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Running Head: CVS INTERNAL ENVIRONMENT ANALYSIS 1

Resources

Tangible Resources

a. Physical Resources

Tangible resources are used in the operation of a business to produce goods or

provide a service in a company. CVS Health Corporation is the largest retail drugstore in

the United States. It is one of the top retail pharmacies, selling over-the-counter and

prescription items.

CVS has approximately 9,600 pharmacies, more than 1,100 walk-in medical clinics,

a leading pharmacy benefits manager with more than 75 million plan members, to

provide the best available service for its customers across the United States (CVS 10-k

report, 2016).During the year ended December 31, 2015, CVS Pharmacy Services

Segment operated 24 retail specialty pharmacy stores, 11 specialty mail order pharmacies

and five mail order dispensing pharmacies, and 83 branches for infusion and enteral

services, including approximately 73 ambulatory infusion suites and six centers of

excellence, located in 40 states, Puerto Rico and the District of Columbia. (10-K, 2015).

b. Organizational Resources

In 2015, CVS opened 161 new retail pharmacy stores, acquired 1,672 pharmacies

within Target stores. As of December 31, 2015, CVS employed approximately 243,000

colleagues, which included more than 34,000 pharmacists, nurses, nurse practitioners and

CVS INTERNAL ENVIRONMENT ANALYSIS 2

physician assistants. The total included approximately 88,000 part-time colleagues who

work less than 30 hours per week.

CVS's ExtraCare card program helps them continue to build loyal customer base.

The ExtraCare program is one of the largest and most successful retail loyalty programs

in the United States. ExtraCare program facilitate them to balance their marketing

program allowing them to reward loyal customers by providing automatic sale prices,

customized Coupons, ExtraBucks® rewards and other benefits. ExtraCare has about 70

million active cardholders. (CVS 10K,2015)

c. Financial Resources

Table 1. CVS selected financial data


In 2015, CVS reported expected revenue of $153,290 million, an increase of

$13,923 billion from 2014. Gross profit increased $1.2 billion, or 4.6% and Operating


expenses increased $506 million, or 3.0%, Net interest expense increased $238 million.

In 2014, loss on early extinguishment of debt is $521 million, but in 2015 loss on early

extinguishment of debt is 0. Income tax rate was 39.3%, Income from continuing

operations increased $585 million or 12.6% to $5.2 billion in 2015. Net income

attributable to CVS Health increased $593 million or 12.8% to $5.2 billion (or $4.63 per

diluted share) in 2015. This is all reason of CVS net income increase. (CVS 10-k report,

2015).

Table 2. Walgreens selected financial data item 6


In 2014, Walgreens reported an expected revenue of $76,392 million. Gross

profit increased $3.7 billion, Net interest expense is debt. Income tax rate was 39.3%,

Income tax provision is $1,526 million. Net income attributable to Walgreen Co.

decreased $518 million in 2014.

d. Technological Resources

As of December 31, 2015, CVS has operated five mail order dispensing pharmacies

in the United States. Primarily for maintenance medications, to these pharmacies via


mail, telephone, fax, e-prescribing or the Internet (CVS 10-k report, 2015).

CVS also offers a technology platform that helps identify and capture cost savings

opportunities for specialty drugs billed under the medical benefit by identifying outliers

to appropriate dosages and costs, and helps to ensure appropriate clinical use of these

drugs. (CVS 10-k report, 2015). On August 18, 2015, CVS completed their acquisition of

Omnicare, broadening their base of pharmacy care to a new dispensing channel, long-

term care pharmacy (CVS 10-k report, 2015).

Intangible Resources

e. Human resources

CVS is one of the largest providers of pharmacy healthcare in the United

States. “CVS operates three primary business units, retail pharmacy, pharmacy

benefit management and retail health clinics. CVS also provides vaccinations,

monitoring of chronic health conditions, health screenings, and the

diagnosis/treatment of minor health problems.” (CVS 10-k report, 2015). CVS is

focused primarily on the sale of pharmacy products prescription drugs, over-the-

counter drugs and personal care products, as well as a wide variety of goods, such as,

convenience foods, greeting cards, beauty products, and seasonal items.

CVS is open 7 days a week, including evenings and weekends. CVS business

strategy centers on providing innovative tools and strategies, as well as quality client

service to introducing unique programs to help control costs for the clients at CVS


Caremark, including: plan design offerings and administration, formulary management,

Medicare Part D services, mail order, specialty pharmacy and infusion services, retail

pharmacy network management services, prescription management systems, clinical

services, disease management services and medical spend management.(CVS 10-k report,

2015).

f. Innovation resources

In 2014, CVS Pharmacy retail drugstores became the first pharmacies in the

nation to receive Community Pharmacy Accreditation from URAC for delivering the

highest levels of service to the customers. In 2015, CVS completed the acquisition of

Omnicare, Omnicare's long-term care operations include the distribution of

pharmaceuticals, related pharmacy consulting and other ancillary services to chronic care

facilities and other care settings (CVS 10-k report, 2015).

g. Reputation resources

CVS/minuteclinic nurse practitioners have seen more than 27 million patients to

date, with a 95 percent customer satisfaction rating. CVS’ loyalty card program,

ExtraCare, is the largest retail savings and rewards program with more than 70 million

active member households. CVS Health fills or manages 1.7 billion prescriptions each

year and has captured one third of the total US prescription growth since 2008. CVS

Health includes the largest US specialty pharmacy with $31 billion in revenue. CVS

Health and MinuteClinic partner with more than 60 major health systems and health care

providers across the country. Every day, CVS/pharmacy serves 5 million customers in


their retail pharmacies across the country (CVS 10-k report, 2015).

