Has CVS found an answer to blunt Amazon’s move into the pharmacy business?

Discussion
Source: CVS Pharmacy
Oct 31, 2018

CVS is testing a subscription program that allows members to get free deliveries on prescription medicines and front-end merchandise for $48 a year or $5 a month.

The subscription program, called CarePass, currently being tested in Boston, is clearly intended to help CVS get ahead of rivals, specifically Amazon.com. The e-tailing giant has moved into the prescription drug business with its acquisition of the online pharmacy, PillPack. Amazon has also been undercutting CVS on the price of private label over-the-counter remedies.  CVS’s prices on like items were 20 percent higher than Amazon’s, according to a Jefferies Group report published in June.

With their CarePass subscriptions, CVS customers are able to bundle home delivery of prescription drugs and non-prescription products, which Amazon is not currently able to offer.

The service, which is significantly less expensive than the $119 annual fee and $12.99 monthly fee charged by Amazon, offers a 20 percent discount of all CVS private labels. It also includes a 24/7 pharmacist helpline. Subscribers receive a $10 monthly reward that they can use in the chain’s stores or on its website.

In an interview with CNBC, CVS Pharmacy president Kevin Hourican called CarePass “one-of-a-kind in the marketplace” and said interest among customers has been high. He said the program, which is currently being tested in 350 stores, will eventually be rolled out nationwide after CVS determines tweaks needed based on input from subscribers. Future additions to the CarePass program may include MinuteClinic services.

In August, CVS reported that its same-store prescription sales increased 9.5 percent in the second quarter while its front-end comps fell one percent.

DISCUSSION QUESTIONS: Has CVS found an answer with CarePass that will help ward off Amazon’s push into the prescription drug and over-the-counter remedy categories? What types of services/offers do you think CVS will add or cut from CarePass as it goes national?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"CarePass may help CVS maintain market share for now, but Amazon will only continue to look for ways to disrupt the market."
"Agreed that this is a defensive move and in the short term necessary and potentially effective in slowing the Amazon move into this critical and fast-growing market space."
" I envision CVS examining point-of-care testing, curated solution development, and value-added services being considered in the short-term."

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18 Comments on "Has CVS found an answer to blunt Amazon’s move into the pharmacy business?"


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Neil Saunders
BrainTrust

There is nothing inherently wrong with this initiative: locking in consumer loyalty via a subscription scheme is a sensible move. However, the rewards seem quite generous which, in my view, is a sign that CVS effectively has to bribe consumers to buy things from its store. This goes to the heart of the issue: CVS is poor at retailing. It needs to create better destinations, bolster its private label, improve categories like beauty, and get better at customer service. Those are the real keys to retail success – and they are keys that CVS lost a long time ago. Until it finds them again, the door to retail growth will remain firmly shut.

Seth Nagle
Guest

I agree, CVS can do a number of things to improve the shopping experience but I don’t think it’s as much bribing as incentivizing the consumer to sign up as the savings are clearly stated and easy to understand and this is a planned out strategy.

Neil Saunders
BrainTrust

The discounts seem sensible, but the $10 a month to spend seems over the top. My point is that CVS could improve volumes from stores (and its website) if the proposition was better. Then discounts, without giving away money, would be sufficient to drive trade. If they roll this out nationally, it will be interesting to see whether the monthly $10 is retained.

Richard Layman
Guest
2 years 11 months ago

Interesting point. I am familiar with CVS because of its ubiquity in DC proper. It benefits not from being a great retailer, but having stores in great locations. Then again, Walgreens isn’t much better, except for their “landmark” stores, which are great, but rare.

WRT this specific initiative, it’s smart in terms of keeping current customers. But the advantage that Amazon has is the platform and the platform provides multiple benefits — online purchasing from the massive Amazon platform, movies/videos streaming, e-books, and now grocery discounts/delivery from Whole Foods. Sure you pay more for your Prime membership, but you get much more too.

Neil Saunders
BrainTrust

Yes, CVS does have very convenient stores — but it does not capitalize on them or make the most of the footfall it attracts. This is why front-of-store retail sales have been in decline for years. Trading on convenience alone, which is largely what CVS does, means that while people may come in for a few essential items, they do not buy other things there, nor do they come in for non-essential goods. That has depressed CVS’s basket size and transaction volumes. It need not be that way.

Lee Peterson
BrainTrust

Considering the fact that two-thirds of online consumers go to Amazon’s site first, this is more of a defensive move than anything else. I.e.: they HAVE to start to ship to home. I believe all grocers and c-stores will also have to jump on this bandwagon eventually. CVS (and others) should’ve done this five years ago, IMO. Over-focus on cost and logistics rather than failing fast, being customer-focused (vs. ops) and getting the bugs out quick has cost them dearly now and in the foreseeable future. They need to continue testing forward-thinking efforts to get out of Amazon’s wake.

Art Suriano
Guest

The CVS CarePass program is brilliant and one that I see being very successful. Retailers are continuing to find more ways to compete with Amazon and CarePass will do just that. As Amazon keeps branching out in every category imaginable, along with more stores and concepts their costs are going to continue to increase. Now as retailers are fighting back Amazon is going to find themselves hit on all fronts. Competition is healthy and works best when everyone has a chance to compete.

