Will CVS’ sales take off in airports?

Discussion
Image: CVS, Getty Images
Sep 08, 2017
George Anderson

The headline on a CVS Pharmacy press release claims the drugstore chain is thinking “outside the box” with its newest tactic to drive sales of over-the-counter (OTC) remedies and other products sold at the front end of the its stores. The solution is the placement of automated vending machines that the chain will place in locations that are outside of where CVS traditionally operates.

“We are always looking for new ways to combine convenience and innovation to help better serve our customers,” said Judy Sansone, senior vice president of front store business & chief merchant at CVS Pharmacy, in a statement. “Our new CVS Pharmacy vending machine program allows us to extend that convenience beyond our brick-and-mortar locations to offer customers on-the-go essentials in the locations where they often need them most.”

Each unit will have its product selection tailored to meet the needs of customers in the areas where they are place. The retailer plans to sell its own store brands across a wide variety of categories including beauty and personal care, OTC medicine for adults and kids, vitamins and supplements, healthy snacks and beverages, and general merchandise items such as batteries, earbuds and phone chargers.

“These new vending machines allow us to make our innovative CVS Brand products available to customers outside of our store locations for the very first time,” said Cia Tucci, vice president of store brands and quality assurance at CVS Health.

The vending machines feature a 22-inch multi-touch screen with high-res images, product information and a QR code reader for barcodes and promotions. The machines have been designed to allow access to people in wheelchairs. It accepts credit and debit cards as well as cash.

CVS is not the first retailer to look to extend its reach using vending units. Uniqlo, the Japanese fashion chain, began rolling out vending units last month at 10 airports and malls in the U.S. The units, which sell clothing basics, are intended to provide insights into what consumers are looking to buy without a major investment by the chain. Best Buy, which operates 183 vending units, has reported generating millions of dollars in revenues from machines located at airports.

DISCUSSION QUESTIONS: Do you expect CVS to be successful with its use of vending units at airports, bus stations, college campuses, etc.? What do you think about the chain’s decision to emphasize private label in the machines?

Braintrust
"To a very large degree, the success of these kiosks will depend on the pricing strategy CVS deploys. "
"Considering the exorbitant prices for regular drugstore items sold in college bookstores and airport shops, CVS could do quite well..."
"This move would appear to be an aberration; it looks like it’s outside of the drug chain’s health mantra..."

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22 Comments on "Will CVS’ sales take off in airports?"

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Peter Fader
BrainTrust

It all depends how you define “successful.” Will CVS sell a ton of stuff through these kiosks? Maybe, maybe not. But will they enhance the value of their customers and create more system-wide profits as a result of this campaign? Almost surely yes. That makes it a good idea regardless of how much stuff they sell in airports, per se.

Richard Layman
Guest
2 months 9 days ago

Plus the machine/logos, etc. reinforce the brand, the brand promise of convenience and top-of-mind awareness. They won’t lose any money from doing it, even if they won’t make that much money either.

Bob Phibbs
BrainTrust

I would bank on this more than an Amazon Locker for snacks. I expect Hudson to be concerned but a location in the airport would be key.

Phil Masiello
BrainTrust

Brilliant! A great strategy to drive profitable sales of high velocity health and wellness items. This strategy will also increase brand reach and awareness without the need to open up costly stores.

Focusing on CVS-branded product will yield higher profit margins as well. If there is one category in which consumers have become accustomed to store brands and generics it is in OTC health and wellness. I do not see that as an impediment to success.

It is a smart move.

Ron Margulis
BrainTrust

To a very large degree, the success of these kiosks will depend on the pricing strategy CVS deploys. In airports and similar locations every consumer knows they’re getting ripped off buying aspirin and other HBC items at the newsstands. They buy the item because they forgot to pack it and chalk it up to a stupidity cost. If these same customers saw the items in a kiosk at a price point closer to what they’d pay at regular retail, either the newsstand would have to stop selling them or price more competitively. Certainly a win for the weary traveler and maybe a win for CVS.

Max Goldberg
BrainTrust

Smart move by CVS. The convenience of vending machines selling frequently-used products should drive sales and introduce customers to more CVS-branded products. Will CVS still print out half a roll of register tape with each receipt?

Richard Layman
Guest
2 months 9 days ago

Yes, if you are a member of ExtraCare, no if they set up these stations to take ExtraCare sign in, but not print out long receipts with promotional coupons. (This from someone who got an email saying that I was in the top 6 percent of “savers” using ExtraCare loyalty system in D.C.)

Art Suriano
BrainTrust

I think CVS will experience some success, but I don’t see this as a big win for them. Vending machines have been around for a long time and have served a purpose, but they are never the customer’s first choice — usually the last. Consumers often have questions when buying OTC products such as medicines so I would not invest too heavily in this concept. I wouldn’t be surprised if it’s something CVS tries and within a year or so discontinues. The vending machines have to be stocked and maintained, and that will eat into whatever profits they earn. Keeping the products private label gives CVS better control and a higher profit margin but I still don’t see this as a big money maker.

Anne Howe
BrainTrust

It’s smart for CVS to emphasize private label in this vending effort. Effectiveness will determine long-term success. Once the headache is gone, it’s rather easy for consumer to make the decision not to pay extra for the national brand!

Dr. Stephen Needel
BrainTrust

The big question is pricing and sizing. Airports have always been a more expensive place to buy products. But the fact that I can buy two aspirin for a headache, rather than a bottle, makes it reasonable for a short-term need. It’s not like they are providing a service where none existed — at least in most airports I’ve ever been in. That said, the right product selection at a price better than what I can find elsewhere in the airport could make it successful. Best Buy may not be the best comparison.