Capabilities

CVS’ most impressive capability has been its’ ability to establish itself as the

leading innovator in the retail drug industry by using advanced techniques. An example,

On August 18, 2015, CVS completed the acquisition of Omnicare, the Company acquired

100% of the outstanding common shares and voting interests of Omnicare, Inc.

(“Omnicare”), for $98 per share for a total of $9.6 billion and assumed long-term debt

with a fair value of approximately $3.1 billion. CVS plans to open between 100 to 200

new pharmacies per year, while the company continues to add to its 640 Minute Clinics

inside its retail pharmacies, with plans to expand to more than 1,000 in the next three

years. Here, nurse practitioners diagnose illnesses, injuries, and skin conditions, and

provide a variety of wellness services (CVS Health Corporation).

CVS is also trying to develop a globalized economy. Example for: “In 2013, CVS

bought Drogaria Onofre, Brazil’s 8th largest drugstore chain which marked CVS

Caremark into the international drug store level. Besides, health care and pharmacy is

expected to grow big in Brazil for the next decade.”(Strategies for Global business).

Core Competencies

CVS has successfully continued to provide innovative tools and strategies, as well

as quality client service in order to help improve clinical outcomes both for clients and


their plan members to better manage overall healthcare costs (CVS, 2016). CVS is one of

the bigger and better drugstore chains on the stock market. It’s been consistently

profitable over the years and also efficient in boasting a much higher sales-per-store

metric than its most comparable rivals such as Walgreen and Rite Aid.

CVS distinguishes itself from other competitors as a result of its culture and

sharply and suitable market strategy to expand itself through acquisition. The former

president and CEO said that he admired CVS from day one because of its informal

culture: everyone was called on a first-name basis and placed a high priority on respect

and results (Ryan, 2012 ).

CVS went public in 1996 and did quite a few acquisitions throughout the next

several years. From the first acquisition Revco, a dominant player in the Midwest and

Southeast to the more recent one-Target. CVS demonstrated that it has the ability and

capability to utilize the resources it acquired to better develop itself and keep its business

growing. In December 2015, CVS completed the acquisition of the pharmacy and clinic

business of Target. As a result of this acquisition, CVS acquired Target’s 1,672

pharmacies across 47 states and will operate them through a store-within-a-store format,

branded as CVS Pharmacy®. Of the 1,672 acquired pharmacies, 79 Target clinic locations

will be rebranded as MinuteClinic® and they are expected to open up to 20 new clinics in

Target stores within the next 3 years. This new acquisition will give CVS access to the

existing and new markets, and eventually increase its market share and drive economic

growth.


Competitive AdvantagesFour Criteria Test for Sustainable Competitive Advantage

Resource or Capability

Values Rare Costly to initiate

Non-Substitutable

Competitive consequences

Performance

Implications

Brand Image

YES NO NO NO Competitive parity

Avg. returns

New Technology

YES NO YES NO Competitive parity

Above-avg. returns

Acquisition YES NO YES NO Competitive parity

Above-avg. returns

Physical Resources


Above-avg. returns

Customer Support


Above-avg. returns

Chart Interpretation

Brand image is the current view of the customers about the company's brand, it

can be defined as a unique bundle of associations within the minds of the target

customers. As far as CVS goes, the customers can easily connect with the company from


its symbol. CVS definitely has competitors, such as Walgreens and Rite Aid, which

represents 5.9% and 16.1% share of the 2014 prescriptions revenues, respectively (Drug

Channels). CVS represents a total of 23.7% of the 2014 prescription revenues from retail

and service segments. Thus, the overall performance is higher than the industry average.

The data of total revenue for main competitors in the retail drugstore industry indicates

that CVS has substitutes, meaning customers have options to buy drugs in any other

stores. Thus, CVS has a rare capability in brand image. The brand image is not costly to

build and has become more popular over time.

Acquiring and applying new technologies when operating in the retail drugstore

industry is a necessary factor to be successful. CVS has developed internally and uses

software to meet its unique customers’ needs. Other companies in the same industry have

developed their own software within their company. Understanding the cost for research

and development of these technologies and the time it takes to increase the maturity of

the technology is important but difficult. Plus, compliance with changes in privacy and

information security laws and standards would be another cost for CVS. Therefore, it

would cost the company a large quantity of capital to finish one specific program and

finally work out in the market. CVS applies several varieties of digital technology, such

as Omniview® and Health Engagement. EngineTM technology helps to identify

customers’ need and deliver service to them, in turn, it improves the efficiency of its

operations.

CVS’s operations depend on their information technology systems and the

information initiated, collected, processed, stored and handled by systems. However,


there are failures or disruptions in technology that could adversely impact the company’s

operation.

Furthermore, CVS opened a new technology development center in Boston in

2014: this Health Digital Innovation Lab accommodated about 100 people for the

development of new stores. Investing in new technology definitely helps companies

neutralize threats and explore ways to find new opportunities. However, CVS is not the

only one in the industry that spends capital on R&D and new technology development.

