As expected, CVS Investor Day delivered on its promise to inform and excite the investor community. CVS Health CEO Larry Merlo started the day by introducing a new set of strategic priorities and announcing the expansion of the retailer’s new HealthHUB format to 1,500 stores. CVS’s senior leadership team also provided details ranging from the Aetna acquisition to the recent success in front-store health and wellness categories. As suppliers look to better partner with CVS Health, Investor Day highlighted CVS’s renewed focus on self-care with details on the goods and services the retailer is prioritizing. Here are some key takeaways from the June 4 event.

1. Collaboration will be crucial

The Aetna integration was a popular subject. Beyond that, CVS’s senior leaders addressed the existing pharmacy benefit management assets and their future vision of CVS offering a fully connected customer experience. “Our differentiated set of assets and capabilities will enable us to dramatically improve the healthcare system to the benefit of consumers, clients, and other healthcare stakeholders,” Merlo said in his opening remarks. CVS believes it has all the pieces necessary to lead the outcome-based retail healthcare movement. By tying together the offerings from the retailer and insurer, CVS can create a wheel with numerous touchpoints for shoppers and patients. During her presentation, Karen Lynch, president of Aetna’s healthcare benefits segment, laid out the ambitious vision of what CVS and Aetna can do together (Figure 1).

Figure 1. A Combined Vision of CVS-Aetna

Source: Company materials

If successful, the CVS-Aetna wheel would differentiate CVS from its drug channel competitors. However, CVS and Aetna are two different companies, with very different cultures. There is no guarantee that the integration will be simple or easy. Suppliers looking for new ways to partner with CVS Health should offer ideas that make it easy for the new retail healthcare company to make decisions and navigate its new ecosystem.

2. Data transforming culture

Data management has transformed CVS Health’s culture. CVS’s senior leaders stressed this point many times during their Investor Day presentations, pointing toward numerous projects underway to better connect their data assets. “The breadth and depth of the consumer data we have access to through our numerous healthcare assets is unmatched,” Merlo said. “This data, combined with our investments in advancing our analytics capabilities, provides a powerful engine to inform healthcare decision-making.”

As CVS drives forward with its mission of providing better health outcomes to its shoppers and patients, data management will continue to play a pivotal role. CVS is evolving into a “personal” and “local” retailer with data becoming the new infrastructure that fuels its customer health profiles. With these data profiles, CVS will push out customized products and services that meet shoppers’ distinct needs. While this new data-focused approach will build customer loyalty, it will also cost money. As CVS looks to balance considerable IT investments with customer priorities, suppliers will need to offer more data-agnostic solutions.

3. Services are key

CVS is making a concentrated push to become not only a seller of goods but also a purveyor of services. Throughout the day, CVS’s senior leadership team highlighted the retailer’s focus on affordability and accessibility, with retail health services enabling these strategies. Kevin Hourican, CVS’s EVP of retail operations, highlighted how CVS expects to expand health services to drive customer demand and differentiate CVS beyond being simply a convenient pickup point for prescriptions.

CVS’s slate of new services will help drive loyalty and keep shoppers in stores. From the “Care Concierge” (the central health adviser in a HealthHub that will roll out to hundreds of locations) to services focused on managing chronic conditions, CVS is working to gain and retain shoppers. Suppliers will need to consider how they fit into a new patient journey and the new touchpoints that services will add to the care experience.

4. The reinvention of front-store space

Hourican spent his time on the Investor Day podium laying out a new retail strategy. Parting from the areas his predecessor, Helena Foulkes, focused on, Hourican laid out four new strategic pillars for CVS’s retail business: creating a compelling place to shop, investing in omnichannel, driving customer-focused innovation, and offering a differentiated service experience (Figure 2).  

Figure 2. CVS’s New Retail Pharmacy Operations Strategy

Source: Company materials

The retailer has already made some progress on creating a compelling place to shop with its recent moves to become a health and beauty destination. CVS invested heavily in these two categories, and shoppers have responded. Hourican touted “industry-leading” sales growth of 5.6% and 3.2% sales in health and beauty and personal care categories in Q1 2019 (Figure 3). These results must have been assuring data for Hourican and his team. After years of front-store decline, the early performance from CVS’s significant investment in health-centric categories is encouraging news for CVS and some of its suppliers.

Elsewhere, Hourican said the BeautyIRL format will expand to support this category growth. The scaling of BeautyIRL with 50 more remodels in 2019 suggests that CVS’s larger beauty emphasis is unlikely to subside anytime soon and that beauty brands have an opportunity to align with the retailer. Hourican also said his team would evaluate whether to close or remodel 500 underperforming stores yearly based on their future potential. Suppliers may want to analyze the bottom 500 CVS stores in terms of sales volume and understand what the impact could be if all, or a significant portion, were closed.

Figure 3. Recent Front-Store Category Performance

 

Source: Company materials

5. Evolution of loyalty

As already mentioned, data was a popular topic during the event, and CVS’s second and third strategic pillars are closely tied together with the retailer’s focus on data. Omnichannel investment will help improve CVS’s data, which will then lead to better personalization for shoppers. Hourican gave ExtraCare a special callout, suggesting that CVS’s longtime loyalty program will evolve as the retailer refines its retail experience. Suppliers should consider adding data scientists to their teams to mine ExtraCare data and develop propensity analysis of card members. 

Collaboration will be crucial for CVS to realize any of its ambitions. It is simply too early to say what will happen, but CVS sent a powerful message to its retail competitors on Investor Day: The retailer is blazing its own path and heading into uncharted and disruptive waters as it seeks to become a consumer health company. We will have to see what that means exactly.

For more information, please contact:

Ben Antenore, Analyst
ben.antenore@kantar.com


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