CVS ExtraCare loyalty program is really data-rich,” Sansone says. “It’s a program built entirely on building relationships with customers. We do a lot of work with customers who buy private label, and we can really target those customers that have very high potential or are our best customers. It’s a real tool for us to grow this business. And it’s unique in the industry.”
Using data generated by the ExtraCare program, CVS has been able to target its best photo customers, for example, by sending them a thank-you – a sample one-time use camera or a coupon with a note and information from CVS. The program also allows CVS to convert customers or increase the scope of categories they’re comfortable with in making private label purchases.
“We can target specific customers who seem to like private label in one business, but may not be buying it in another. ExtraCare helps us get them to buy across the store,” Sansone says.
ExtraCare also provides invaluable data to identify trends and potential new product development areas and identify marketing opportunities. In-store marketing, of course, drives private label sales, grabbing consumers’ attention at the point of purchase. At CVS, the goal to treat private label like a brand becomes prevalent in packaging, marketing and merchandising. The “marketing like a brand” philosophy spurred the development of a private label children’s medicine packaged with a toy attached.
“We do treat private label like a brand so we can do things that are value-added, without having to just play with price,” Sansone says.
Store circulars have always played an integral role, often with store brand spreads in the center and full pages given to the Lumene line and other exclusive brands. New to CVS are FSIs specific to private label.
The past year has been a strong one for CVS, with executives across the board optimistic about continued growth across the company. In a February conference call, a CVS executive forecasted total sales to increase 18 to 22 percent in 2005, with the Eckerd acquisition making a significant impact in the later part of 2005 and significantly in 2006 and beyond.
“Our biggest success is our continuing success,” Sansone says. “We’re gaining share and we’re growing at rates that are leading the industry. There’s every reason to believe that’s going to continue. What we’re doing is working, our customers love it, and every month we’re growing.” PLB
At A Glance CVS CORP.
Headquarters: Woonsocket, R.I.
Sales: $30.6 billion in 2004, up 15.1 percent
Same-store growth: 5.5 percent, excluding acquired stores
Store count: More than 5,300 nationwide (1,268 from July 2004 Eckerd acquisition) 60 percent offering 24- or extended-hour service
New markets: Texas; Florida; Phoenix, Ariz.; Las Vegas; Chicago; Minneapolis
Web site: cvs.com
C? V? S?
When the retailer’s first store opened in Lowell, Mass., in 1963, the sign over the door read Consumer Value Store. As the company grew, the store’s full name was phased out and CVS was officially born. Unofficially, according to the company itself, the letters now stand for convenience, value and service.
State of the Drug Store Industry
Much thanks is due to the aging baby boomers and ultimately their increasing health care needs. With rising demand for prescription drugs and other health-related products, the retail pharmacy industry is expected to more than double by the year 2012. Tough break for the aging population in need of more pharmacy services, prescription drugs and health care supplies, but that’s good news for retailers in the drug store channel.
As consumers age, so too does the desire to fight the signs of aging, spurring the sale of any and all products designed to help prevent wrinkles and age spots, bone loss, hair loss, the list goes on and on. And while these consumers are interested enough to buy products, they’re at the same time savvy enough to want a good value – a value only offered by private label.
The Private Label Manufacturers Association reports that the fourth quarter of 2004 was “a banner period” for private label products in U.S. drug chains. Dollar sales and unit sales were up, driving store brand market share to all-time highs, according to Information Resources Inc. For the quarter, PLMA reports dollar sales in private label up 2.3 percent vs. a decline of 0.6 percent for national brands. In the drug channel, private label brought in $21 million in new sales for the quarter and 13 million additional units, generating fourth-quarter sales of $958 million.
“Private label is growing faster than national brands, faster than total sales,” says Jason Feingold, director of CVS store brands. “It reflects a combination of the need to offer value products in our channel – making sure people have affordable, economical options – and also the customer’s mindset shifting.”
“Our growth is outpacing all classes of trade,” adds Judy Sansone, vice president merchandising, consumer health care, personal care, CVS store brands and photo imaging.
The retail business overall is a competitive environment – made very clear to those of you trying to conduct business and even clearer to consumers watching competitive outlets pop up just blocks or even feet away from one another. And of course there’s the prevalence of the big guys – the Wal-Mart and Target stores potentially grabbing customers from drug retailers in their best attempts to offer one-stop shopping for all of a family’s needs.
But executives at CVS would disagree, saying “we’re sharing those customers,” according to Todd Andrews, director of corporate communications. “We’re just as innovative as anybody across any channel in terms of what we offer. There’s a big difference in the shopper’s mindset when they get in the car, drive to the mall, park 200 yards form the door and walk another 100 yards into the store. That’s isn’t a trip to CVS,” he says.
Andrews points to research that shows people wanting to go to a pharmacy within one to two miles of their homes – looking for true convenience. “For the shopper that wants that experience, we are the best,” Andrews says, pointing to the fact that for many years CVS has co-existed with Wal-Mart in three-quarters of the company’s markets.
The role of the pharmacist is an important point of differentiation as well, says Jason Feingold, director of CVS store brands. “At CVS, the pharmacist is a big part of the store. If I have a sick child or I have arthritis, CVS is about coming to a pharmacy for help. [At the supercenters,] the pharmacist is a much smaller piece of the store.”
The pharmacy also helps CVS drive its private label program, as pharmacists gain a high level of trust from consumers and can serve as a an extremely effective education point for consumers new to private label.
“We can drive our core health care private label business based on the credibility of the pharmacist and the active engagement with customers,” Feingold says.