For instance, Walgreens launched a multi-year initiative into IT (Information technology)

to upgrade their process into a seamless view of patients, wherever they are being served

in the Walgreens network. New patient-facing portals empower customers to schedule

appointment and access information about the health conditions and share health contacts

(Walgreen’s 2012). Therefore, new technology investments are neither rare in capability

nor a non-sustainable part for CVS. Additionally, new technology development is costly

to initiate. Operating expenses increased $241 million, or 30.3%, to $1.0 billion in

December of 2015, as compared to the prior year. Operating expenses increased $45

million, or 6.0%, to $796 million in December of 2014. Information technology expense

is a part of operating expense for CVS.

CVS has approximately 9,600 pharmacies, more than 1,100 walk-in medical

clinics and serves more than 75 million plan members. Rite Aid operated 4,587 stores in

31 states as of the end of its fiscal year 2014 (CVS, 2016). Walgreens operated 8,309

locations in 50 states. Wal-Mart serves nearly 260 million customer who visit its over

11,000 stores under 72 banners in 27 countries and e-commerce websites in 11 countries


(Wal-Mart, 2016). Kroger operates 2,625 supermarkets and multi-department stores. In

addition to the supermarkets, as of January 31, 2015, it operated through subsidiaries 782

convenience stores (Kroger, 2016). CVS’s competitors are all having the same kind of

advantage and substitute of one another to some extent. CVS’s physical resources are not

rare capabilities and CVS performs above the average level.

CVS is a pharmacy innovation company that is reinventing pharmacy for better

health and is continuously developing new approaches to improve access for patients,

promote better health outcomes and control payer costs. To better serve its customers,

CVS has introduced integrated pharmacy health care services that provide an earlier,

easier and more effective approach to engaging them in behaviors that can help lower

costs, improve health and save lives. They provide different kinds of programs based on

customer special needs. For example, Maintenance Choice® is a program for eligible

participating plan members where they have the option to fulfill their prescriptions at

retail pharmacy stores for the same price as mail orders. Another example would be the

Pharmacy Advisor®, a program that facilitates pharmacist counseling, both face-to-face

and over the telephone, to help participating plan members manage their health

conditions (CVS, 2016). In order to better provide customer support, it will cost CVS

money to provide different types of support to existing or potential customers. Overall,

the company keeps a sustainable competitive advantage in the industry compared to its

competitors.

CVS in recent years has branched out into additional segments of the pharmacy

business by buying l large presence in both pharmacy benefit management and specialty


retailing in nursing homes (Walgreens, 2016). CVS acquired several companies to obtain

quality staff, knowledge or business intelligence in order to provide better service to

customers and ultimately increase shares. The most recent 2 acquisitions are Omnicare,

the leading provider of pharmacy services to long-term care facilities, for a total

enterprise value of approximately $12.9 billion and Target pharmacy. Acquisitions are a

valuable capability for CVS since CVS could apply the acquired different kinds of

resources to neutralize threats and find new opportunities.

CVS’s competitor, Walgreens acquired Kerr drug that contributed 76 drugstore

locations as well as specialty pharmacies and a distribution center in 2014. Also, the

acquisitions in Mexico and Chile positioned Walgreens well to become an influential

player in the Latin American market, which provide more growth opportunities than

CVS. Plus, Walgreens’ bid to acquire Rite Aid would solidify the buyer's’ spot as the

country’s biggest drugstore chain in terms of total stress and prescription sales

(Walgreens 2016).

Wal-Mart and Kroger both have some acquisitions in recent years as well. Thus, it

is not abnormal for companies in the retail drugstore industry to expand themselves by

mergers and acquisitions. There is not obvious evidence to show that CVS has more of a

competitive advantage in the acquisition part.

CVS takes care of its customers and patients by providing them better service

with relatively low price. It has Specialty ConnectTM , its integrated specialty pharmacy

offering that integrates specialty mail and retail capability, providing members with

special needs of consulting from experienced specialty pharmacists. Plus, the ExtraCare®


Health Card program, offers discounts to eligible plan members on certain over-the-

counter health care products sold in CVS pharmacy stores. Walgreens also has similar

programs to appeal to customer and provide discounts for loyalty. Customer support is a

valuable capability and cost-benefit part for CVS. Other competitors that provide better

customer services could substitute the customer support part of CVS and it’s not a rare

capability for CVS.

Supply Chain

CVS has a clear mission to support all of the stores and make it as easy and

satisfying as possible for customers to do business at CVS. The company is able to be

successful in part because of its excellent supply chain that services over 5300 retail store

locations. The chain is made up of primary activities such as inbound logistics,

operations, outbound logistics, marketing & sales and services, as well as support

activities such as firm infrastructure, human resource management, technological

development and procurement (CVS’s Supply Chain Performance and New DC Impress).

All of these services work together to assist CVS in having one of the most successful

supply chains in business.

Primary Activities

a. Inbound Logistics (supply chain management)

CVS has a very sophisticated and complex distribution network, it consists of 13


Distribution Centers. The company uses various technologies to speed up the inbound

logistics and these processes along with its direct integration with stores had allowed for

deliveries to be on time 98.4% of the time. An example of one of the automated processes

used by CVS to make them even more efficient is de-boxing. Currently inbound product

is de-boxed before it is even put into storage, and that speeds up the process by removing

the task from the pick line (CVS’s Supply Chain Performance and New DC Impress).

