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 Cover Story - January/February 2006  |
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Ryan
Preaches PL to CVS Team
CVS chief executive officer Tom Ryan has directed merchandise managers to raise private label share up to 20% of front-end sales--a charge that is being led by a growing force of exclusive beauty care lines and corporate brands. “We’ve given our merchants the charge that within he next three to five years, private label should be 18% to 20% of our front end sales,” says Tom Ryan, chairman, chief executive officer, and president of CVS Corp., Woonsocket, RI. Store brands currently account for 13% of total front-end sales. According to Ryan, growing private label share represents an opportunity for growing profits. This was one of the key points he stressed at the 12th annual Global Retailing Conference, held in New York in September 2005, sponsored by Goldman Sachs, an investment banking and securities firm. Ryan’s plan for profit growth seems to be working. According to its latest report on income--for the third quarter of 2005--net earnings for the quarter increased 36.9%. “The third quarter was a very solid quarter to our core business as well as our acquired stores,” said Ryan. “We achieved strong sales growth and significant gross margin improvement, which led to operating margin expansion and a 37% increase in net earnings.” As a result of its acquisition of 1,260 Eckerd drug stores in the Southern U.S.,CVS has grown to become the largest drug store chain in America. At the end of 2005, it operated 5,471 retail and specialty pharmacy stores in 37 states and the District of Columbia. It pushed year-end sales to a record $37 billion in 2005, up 21% from the prior year. During the period, pharmacy same store sales increased 7.0%, while front-end same store sales increased 5.5%. Note:
While the Eckerd acquisition has pushed the CVS store count ahead
of Walgreens with 5,080 stores, based on its $43.6 billion in sales
for 2005, Walgreen’s still holds the top rank in total
sales. In addition to store brands, Ryan is also pushing generics. “Although branded drugs are priced higher, we believe we will sell many more generics in the future, more than making up for the price difference,” he told the New York Times, in an interview published October 8th, 2005.
Generics now make up 54% of total prescription sales at CVS, and Ryan predicts that market share to increase in the future. Referring to pending patent expirations on some leading proprietary drugs, Ryan said: “Generics are good for the patient, the payer, and the provider--a triple win. Although the expirations will depress the top line growth, they will improve our gross margins. About $8 billion came off patent in 2005, and almost double will come off in 2006. To increase front-end sales, Ryan pointed to the growth of proprietary products at CVS including Lumene, Skin Effects, Nuprin, and Christophe Beverly Hills. He also noted that CVS is planning to introduce a new exclusive line of diapers under the Playskool brand. Exclusive Brands Since 2003, CVS has focused on developing exclusive partnerships with prestige beauty care companies to help drive front-end sales. Introduced in the summer of 2003, Lumene was the first exclusive line adopted. It is an upscale Finnish skincare and cosmetics line. CVS has recently extended this line of premium skin care products to include Lumene Vitamin+, which offers products with berry and vitamin ingredients for age-defying skin care. A pamphlet can be found on shelves next to the products to explain each of the products and what it does. Most of the products’ ingredients include wild Scandinavian berries to aid in radiance, and cloudberry (also knows as “the Arctic orange”) for its vitamin C. Products include intensive renewing eye serum and 5-minute invigorating facial mask both for $15.99, and energy cocktail pampering drops and energy cocktail fortifying cream both for $17.99. Other sub-categories of the Lumene brand include: Lumene
Blue (moisture and protection products for different skin types), Also the Lumene Skin Tech for men line is the latest in a string of beauty products for men being introduced by retailers in the drug store channel (see Bath & Body category, PL September/October 2005 issue.) The line includes a 3.4oz bottle face scrub for $8.99, a 1.7oz renewing face cream for $12.99, a 6.8oz shaving foam for $5.99, a 3.4oz sensitive after-shave for $8.99, and a 1oz magic lotion (for moisturizing and removing signs of fatigue) for $12.99. Cristophe Beverly Hills made its debut in May 2004. This “masstige” hair care line is designed to offer consumers salon quality products at mass market price points. Products within the line are divided into four categories color-coded by type of hair:
New to the Cristophe range is a line of color-coded salon-style hair brushes.