Dave Wendland
BrainTrust

I applaud the innovative approach that CVS is testing with CarePass and feel this is a good counter punch to Amazon’s encroachment. Beyond products, I envision CVS examining point-of-care testing, curated solution development, and value-added services being considered in the short-term.

Min-Jee Hwang
Guest

I don’t think there’s much that can be done to ward off Amazon, but this move is needed by CVS. Will it work? Probably not in this form, and CVS will likely adjust or scale back the rewards. A focus on what makes Amazon so strong — price and convenience — could help, but CVS will need to ensure the delivery is a seamless customer experience.

Jeff Sward
BrainTrust

Prescription drugs are the reason I have to shop at CVS. So says my insurance. And now I can handle it all by email and regular mail. So CVS loses the occasional bottle of soap or deodorant I might buy. But for now they have protected my prescription business. And I like the idea of being able to visit and talk to a human being and ask questions.

Liz Adamson
BrainTrust
Liz Adamson
VP of Advertising | Buy Box Experts
2 years 11 months ago

CarePass is born out of necessity, to defend CVS from Amazon and other home delivery services. Amazon on the other hand is continually at the forefront of innovation leaving other retailers scrambling to catch up. CarePass may help CVS maintain market share for now, but Amazon will only continue to look for ways to disrupt the market.

Shep Hyken
BrainTrust

The subscription model is the business model for the future. It’s smart for CVS to get into it. However competing against Amazon is going to be difficult, if all the subscription gets you is delivery. If Amazon includes prescription drugs as part of their Prime program, why would a customer pay someone else for the same services? CVS will have to deliver a value that is different than Amazon’s proposition. If you compete to be the best, you go head-to-head with others that are competing to be the best (or already are considered the best). If you compete to be different, you just may attract the attention of the customer and win them over.

Seth Nagle
Guest

I see very similar offerings in this membership program as being an Amazon Prime member and shopping at Whole Foods.

I imagine the product marketing and management teams will roll out a variety of services based on consumer demand.

Ananda Chakravarty
BrainTrust

CarePass is a good loyalty move that’s been a moving target until recently. Companies like ExpressScripts have been delivering mail-order pharmaceuticals for years. Drug retailers like CVS and Walgreens have been engaging mail order as well – with substantial repeat buyers in this space. Amazon’s PillPack will eventually come up against the wall of customers who want to speak and consult with their pharmacist or ensure that appropriate charges are being handled through their insurance companies. CVS will continue to add services like MinuteClinic, Flu Shots and market their program to the point that it adds value to customers in the store. Add to that almost 10,000 CVS stores, and the purchase of Aetna, there will be a much tighter relationship for CVS and the customer.

Richard J. George, Ph.D.
BrainTrust

Agreed that this is a defensive move and in the short term necessary and potentially effective in slowing the Amazon move into this critical and fast-growing market space. The key will be what value-added offerings, for both the customer and CVS, can be bundled in this service. CVS needs to take a page from Amazon’s customer intimacy focus, gaining better insights into their customer problems that CVS is better positioned to solve than Amazon.

Michael La Kier
BrainTrust

Making life better for the shopper makes all the sense in the world. Drug channel players have a trove of data and a “subscription” base of shoppers that set up a tiny moat to protect from the Amazon onslaught. They key is to make the relationship stickier by making deeper inroads into shopper’s lives. CarePass is a good move to capitalize on existing shopper relationships.

Kai Clarke
BrainTrust

CVS has certainly found an alternative to Amazon as the pharmacy business continues to change. However, Amazon is still lower in cost and faster in delivery. Also, CVS only needs to count the days before Walmart has their solution for this “in test” as well, and Walgreens will not be far behind. Amazon’s entire model will only help create more customer loyalty and a faster adoption rate which CVS cannot compete with on a prescription/OTC program only (i.e. Amazon Video, Food, etc.).

Dan Frechtling
BrainTrust
2 years 11 months ago

I agree with Neil Saunders’ point about the high rewards inherent in the program.

One reason for this comes from an observation published by Chain Store Age (June edition) which also happens to also be a Neil Saunders comment:

“The most loyal part of their [CVS and Walgreens] pharmacy customer base is the older consumer. Over the next ten years, this cohort will become a much less significant part of the market and this will leave drugstores exposed to younger shoppers who are more likely to use both Amazon and remote pharmacy services. There is a significant risk that drugstores will see a real erosion in pharmacy customer share, especially in urban and suburban areas where Amazon can quickly deliver.”

Thanks, Neil, for your insights.

wpDiscuz
Braintrust
"CarePass may help CVS maintain market share for now, but Amazon will only continue to look for ways to disrupt the market."
"Agreed that this is a defensive move and in the short term necessary and potentially effective in slowing the Amazon move into this critical and fast-growing market space."
" I envision CVS examining point-of-care testing, curated solution development, and value-added services being considered in the short-term."

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