CVS uses direct integration by having planograms available for all store locations at the

distribution centers. This allows for the picking of products to be in aisle/stocking

sequence for each store and this speeds up how fast goods are be able to be put up in

stores, which increases productivity as well as makes the stores safer due to lack of

clutter in the isles (Premium Trucking: The Right Tools for the Right Job).

CVS imports a significant amount of goods from other countries but they do so

ethically and responsibly through audits and inspections. With the help of Intertek, and

other third parties, CVS monitors compliance with the Supplier Ethics Policy and trade

standards. They also make sure all suppliers stay compliant with United Nation’s

Universal Declaration of Human Rights. The declaration prohibits human trafficking of

any kind, as well as prohibits labor that is forced through child labor or imprisoned labor.

CVS supplier factories also are audited to make sure they have safe and fair working

conditions and to make sure there is no discrimination based on a person’s age, gender or

any other protected class (Ethics and Human RightsC, 2016).


b. Operations

As mentioned above, CVS imports many of its goods from overseas and through

inspections and audits, CVS maintains its high operational standards in part through

diverse suppliers. By giving all types of business the opportunity to work with CVS, it

increases competition, which in turn can reduce cost and make the supply chain more

resilient. The diverse suppliers program is two tiers, they are focused on purchasers to

make sure the suppliers are not only diverse but provide quality goods and services

(Multicultural Products and Services, 2016).

CVS has many distribution centers that range in size from 230,000sq. Ft. to

980,000sq. Ft. Of the over 7,300 CVS/pharmacy stores, more than 4 million customers

are served daily (Gentry, 2001). CVS is served by 18 distribution campuses, and they

have their own fleet of trucks as well as third-party operators such as Penske, Ryder and

M&M Transport Services Inc. to move product through their warehouses. They employ

more than 8,000 people and have a fleet of over 300 tractors and 1,500 trailers that are

privately owned. They also have more than 300 third-party tractors and 800 third-party

trailers. The third-party partners are all branded CVS to make sure they live up to the

same high standards they have for their own operators and fleets (Morgan, 2014).

CVS takes pride in the efficiency of its supply chain and they have programs in

place to ensure employees live up to the efficiency standards. One of the programs CVS

designed to maintain high operations across their logistics team is the PRIDE project

which stands for Personal Responsibility in Delivering Excellence. It focuses on creating

a working environment focused on performance, productivity, reliability, quality, safety


and continuous improvement. The PRIDE program gets employees interested in

production at a high level by providing associates with financial incentives for exceeding

the company’s established productivity standards and encourages employees to provide

feedback on ways to improve the supply chain (Morgan, 2014).

c. Outbound Logistics

CVS has put a great deal of effort in perfecting their outbound logistics programs.

One of the main ways the company is doing this is through the efficiency of their fleet

delivery systems. CVS makes hundreds of thousands of deliveries each year from over

22000 origin points, to distribution centers and then out to the over 4000 stores. CVS

uses Descartes visibility and event management software and they use an enterprise

resources (Biederman, 2012). Descartes is able to help CVS reduce its inventory in order

to prevent order failures by having exception alerts and helps manage supply chain events

by monitoring inbound shipments in order to decrease the cycle time. The Descartes

system has four core processes (commercial, logistics, transportation and product

information) that in working together can offer information like pallet weights &

measures, help with activities like ordering and help with company shipping visibility

(Biederman, 2012). CVS has invested a great deal of resources to improve efficiency and

reduce costs. They use route optimization software that helps them manage deliveries to

retail stores as well as monitor and forecast fuel usage, so they can plot out the optimum

efficient route for all trucks. The company’s fleet also is equipped with onboard

computers that record data such as average speed and idle time that factor into a truck’s


fuel usage (Biederman, 2012).

The company has also been able to reinforce its outbound distribution strategy by

partnering with partner experts to help go along with its own systems. The external

partners have helped to provide support in areas like financing, preventive maintenance,

emergency roadside assistance, administrative support, insurance, fuel, and safety

services (Transportation and Supply Chain Solutions for the Bottom Line, 2016). One of

the outbound partners CVS uses is the fleet services of Ryder, and they supply CVS with

over 312 drivers, 248 tractors and 634 trailers. Of the numerous distribution centers CVS

has, Ryder operates in Rhode Island, New Jersey, Michigan, Texas, Alabama, Florida,

New York and Puerto Rico. Their responsibilities include taking outbound tractor-

trailers, delivering merchandise to stores and picking up and returning merchandise to

distribution centers. CVS extended its reach into new markets like Hawaii and Puerto

Rico, most of the business is serviced in those markets are on a Direct-to-Store delivery

model that Ryder has helped with. They helped CVS locate the best ports and distribution

centers to serve the stores, they also helped CVS determine if the distribution centers had

the right amount of space, compared the cost of barges vs. vessels (Biederman, 2012).

d. Marketing & Sales

CVS uses a great deal of advertising and promotions to assist with marketing and

sales. The company has some marketing strategies including having convenient locations

that are open 24 hours to help people that cannot go shopping frequently and using social

media outlets like Facebook where customers can earn coupons for “liking” the brand.


CVS also realizes that they have an extremely diverse population of customers, and they

realize the customers have different wants and needs from the company. Some of the

company’s most popular multicultural product lines include: Milani cosmetics, NUANCE

Salma Hayek beauty products, Gamesa cookies, Fabuloso household cleaners, Suavitel

fabric softeners, La Costena grocery items and Ricitos de Oro baby care items

(Multicultural Products and Services, 2016). CVS acquired Navarro Discount Pharmacy,

which is a leading Miami chain with a significant amount of knowledge and experience

serving the Hispanic market. Given their diversity in customers and growth of their

Hispanic customer base, CVS wanted to learn about the services, products, value, and

atmosphere that resonate with Hispanic customers.