Prices of the Cristophe items (hair care and brushes) range from $6.99 to $15.99 each. XCD is an exclusive skincare line for men from King of Shaves. There are five items in this men’s range at CVS: reviver eye cream, defender facial moisturizer, enhancer self tan facial moisturizer, smoothing and mattifying gel, and improver tinted moisturizer. The range is line-priced at the regular price of $14.99; but when on promotion, it is sold at 20% off for $11.99. Boots The Chemist is an exclusive test market (in the drug store channel) in 12 CVS stores in Connecticut. The UK retailer has installed “implants” or kiosks that display several of its premium Boots brands including its famous No7 brand which is Britain’s top-selling range of skin care, anti-aging treatments and color cosmetics. Other lines in the Boots USA collection include: Botanics, Time Dimensions, Mediterranean, Eastern, Detox, Sleep, and The Sanctuary. Most items in the collection retail between $3.99 and $19.99 with a few beauty care kits priced at $34.99. Skin Effects is the latest proprietary line of skin care products available only at CVS. Described as one of the most advanced anti-aging skincare regimens available, Skin Effects was developed by Dr. Jeffrey Dover. Dr. Dover is an associate clinical professor of dermatology at Yale University School of Medicine. All of the products are designed to make the skin look and feel younger. They range from $6.99 for purifying effects deep-cleaning enzyme scrub and cleansing effects gentle foaming cleanser to $15.99 for daily anti-aging treatment cream with SPF 15 to $29.99 for wrinkle relaxing cream with lycopene Corporate Brands In addition to its exclusive brands, CVS has also developed a large portfolio of corporate brands. Of course, the CVS store brand is its mainstay corporate label found throughout all front-end categories. Positioned as a national brand equivalent where appropriate, front labels of CVS brand products often carry a call-out to shoppers telling them to “Compare to” the leading brand in the category. At its CVS Online Pharmacy Store website, the drug retailer tells shoppers: “Although CVS brand products are comparable in quality to their national brand equivalents, they may save you as much as 20%-40% off the comparable national brand prices. To see how much money you can save buying a CVS brand product, click the Choose CVS brand icon when it appears next to your favorite national brand product.” Store Brand Innovator
CVS prides itself in achieving first-to-market status for its store brand products in terms of new product development as was the case with the adoption of natural colloidal oatmeal treatment for several of its skin care products which compare to Aveeno. In some categories, CVS is out in front of even the brand leaders--as is the case in digital photography. Last summer, the retailer introduced the world’s first single-use point-and-shoot digital video camera, called the CVS One-Time-Use Video Camcorder. “For under $30, consumers can now enjoy a DVD home video experience that compares to pricey DVD camcorders, which costs upwards of a $1,000,” says the retailer. In addition to its store brand, CVS has several other corporate brands. Essence of Beauty, which made its debut in 2001, has evolved from a professional salon hair care line to a line of make-up products and foot products. Items in the line include makeup brushes and sponges, makeup remover creams and pads, and foot files. Prices range from $3.99 to $5.99. The Nuprin brand of analgesics, which CVS acquired from Bristol-Myers Squibb, has extended the brand across several other categories including allergy, cough-cold, and topical analgesics. Gold Emblem, launched in 1995, was one of the first premium store brand food lines introduced by a major drug store chain. It consists of high-volume consumables and includes spices, nuts, snacks, cookies and bottled spring water. CVS Facts CVS Corp. used to be known as Melville Corp. CVS changed its name from Melville in 1996. Although its operates under the formal name of CVS/Pharmacy, it is commonly just called CVS. The acronym originally stood for Consumer Value Stores. However, company CEO Ryan now says it stands for Customer, Value, and Service. CVS began its store expansion program in 1990 in order to become a national drug store chain by acquiring from Imasco the 490-store Peoples Drug chain in the Washington, DC area. In 1994 CVS launched PharmaCare Management Services--a managed-care drug program. Pharmacist Tom Ryan was named chief executive officer at this time. In 1997, CVS--which operated 1,425 stores at the time--acquired the much larger Revco drug store chain with almost 2,600 stores in the Midwest and Southeast. The following year, the retailer acquired the 200-store Arbor drug chain operating in Michigan. CVS got into the online drug store business in 1999 by acquiring e-retailer soma.com and renamed it cvs.com. In July 2004, CVS acquired 1,260 Eckerd stores operating in Florida and Texas. This acquisition and the conversion of the Eckerd stores to its own store banner enabled CVS to take the title as “America’s largest retail pharmacy." |
