Cvs Caremark : Legal Environment Of Business

CVS is a company that has been around for over fifty years and focuses on filling the needs of an older population looking to get their medication and other essentials all in a one-stop shop. A very similar business in this niche is Walgreens. Through evaluation of both sets of financial statements from each company, the investor can make a better educated decision on whether or not to invest in stock at CVS.

CVS Health Corporation is an integrated pharmacy healthcare and head quartered in Woonsocket, RI. The President and CEO of CVS is Larry J. Merlo. The company has three segments, Pharmacy services, Retail pharmacy and Corporate. CVS was previously known as Caremark Corporation and the name was changed to CVS on September 3rd 2014.

The second significant change for Walgreens in recent history is the purchase of Drugstore.com, a leading online retail pharmacy, in 2011 for the sum of $409 million. In addition, subsidiary companies of Drugstore.com were also purchased (Beauty.com, SkinStore.com, and VisionDirect.com). 4 Analysts have debated whether the recent acquisition should remain as a stand alone business or whether it should be integrated into the Walgreens business. Proponents of the integration argue that a consistent brand experience which extends from physical stores into the digital web will increase consumer loyalty. Proponents of leaving the online venture as a stand alone entity argue that integration of Drugstore.com into Walgreen’s will open up debate on pricing may diminish the consumer loyalty from Drugstore.com, thus negating the potential increase in sales. Walgreens has made it clear that it intends to leave the newly acquired online businesses as stand alone entities. 5

Originally, Walgreens stores were connected to local groceries. In Chicago, which is Walgreens primary market, they teamed up with either Eagle Food Centers or Dominick's Finer Foods, usually with a "walkthru" to the adjoining store and often sharing personnel. This concept was instated to compete with the popular dual store format used by chief competitor Jewel-Osco. Eventually, they ended the relationship with Eagle and focused primarily on a connection to the Dominick's stores, which were considered to be of a better quality. PharmX-Rexall stepped in and filled the vacated Walgreen locations joined to Eagle stores.

Since 1962 and the beginning of the discount retailer market Wal-Mart has been ahead of the retail game. By 1967 there were 24 Wal-Marts that had grossed 12.6 million dollars. In just 7 years Wal-mart had spread into 9 states. By 1979 Wal-Mart was the fastest store to reach a billion dollars in sales. In 2005 Wal-Mart has 3,800 domestic stores along with 3,800 stores internationally, and had made over 312 billion dollars. As you can see the Wal-Mart empire has grown monumentally. To move into this segment of the market would be tough.

From 2002 to 2005, Walgreens reported a compounded annual growth rate of 10.1%, growing to $42.2 billion in total revenues. This strong revenue growth was primary driven by organic expansion through new store openings. Since 2002, Walgreens has added 1070 net new stores (22% increase) while CVS has added 1,384 net new stores (25% increase), of which 86%, or 1200 of CVS' store additions, were due to the 2004 acquisition of Eckerd. As a result, although CVS reported an impressive 21% increase in sales from 2004 to 2005 compared to Walgreens 12.5% (a decline from 15.3% in 2003 to 2004), it was primarily due to CVS experiencing the full effect of the mid-2004 acquisition of the 1200 Eckerd stores. Table 3 shows the year-over-year comparison of Walgreens total revenues to CVS'.

According to CVS pharmacy they now offer more than 1,100 Minute Clinic locations inside CVS Pharmacy and Target stores in 33 states. We have expanded services to include diagnosis and treatment of minor illnesses, injuries and skin conditions; administration of vaccinations, injections, health screenings and physicals; and monitoring for chronic conditions.

At present Walgreens appears to be operating in a Horizontal Integration strategy demonstrated through its merger with Boots Alliance and a reported inquiry to purchase Rite-Aid. (Nichols, 2015) Market Penetration is another strategy which Walgreens is presently operating within. Their change in strategy to focus on the customer and improve customer service and relationships is one strategy that is being used to penetrate a market with vast competition that needs a differentiator to remain on top.

Walgreens is also mainly funded by store sales so the company sees long-term potential for about 13,000 U.S. stores. Additionally, the company long-term-expansion strategies are entering new markets, and improving customer service, investing heavily in technology enhancements that improve pharmacy efficiency and reduce costs.

Walgreens is the more established and older of the two companies. It was founded in 1901 and until recently it added stores from mostly internal organic growth. CVS is the newer company and started in 1963. The majority of growth at CVS has come from acquisitions of other companies like Revco, Arbor Drug, Eckerd and more recently Sav-On and Osco

Current Industry. The retail drug industry’s 2010 combined annual revenue was $277 billion, according to the National Association of Chain Drug Stores (Drug Store Industry…, 2011, par. 4).The big players in this industry are CVS Caremark, Corp. Walgreen Co., and Rite-Aid, Corp with Wal-Mart and Target developing more of a presence in recent years. According to the article, the drug store industry is very concentrated with the 50 largest companies generating about 70 percent of the industries revenue (Drug Store Industry…, 2011, par. 4). The industry had grown substantially in the last 50 years and will continue to innovate and develop well into the near future.

CVS Pharmacy is the retail division of CVS Caremark. It is also one of the largest Pharmacy Retail Chains in the country and operates more than 7,400 stores domestically. Although the retail pharmaceutical division of this corporation accounts for a significant amount of this company’s success, CVS Caremark focuses more on its corporate strategy to compete with other industry rivals such as Walgreens and Rite Aid. Considering CVS Caremark is the result of the 2007 merger of CVS and Caremark Rx, this analysis will begin with a brief history and the merger of these corporations, its current performance, strategic posture, and the strategic managers of this organization.

CVS, Wal-Mart, Medco Health and Rite Aid are Walgreens’ major competitors. Wal-Mart aggressively competes by its use of the $4 generic prescriptions promotion. CVS employs a similar strategy by offering a 90-day supply of generic medications for $9.99. Medco Health also competes with CVS by offering a 90-day supply of medications for a cheaper price than a customer would pay in-store. As of 2008, Walgreens and its major competitors were measured as follows10:

Mirroring its main market competitor, CVS, Walgreens has also added Envision Pharma, a pharmacy-benefit management company, to its portfolio. (CVS acquired Caremark in 2007) (Bells, 2016) Due to previous acquisitions and mergers, Walgreens is currently the most accessible pharmacy retailer in the U.S., servicing 8 million customers each day and filling approximately 894 million prescriptions and immunizations, every year. (Walgreens, n.d.)

Along with the company's strong market performance, the Walgreens Corporation continually shows considerable growth. 2006 ended with Walgreens' 32nd consecutive year of record sales and earnings ("Walgreen Co. reports..., 2006). Walgreens' 2005 sales of $47.4 were a 12.5% increase over the previous year and over $1.5 billion in earnings were a 15.5% increase over the previous year (Walgreens Corporation, 2006a). Furthermore, a new Walgreens store opens approximately every 19 hours (Carpenter, 2004). Consequently, the Walgreens name carries considerable brand equity as a nationwide retailer known for quality and convenience. In fact, Walgreens has positioned itself as the drugstore offering the most convenience (Walgreens Corporation, 2006c). As such, Walgreens offers drive-thru pharmacies in over 80% of its stores, and nearly 30% of stores are open 24 hours a day (Walgreens Corporation, 2006a). The company strives to offer a merchandise mix in line with this focus, providing customers with one-stop stopping for not only prescription drugs,