Recently CVS has been working on a new campaign for marketing where the

slogan is “think customers”. They want to ensure that every customer that patrons a store

receives an optimal experience that is personalized. One part of the campaign comes from

its ExtraCare rewards program, where they have made it so customers receive coupons

based on what they are likely to buy, which gives them the personalization feel. By using

the “think Customer” philosophy, CVS has even been able to change store layouts and

products offered to better service the customers (‘Think Customer’ is new mantra at

CVS/Pharmacy, 2014). The company also has been using new marketing techniques to

help make up from sales lost when they made the industry first decision to no longer sell

tobacco. CVS is making up for these lost sales by marketing themselves as a health

conscious company and putting a new emphasis on the beauty category. They plan to

offer the most innovative national brands as well as develop exclusive store brands. An


example, as mentioned above is NUANCE Salma Hayek beauty products (Multicultural

Products and Services, 2016). Through these new initiatives, CVS wants to help guide

their customers on the path to being healthy.

e. After Sale Service

CVS tries to keep its customers happy by offering exceptional after sale services,

these services include return policies on store bought and online bought products as well

as satisfaction guarantees on CVS products. The company has a policy where refunds are

permitted for non-prescription items, when accompanied by printed receipt, to make it

convenient for the customer, they can return the products to the stores or via mail within

30 days of the purchase. Customers can even return CVS branded and other

nonprescription products if they have been opened, they want to keep the customers

satisfied (Return Policy, 2016).

The company also offers 100% satisfaction guarantee on CVS/pharmacy Brand

products and 100% satisfaction guarantee on beauty purchases. If a customer is

dissatisfied with a CVS branded product for any reason, they can bring back the product

whether it is opened or unopened and receive a full refund with no questions asked. The

policy for all beauty products is similar to that of CVS branded products they can bring

back the product whether it is opened or unopened and receive a full refund with no

questions asked. Also, refunds for non-CVS/pharmacy Store Brand Cosmetic items can

be done without a receipt but a CVS/pharmacy gift card will be issued (Return Policy,

2016).


Support Activities

a. Human Resource Management

CVS prides itself on having strong skills in recruiting, hiring, training and developing

employees throughout the company. They pride themselves on being a team that works

together to make the company bigger and better, being a good team member is the best

way to succeed in the company. CVS leads by example and builds their strong leadership

from inside (Rosenthal, 2012). The company hires and trains people who have the values

they find appealing and those who buy into their mantra of team first, by developing

these people they are able to build strong leaders of their own.

CVS does hiring in many different departments including Analytics,

Pharmacy Technician, Corporate, Retail Store, Customer Care, Internships, and

the Distribution Center. They offer employees the chance to make a positive and lasting

impact on the community, the customers' lives and the company's success. These benefits

include, but are not limited to: Competitive pay-for-performance, Medical and dental

insurance, Prescription plan, Vision coverage, free health screenings and immunizations,

Free Health and wellness programs, Business travel and life insurance, Vacation/paid

time off, Adoption coverage/assistance, Merchandise discounts from CVS/pharmacy,

Education reimbursement, Employee Assistance Program and 401(k) retirement plan.

When training and developing employees, CVS provides endless opportunities to apply

skills new and current team members already have in ways they never thought of.

Employees are empowered to develop professionally and personally (Who we are, 2016).


b. Technological Development

CVS has a strong commitment to technological development, they continue to invest in

programs that push technology to new levels, and have even opened technology

development center in Boston. Their Digital Innovation Lab accommodates over 100

people and focuses on building customer-centric experiences in health care, the lab is

made up of developers, product managers, digital strategists, and user- experience

designers. The goal, for CVS is to create a “seamless experience” when the customer is

interacting with the company on the internet or phone and in its stores (CVS to open tech

hub in Boston, 2014).

CVS is also integrating technology with how they handle some loss prevention problems.

They plan to reduce their shrink and improve operations, CVS internally is using the

program VIPER. The program works by monitoring transactions such as voids, returns

and coupons by monitoring trends, the program can identify transactions that are outside

the norm and require further investigation. By using the VIPER program CVS was able

to effectively increase sales and reduce shrink (CVS Integrates Technology across

Business Functions to enhance its ROI, 2008).

c. Procurement

CVS has a Procurement department that is dedicated to providing non-resalable

goods and services to Stores, Regional Business Offices, Distribution Centers, and

Corporate Departments. CVS streamlines the procurement process by using the most

current practices and technologies, and continuing to have a strong relationship with


suppliers. CVS has also created a web based portal to share daily POS and Inventory data

with the Store for-resale suppliers. It provides suppliers with access to daily point of sale

and Inventory data from all stores (Partnering with CVS/pharmacy, 2016).

d. Firm Infrastructure

The infrastructure of CVS is made up of Architecture and Engineering Services,

RPMSA (Retail Program Management Strategy & Administration), Construction Project

Management, Administrative Facilities Management, Print Operations and Capital &

Energy Administration. Architecture and Engineering Services provides branding,

planning and design of CVS stores and facilities, it combines technical knowledge with

management skills and business expertise. RPMSA develops and implements strategic

approaches to how to manage construction programs that impact CVS (Partnering with

