Photo: CVS Health
Is opening pharmacies in other chain stores CVS’s new thing?
CVS has signed a definitive agreement to acquire Schnuck Markets’ retail and specialty pharmacy businesses.
The deal means that the drugstore giant will acquire 99 of the grocery chain’s pharmacies inside Schnuck stores and operate them under the CVS logo. In 11 other locations, CVS will acquire patient records and transfer them to its own nearby stores. The deal is expected to close by the end of the second quarter, the financial terms yet to be disclosed.
CVS, according to the St. Louis Post-Dispatch, currently operates more than 40 pharmacies in the St. Louis and Metro East areas in a market “dominated” by Walgreens. The additional 99 pharmacies will substantially boost the presence of CVS in the area and help it compete on a more equal footing.
“One of CVS Health’s strategic imperatives is to be local. By opening CVS Pharmacy locations within Schnucks stores, we’re increasing access to high-quality care and meeting customers where they are,” said Jon Roberts, executive vice president and chief operating officer, CVS Health, in a statement.
“As Schnucks continues to expand our emphasis on health and wellness, this collaboration with CVS is an opportunity for us to align with a company that has a similar focus,” said Todd Schnuck, chairman and chief executive officer of Schnucks. “This partnership allows us to continue to provide quality pharmacy services to our customers in a manner they’ve come to expect while supporting our mission to nourish people’s lives.”
In 2015, CVS reached a $1.9 billion deal to acquire Target’s pharmacies and operate them under its own banner. While significantly larger than its agreement with Schnucks, the deal now appears to be a model for the chain to expand its pharmacy footprint without the expense of building and maintaining new drugstores.
- CVS Pharmacy signs agreement to acquire, rebrand and operate Schnucks Pharmacies – CVS Pharmacy, Inc.
- CVS to take over Schnucks pharmacies; pharmacy in Kirkwood store to close – St. Louis Post-Dispatch
- Will CVS and Target be stronger together under one roof? – RetailWire
- Will the Target/CVS pharmacy deal lead to a future merger? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Is the acquisition of pharmacies operating inside of big box chain stores a growth model that you expect CVS to continue to pursue? Do you see this approach as preferable to CVS opening more of its own standalone drugstores?
Poll
BrainTrust
Neil Saunders
Managing Director, GlobalData
Harley Feldman
Co-Founder and CMO, Seeonic, Inc.
In the saturated markets, acquisition driven growth makes total sense. If the local population already have enough pharmacy footprint, it makes little sense to open a Greenfield store adding to the capacity. Like real estate, this strategy is driven by opportunities and local needs.
Based on the learning from the Target/CVS Rx deal, I do believe CVS will continue to move in this direction. It is likely far less expensive to assume the prescription department from an operator that is not focused on the prescription side of their business (e.g., Schnucks) and immediately assume the prescription patient files rather than building a storefront and trying to persuade patients to make a switch. That said, I do not believe CVS is slowing down their continued expansion with the HealthHub concept or entering new markets where their presence may be limited. It is a balancing act to say the least, however CVS is masterfully increasing their accessibility, visibility, and value to patients.
Apparently placing the CVS pharmacies within Target stores has been a successful model for CVS. With a captive audience and a small footprint, the store-within-a-store model is a great way for CVS to expand rapidly, especially in markets where they don’t have an existing presence. It is less expensive and faster than opening full-sized drug stores.
This collaboration strategy makes sense from both a customer and a capital perspective. Food and drug have long been bundled in leading food retailers. Now CVS will have access to these new customers without the need to or risk of investing capital in standalone stores.
This is a solid move which will boost, albeit moderately in the scheme of things, CVS customer and patient numbers. It also fits with the chain’s philosophy of being convenient for customers. Given that a similar arrangement with Target has been very successful, CVS has a clear template for this kind of deal.
CVS is likely to continue to grow operating inside big box retail stores. It must be working at Target, there is no cost to build new store locations other than remodeling, and the customer traffic from the retailer will be readily accessed by CVS, and the CVS brand will be expanded. Expanding through existing retailers is a preferable approach as CVS can expand more rapidly at a lower cost than constructing new standalone stores. It also provides CVS with a customer base from the retailer.
This one is a no-brainer. Who can operate a pharmacy better, Schnucks or CVS? Who can operate a pharmacy better, Target or CVS? Pharmacies are a very different animal than the regular retail business. Perhaps all grocers who operate pharmacies should go to CVS or Walgreens to handle theirs. Without going through the numbers, I can assure the retailer that ROI on the pharmacy for the retailer will far exceed self operation.
Kudos to CVS for this approach. Clearly it’s working in Target, and it’s a reasonable assumption that the in-store branded pharmacy program will continue. Drug stores struggle with traffic, so putting the pharmacy inside an existing store helps to solve that problem, while providing a known and trusted brand to pharmacy customers.
Absolutely. The chain pharmacies come with a current book of customers and prescriptions that generate steady revenue from day one. CVS operates both pharmacies and HBC/OTC merchandising better than most chain operators. The chains should see increased sales and therefore increased fees or commissions. It should be a win-win.
If you couple this acquisition approach by CVS with the recent new store concepts we’ve seen from them, this strategy makes sense as a way to create a tiered store model where the experience will be different in a stand-alone CVS vs a store-within-a-store CVS. Need prescriptions filled quickly? Get them while you’re at the grocery store or a Target run for convenience. Need more than that? Maybe a health checkup in a minute clinic? Then visit your local standalone CVS. Looks like a solid strategy!
CVS is moving closer to where its customers live, work, and play and acquisition is one of its fastest paths to success — provided of course that the chain is selective about who and what it buys. Aggressive acquisition is an expensive and complex vehicle at best and a path to Chapter XI at worst. At first blush, the Schnucks deal looks like a sound one, but CVS needs to make sure the next one is equally as sound.
This has clearly worked for CVS in Target stores and looks like a winning strategy. They tested it, it worked and now they are rolling it out. This is an interesting symbiotic relationship with CVS and Target and now Schnucks cross-pollinating sales for each other. It also lowers a big real estate capital/expense component for CVS and gives their partners an opportunity to generate income from lower margin space in the store.
This is another way to deliver convenience. Most people shop for groceries once a week or so. Why not put a pharmacy where there are already customers? In this case, CVS is taking over the pharmacy in an existing store. It will further develop the brand and make it part of a one-stop shopping experience.
Acquisition growth makes sense in oversaturated/saturated markets and I expect CVS will continue to to pursue in those areas. I’d guess that CVS still prefers standalone locations as a primary growth strategy since they can then manage the entire (and all-important) customer experience.
What’s not to like? It expands the brand and will offer the customers a provider with more buying power.
What’s not to like, of course, is that it increases concentration, i.e. a provider with more power over consumers as well. Which of these comes out ahead is something time will tell, but from a business perspective I think it’s a clear plus.