Adrian Weidmann
BrainTrust

CVS wins regardless of unit sales. They’ll get great brand awareness advertising and visibility while selling enough stuff to pay for the campaign. Travellers that need stuff from a CVS vending machine at an airport will not care about the brand. They simply need a product. Private label products just enhance the CVS message. And besides, why advertise or promote someone else for free? Simple and effective.

Joanna Rutter
BrainTrust
2 months 9 days ago

Considering the exorbitant prices for regular drugstore items sold in college bookstores and airport shops, CVS could do quite well if these vending units offer more affordable options via their private label. (Because it’s just silly to pay $6 for two allergy pills.) That’s a good look for CVS, driven by meeting real customer needs.

Neil Saunders
BrainTrust

This is a good move. Vending machines work best for quick impulse or essential purchases, and most of CVS’s products fit into this category. Tailoring the mix by location is sensible and, because CVS is a trusted and well-known brand, there should be no issue in focusing on own-label. Given the locations, cannibalization from existing stores should be minimal. Granted sales won’t be stellar; but every little bit helps!

It is, however, a sad fact that the vending machine looks much nicer than most CVS stores, which are devoid of any inspiration. The new store format is an improvement — though is not groundbreaking — so let’s hope CVS focuses on rolling that out as well as planting vending machines around the country!

Lee Peterson
BrainTrust

We asked 3,000 consumers what digital/retail integration tools they liked best and digital vending machines ranked very high. Plus think of this: all the times you forgot something on a business trip or need, I don’t know, some foundation.

CVS, albeit a little slow with the idea (Best Buy did it five years ago), should do well with this one.

Roy White
BrainTrust

This move would appear to be an aberration; it looks like it’s outside of the drug chain’s health mantra and it may not really be in its long-term interest. CVS might do better devoting time, energy and resources to follow up on its very strong and successful health-provider brand that it has built over the past couple of decades. The chain runs nearly 10,000 pharmacy-oriented drug stores (many with MinuteClinics and now some with optical centers — an excellent idea that fits right into their brand image). It does over $100 billion a year in its pharmacy benefit management and pharmacy services businesses that encompass Part D services, mail order pharmacy, pharmacy network management, specialty pharmacy, prescription management systems, long-term care and more. The corporate name has been changed to CVS Health. Vending machines in airports, albeit with OTC medicines, would seem to detract from this professional health-oriented juggernaut.

Ed Dunn
Guest
2 months 9 days ago

I feel this is the classic Blockbuster (stores) dismissal against Redbox (vending) argument. CVS still have to compete not only against Walgreens but also against disruptive innovation. The real estate cost per square foot of a vending machine footprint versus a full-service retail store for expansion is compelling both to investors and the bottom line. It can be argued that vending machines can serve to test the waters of a location before moving in with a full physical presence.

Our research show that in other countries the fastest moving products in these types of vending machine are eye care (contact lens cleaning solution), family planning and feminine needs — faster than OTC drugs. These kind of products are vulnerable to Blockbuster-style disruption if someone else comes in and offers these products via vending machines at new touch points such as mixed-used housing.

This was the right call by CVS to stay ahead of the game.

Steve Montgomery
BrainTrust

As Ron has already stated a great deal of the potential impact will depend on the pricing model. The cost per dose in an airport is likely the highest price anyone will ever pay. Having a captive audience lends itself to pricing abuses. If CVS elects to use a more realistic pricing strategy, then perhaps the small shops that sell the same or similar items will drop their prices. If this occurs, it will certainly dampen any potential sales CVS would have. All of this being said, the total sales from the kiosks is not going to have any significant impact on CVS’ revenue.

Ricardo Belmar
BrainTrust

Great move by CVS — but success will depend heavily on pricing based on the location of the kiosk. At airports, most of these items are things travelers realize they forgot to pack and have an urgent need for. Today, most will accept paying a higher price for such items at typical airport stores. If CVS prices such health and wellness items at more “normal” prices, then they may have a hit on their hands as travelers will gladly use the vending machine vs buying overpriced items at the airport store.

Since these will no doubt be relatively inexpensive merchandise, it makes sense for CVS to focus on private label brands to maximize profits. Probably not a tremendous amount of sales, but definitely a good potential brand booster with consumers.

Shep Hyken
BrainTrust

If I were an executive at CVS, I would be thinking, “Why didn’t we think of this sooner?” Knowing a little about vending, even moderate success will pay for the machine. Plus there is brand recognition. And I don’t think it’s an issue for the chain to emphasize private label. It’s about convenience.

Sterling Hawkins
BrainTrust

Right?! It is a great solution outside their traditional stores, but I don’t know if it’s truly “outside the box” thinking. Regardless, definitely an idea that they should do really well with. And it presents lots of opportunities to tie into their loyalty program generating more data and more value for customers.

Craig Sundstrom
Guest

I’m not sure we can evaluate the chances for success of this idea as a group, as airports and colleges have radically different needs. The former time sensitive/price insensitive, the latter just the opposite, so it could work in one and not the other (my guess would be it has a better chance at airports, if by no other reason the limited competition).

The private label is harder to evaluate; the limited choices in a kiosk will make it an “our way or the highway” decision … for bus passengers, literally!

Patricia Vekich Waldron
BrainTrust

Always a great idea to be where customers have a need for your products … CVS should be successful if they find the right price point and ditch the long receipt tapes.

wpDiscuz
Braintrust
"To a very large degree, the success of these kiosks will depend on the pricing strategy CVS deploys. "
"Considering the exorbitant prices for regular drugstore items sold in college bookstores and airport shops, CVS could do quite well..."
"This move would appear to be an aberration; it looks like it’s outside of the drug chain’s health mantra..."

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