CVS/pharmacy, 2016). The Construction Project Management team’s job is to focus on

the implementation and execution in the stores being built. The Administrative Facilities

Management team is responsible for the space planning, operations, repairs and

maintenance, and mail services for CVS, the team completes over 150,000 repair actions

and supports the moves of over 6500 employees. The Retail Facilities Management

team’s job is to support and preserve the value of all properties, they do this by having

the best maintenance and cost-effective options available. Print Operations is responsible

for the Weekly, Monthly and Seasonal shelf labeling and the printing and distribution of

store related communications such as Planograms. The Capital & Energy Administration

department is responsible for all budgeting, forecasting and reporting requirements for


both Retail Construction and Store & Corporate Properties (Partnering with

CVS/pharmacy, 2016).

Figure II

Weighed Competitive Strength Assessment

(Rating Scale: 1=very weak; 10=very strong)

Key Success Factors ImportanceWeight

CVS Walgreens Wal-Mart Rite Aid Kroger

SR S SR S SR S SR S SR S

Store location and Convenience

0.25 10 2.5 9 2.25 7 1.75 8 2 6 1.5

Product Selection and variety

0.25 9 2.25 10 2.5 8 2 6 1.5 7 1.75

Customer Services 0.15 6 0.9 7 1.05 5 0.75 8 1.2 9 1.35

Technology 0.15 8 1.2 9 1.35 7 1.05 6 0.9 5 0.75

Brand 0.1 8 0.8 7 0.7 9 0.9 6 0.6 5 0.5

Talented Workforces 0.1 9 0.9 7 0.7 5 0.5 8 0.8 6 0.6

Sum of Importance 1.00

Weighted OverallStrength rating

50 8.55 49 8.55 41 6.95 42 7 38 6.45

The retail drug stores industry is highly competitive, the competition mainly on

the basis of (1) store location and convenience (2) customer service and satisfaction (3)

product selection and variety. (CVS, 2016) The three areas mentioned in CVS 10-k report


could also be considered as the company’s key successful factors. Except for this,

Distribution channel, the establishment of brand and technology also play key roles for

the company’s successes in the future.

Store location and convenience

Store location and convenience is always one of the most important features for the

retail drugstore industry. One of the ways to keep and attract the customers is to provide

them convenience. Customer will go to the store that is more convenient to them.

According to the 10k report of CVS, store location and convenience is the critical area

the company competes with its competitors, therefore 0.25 is given to store location and

convenience as the importance weight.

The following figure shows the number of stores for 5 pharmacy chains in 2015.

CVS ranks first with 9600 stores. Walgreens and Rite Aid second and third, and Kroger

has the least stores among these five companies. (SK&A, 2016) There is news about

Walgreens Boots Alliance’s intention to purchase Rite Aid, and if the acquisitions

succeed, there will be a big change for the ranking. However, CVS for now still the first.

According to CVS 10-k report, CVS’s retail stores are located in 49 states, which further

prove its high level of geographic coverage. (CVS, 2016) The company also plans to

enhance the level of location and convenience in three areas: entering new markets,

adding stores within existing markets and relocating stores to more convenient sites.

(CVS, 2016) In a conclusion, CVS has the high level of geographic coverage and

convenience and therefore should earn 10 points, and 9 points will give to Walgreens.


Rite Aid, Wal-Mart and Kroger will receive 8 points, 7 points and 6 points respectively.

Table 3. Top 5 Pharmacy chains ranked by number of stores in 2016

Rank Pharmacy Chain

City State Stores Numbers of States Covered

1 CVS Corporation

Woonsocket RI 9600 49

2 Walgreens Deerfield IL 8232 50

3 Rite Aid Corporation

Camp Hill PA 4608 31

4 Wal-Mart Stores Inc.

Bentonville AR 3646 50

5 Kroger Company

Cincinnati OH 1156 31

Source from SK&A Report, Retrieved from:

http://www.skainfo.com/reports/most-powerful-pharmcies

Product Selection and variety

Besides the store location and convenience, product selection and variety also

plays the key role to attract customers as well. The customer might go to the closest drug

stores, but what if that store doesn’t have much product choice offered to the customer or

doesn’t have specific brand the customer the customer want? The store will lose the

customer at least once. Since the product and services provided by pharmacies are pretty

similar, more product selection and variety will be critical for the company to attract


customers and generate revenues. After evaluated the importance of product selection and

variety, this article gave 0.25 to this key successful factor. The numbers of brands each

company carry could be one of important data show the level of product variety.

Based on the source of each company’s official website, every company carries at

least this 10 featured categories: baby and child, beauty, diet and nutrition, health and

medicine, home health care, household and grocery, personal care, sexual health, skin

care, vitamins. Except for this 10 featured categories, Wal-Mart and Kroger also provide

many choices on apparel, jewelry, sports and fitness, furniture, kitchen. Compared to

traditional pharmacy chains, Walmart and Kroger has the advantages of household and

grocery. However, traditional pharmacy chains are more specialized in the area of beauty,

personal care, home health care, nutrition and medicine. CVS has more than 3000 brands

under the beauty categories and more than 300 brands for diet and nutrition. (CVS, 2016)

According to the investigation of Walgreens official website, it has almost same featured

categories as CVS on each website. However, Walgreens carries more brands under 6

featured categories including beauty, diet and nutrition, home health care, household and

grocery, personal care, skin care compared to CVS. (Walgreens, 2016) (CVS, 2016)

Therefore, 10 points was given to Walgreens, and 9 points given to CVS. Rite Aid

doesn’t has much strength on the product selection and variety, the numbers of brand

choices is limited and incomparable to its two strong competitors-CVS and Walgreens.

