CVS' Rx dominance reflects vision of its leaders

Drug Store News,  Oct 10, 2005  by Rob Eder

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"What we have to do as a chain, and as an industry, is to find ways to free the pharmacist up to have a greater level of involvement in [patient] care. ... We want to make the pharmacist more available to the customer through the layout of the pharmacy, through technology and through training tools. Pharmacists should be positioned to use their pharmacy skills in patient management."

That's some of what Tom Ryan told Drug Store News in late 1996, one of a series of exclusive interviews that comprised a special issue devoted to CVS.

Back then Stanley Goldstein, one of the company's three original founders, was still chairman of the company. Ryan had been president and chief executive officer for about two years. CVS was a 1,400-store chain with annual sales of $5.5 billion; pharmacy was still only 44 percent of its total sales, its $2.4 billion at the bench ranking it the No. 6 pharmacy retailer in the United States behind Walgreens, Rite Aid, Wal-Mart, Revco and Eckerd.

Four days after that issue hit industry executives' desks, CVS signed the deal with Revco that made it the largest drug chain in the United States in terms of store count; No. 2, behind Walgreens, in sales.

What a difference four days can make.

Ten years later even more'has changed. For one thing, of the 5,439 stores it operated as of the beginning of July, roughly 3,500 are the product of its mergers with Revco, Arbor and roughly half of Eckerd; its sales in its most recent fiscal quarter were almost two times greater than its entire 1996 annual sales.

For another thing, today pharmacy accounts for more than 70 percent of CVS' total sales.

And that says as much about how far CVS has come over the last decade as it does about the vision of the executives that led it there. The first Consumer Value Store was an HBA store--it had no pharmacy counter.

When Ryan started as a pharmacist with CVS in the summer of 1975, the chain operated fewer than 50 pharmacy departments--about 20 percent of its store base. Today, only about 100 of its stores operate without pharmacies, mostly mall locations and downtown stores too small to accommodate a pharmacy department and too profitable to shut down.

And while it would be naive to suggest that Ryan has been the lone architect of CVS' success, there is certainly no denying the level of influence or the impact his vision has played in shaping CVS in!o the dominant pharmacy retailer it is today. And Ryan wash t alone. Currently, executive vice president of merchmldising and marketing, Chris Bodine had just moved from vice president/merchandise manager for general merchandise to vice president of health care services when Drug Store News caught up to him as part of the series of interviews.

"Our ability to effectively lower costs,.improve patient care .and provlcle nemm care services is me key to our survival in the future, Bodine said. "We need to understand, develop and enhance the pharmacist's role to provide the best possible care, leverage and enhance our pharmacist-patient relationship and prepare for a broader role in cognitive and pharmacy care programs."

It was the very beginning of a new era of thinking about pharmacy care at retail, and CVS was clearly among the pioneers of that new way of thinking. The same year that Ryan took the reins at CVS, the company hired Greg Weishar as president of its thenfledgling pharmacy benefit management division PharmaCare. Today, it is the fourth-largest PBM in America. And while the gap between it and No. 3 Express Scripts is quite significant in terms of sales, CVS has something going for it that none of the top three PBMs has: its stores.

That combination is winning the attention not only of big health carepayers, such as the Connecticut State Employees Union and CS First Boston, as Ryan pointed out recently at an investors' conference hosted by Goldman Sachs (for more, see CVS coverage beginning on page 17). It also leaves it well equipped, Ryan believes, to capture a disproportionate share ot the extra prescription business expected when the Medicare Part D drug Benefit takes effect in a few months.

As Drug Store News editor/associate publisher Tony Lisanti noted in a column several months ago, as volatile as today's retail pharmacy market is, the line between No. 1 and No. 2is almost indistinguishable. CVS operates more stores; Walgreens generates more sales. With bigger stores and more general merchandise, Walgreens'gross margin numbers are a few basis points higher; CVS tends to run a few basis points higher on the operating margin line.

The day CVS bought Revco was the day CVS and Walgreens began taking turns at the top of the pharmacy industry. The fact that they are still trading places at the top speaks volumes to the fact that both chains made a lot of the right moves along the way.

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