(RiteAid, 2016) Unlike Wal-Mart and Kroger which provide various product choice for

household and grocery, rite aid’s business is limit in medicine and some beauty products,

so 6 points will be given to Rite Aid. (Wal-Mart, 2016) (Kroger, 2016) Wal-Mart and


Kroger will earn 8 points and 7 points respectively since more featured categories and

brands are provided by Wal-Mart.

Customer Services

As analyzed in external report, the whole drugstores industry sell the similar

product and provide undifferentiated services. The companies in this industry compete

with others mainly for providing higher level of convenience, lower price and border

product selection, but it also can stand out for its high quality customer services. Good

quality of customer services can also help the company build the brand, earn the good

reputation, obtain the new customers and maintain loyal customers. Except for dispense

prescriptions, CVS also provides services including face-to-face patient counseling,

closing gaps in care and recommending more cost effective drug therapies, all of these

can be considered as a way to build service differentiation. (CVS, 2016) Customer

service is so critical to the company’s success that 0.15 was given as the weight of

importance.

The following figure shows the Customer Satisfaction Index for Retail Pharmacy

Chains in 2014 and 2015, which can be a good data to evaluate the level of customer

service for each company. The figure indicates that Kroger rank the top of customer

satisfaction index, followed by target. CVS seems like not doing very well to satisfy its

customer. The figure also shows a declining trend of customer satisfaction index from

2014 to 2015 for the whole industry and almost every company. Fast expansion could be

one of the most important reasons for this decline. (ACSI, 2015) From above analysis, 9


points will be given to Kroger who rank highest for customer satisfaction index, followed

by Rite Aid (8), and Walgreens (7). CVS and Wal-Mart will receive 6 and 5 points

respectively due to their low score for the customer satisfaction index.

Table 4. The American Customer Satisfaction Index for Retail Pharmacy Chains

Company 2014 2015 % Change

Drug Stores 77 73 -5.2%

Kroger 81 81 0%

Target 78 80 3%

Kmart (Sears) NM 76 NA

Walgreens 77 74 -4%

CVS 75 71 -5%

Rite Aid 78 69 -12%

Wal-Mart 68 68 0%

NM: Not Measured

NA: Not Available

Source from ACSI Report, Retrieved from:

http://www.theacsi.org/industries/retail/drug

Technology

The retailing drug stores industry has benefited a lot from the technological

advances. Many pharmacies and drug stores use EDI software to keep track of


prescription inventories by selecting and ordering items with a bar code scanning device;

advances in computerized retail point-of-sales (POS) systems allow pharmacies and drug

stores to improve their inventory turnover. As the fast development of Health Information

Technology (HIT), companies in this industry are able to enhance efficiency and to

provide better services and convenience to the customers and generate more revenues.

The development of software and application makes electronic prescribing possible to the

customers. (IBISWorld, 2015)According to the data showed in Interbrand report,

customers who engage with Walgreens online and mobile applications spend six times

more than those who only visit stores. (Interbrand, 2014) Technology has laid the

foundation for the company’s business. The competition not only takes place in the area

of locations, product and service, but also spreads to the field of technology. Therefore,

0.15 was given to technology as the importance weight.

Major investments are made in HIT infrastructure. CVS and Walgreens are both

the pioneers in this area. What’s more, both of them lead the way on effectively utilizing

mobile applications, which make it easier for customers to fill prescriptions, shop by

smartphones and manage their rewards programs CVS is also doing well in online

personal personalization data gathered from loyalty cards. In order to keep up, Wal-Mart

has also invested in mobile, smaller stores and e-commerce. (Interbrand, 2014) Rite aid

and Kroger both have their mobile app and online pharmacy. However, these two

companies don't offer much choices of product as their competitors. According to the

rating and users numbers in apple stores, Walgreens has the highest rating and most users

followed by CVS and Wal-Mart pharmacy. (Apple, 2016) Even Though Rite aid has the


least users and lowest rating for their apps, Kroger’s application is less developed than

Rite Aid’s for online pharmacy business. (Kroger, 2016) In a conclusion, Walgreens

earns highest score in the term of technology which is 9 points, followed by CVS (8),

Wal-Mart (7), Rite Aid (6) and Kroger(5).

Establishment of Brand

The retailer mainly sell product from other manufacturers, the brand recognition

might not be so important as other industries. However, more and more retailing

drugstores chains are choosing to develop their private brand product line which account

for significant portion of their total revenue. Corporate brand products play an important

role in many retailing company’s merchandising strategies. For example, kroger carries

over 14,000 private label items; Kroger’s “banner brand” (Kroger®, Ralphs®, Fred

Meyer®, King Soopers®, etc.) is designed to satisfy its customers with quality products.

(Kroger, 2016) The other company including CVS, Walgreens, Rite Aid and Wal-Mart

also carries a large numbers of private labels to satisfy its customer's needs with better

price offered. Good brand image could help these retailers to differentiate its products sell

their private brands and generate more revenues.

What's more, great brand establishment also means customer loyalty. If there are

several drugstores near the customer, he will first choose the one that is most reliable and

has best image to him. Brand image and establishment here might not as important as

other successful factors, but it also play a big role for these retailers. Therefore, 0.1 was

given to this factor as the importance weight.


According to report of Best Retail Brands in the U.S 2014, Wal-Mart ranks the

first, followed by Target. CVS and Walgreens rank at 5 and 6 separately. Kroger, Rite

Aid are not on this list. (Interbrand, 2014) However, due to significant numbers stores

opened nationwide, there is a reason to believe that brand value of these two companies is

also relatively high for the whole retail drugstore industry. 9 points given to Wal-Mart

due to its high brand value all around the world. CVS earn 8 points due to its higher

brand value rank and more intensive geographic coverage after buying Target Pharmacy.

7 points will be given to Walgreens due to its high rank in brand value. Rite Aid and

Kroger earn 6 and 5 points respectively because Rite Aid has more stores which could

partly result in higher brand recognition when compared to Kroger. (SK&A, 2016) In

other words, Kroger is not so famous as Rite Aid as pharmacies.

Talented workforces

“Successful operators must staff employees with the accreditation to give

medication advice to consumers.”(IBIS world, 2016) A knowledgeable front-end staff is

also essential to provide efficient transactions and consumer product advice. CVS believe

their pharmacy business benefits from the investment in both people and technology

(CVS, 2016) More talented workforces the company has, more likely the company has

high level of customer services satisfaction. Talented workforces can also help the

company enhance the efficiency of operation and save the cost. The following figure

show the numbers of pharmacist each company has. Talented workforces was given 0.1

for importance weight.


There is a lot of requirement and training expenditure for one pharmacist, therefore,

pharmacists can be considered as most important human resources. Higher ratio of

pharmacists per store means higher investment for pharmacists each store. At this term,

Kroger ranks first followed by Wal-Mart and Walgreens. CVS and Rite Aid rank the

lowest.

Table 5. Average pharmacists

Pharmacy

Chain

Stores Pharmacists Pharmacists

/store

CVS Corporation

8965 18650 2.08

Walgreens 7736 17769 2.29

Rite Aid Corporation

4520 9217 2.03

Wal-Mart Stores Inc.

4340 10384 2.39

Kroger Company

1887 4800 2.54

Source from SK&A Report, Retrieved from:

http://www.skainfo.com/reports/most-powerful-pharmcies

Another aspect of talented workforces need to be considered is the gains on human

resources investment. As the following figure shows, CVS has the highest return ratio on its

human resources investment with 33,742 USD net income per employee and 988,974 USD

net income per employee. Rite aid also has relatively high return on employees with net


income 38141 USD per employee, followed by Walgreens with 18,302 USD per employee.

There is not much financial information available for Wal-Mart since it is a private owned

company. However, Kroger has the similar business type with Wal-Mart, these two

companies might both have low ratio on human resources investment.

Table 6. Gains on Human Resources Investment

Pharmacy Chain Net Income/Employees Revenue/Employees

CVS Corporation 33,742 988,974

Walgreens 18,302 460,910

Rite Aid Corporation 38,141 577,852

Wal-Mart Stores Inc. N/A N/A

Kroger Company 4,754 254,826

Source from Reuters company financial ratios, retrieve from:

http://www.reuters.com/finance/stocks

After measuring both human resource investment and return on human resources

investment, this article gave CVS 9 points due to its high return ratio on human resources.

Rite aid was given 8 points due to its high return ratio. Walgreens was given 7 because of

its relatively low return on HR investment but high investment on pharmacists per stores. 6


points was given to Kroger and 5 points for Wal-Mart since both company have very low

return on human resources investment.

Conclusion

CVS is doing well in key success factors such as store location and convenience,

product selection and variety, technology and brand. However, it also has weak link which

is the customer service. CVS earn the highest score in weighted overall strength rating with

8.55 points, same as its strongest competitors Walgreens. Walmart and Kroger is weakest in

terms of this rating with the score 6.95 and 6.45 respectively. However if Walgreens

successfully buy rite aid, CVS would suffer more pressures by then. The threats comes from

supermarket such as Walmart and Kroger cannot be ignored due to their lower price offer,

convenient location and broad selection for “front store” products. Even Though CVS has

many comparative advantages over most of its competitors, but the competition in this

market is still intense. How to overcome its weak link and maintain its comparative

advantages is critical and directly affect the CVS’s future strategies.

Figure III


SWOT Analysis

Conclusion

CVS is a very successful retail drugstore that prides itself on many of its strengths

including many locations in various geographic locations, innovation in technology,

strong brand, strong product selection and strong distribution channel. These strengths

have helped to build CVS into the highly successful and growing company it is.

However, since the threat of other competing companies such as Walgreens, Rite Aid,

Kroger and Wal-Mart -Mis a growing concern CVS needs to focus attention on some of


its weaker points. CVS needs to work on its customer service levels in its stores to stay

competitive. Companies such as Wal-Mart offer the same or similar products for better

prices and they offer many other convenient products that CVS does not offer, so CVS

needs to increase its customer service skills and the services they offer to customers in

order to compete in the market. CVS is a strong and well known company that will

continue to grow in its strengths and continue to be a force in the retail drugstore

industry, if the company can take its customer service to a higher level they have the

potential to be exceptionally strong and even more profitable.

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