Rewriting the Script
In a recent interview, Walgreens’ CEO Greg Wasson spoke at length about the ways in which the drug store chain is evolving. I thought the interview (posted online under the title Walgreens gets a modern makeover), was fascinating, particularly where Wasson explained the company’s bold plans to “reimagine” its stores.
Exactly how bold are they? The very first question posed by interviewer and Fortune Magazine editor-at-large Geoff Colvin suggests that Walgreens is “changing the very meaning of the corner drugstore.” That might be a little bit of an exaggeration, but there’s no doubt in my mind that Walgreens is at least a step ahead of the competition.
Prompted by the upcoming implementation of the Affordable Care Act (ACA) and citing a desire to “step out of the traditional drugstore format,” Walgreens will soon begin offering a significantly expanded range of medical services. In addition to making sure that Walgreens stores have the infrastructure and personnel available to handle the anticipated increase in prescription traffic once the ACA goes effect, the drugstore chain will also be adding dedicated nurse practitioners to more stores. Together with the availability of immunizations and vaccinations (as well as health screenings like cholesterol testing and blood pressure monitoring) that Walgreens helped to popularize, it seems clear that Wasson’s vision is the corner pharmacy becoming more like a fully functional community clinic.
While the medical expansion was interesting, the most fascinating part of the interview was Wasson’s description of what Walgreens has planned for its non-pharmaceutical offerings. In a big move aimed at boosting their front-end sales and driving customer traffic, Walgreens is going to be introducing more fresh and prepared food in addition to their current convenience-oriented offerings. Cosmetics will also be going upscale, with a new and expanded cosmetics “department.” In a few test stores, Walgreens has pulled out all the stops: the new San Francisco Walgreens on Market Street even has a sushi bar!
By presenting merchandise much more like an upscale supermarket — which also includes higher-end lighting and more sophisticated presentation — parts of many Walgreens stores are going to be looking less like a drug store and more like a neighborhood supermarket or an upscale convenience store. Wasson also talked about responding to an increased customer focus on value by “accelerating” Walgreens’ private-brand offerings, and taking advantage of changing consumer shopping habits for groceries and consumables. In the interview, he mentions a statistic that says that “60% of the people in this country responsible for tonight’s meal do not know what it is [going to be] at 10 a.m.”
From a broader retail perspective, what do we make of these changes?
Walgreens isn’t the only retailer looking to innovate by broadening its products and services. Plenty of brands, most notably Target and Wal-Mart, have been moving in that direction. It’s also not entirely unlike the store-within-a-store concept that some other brands and retail categories (department stores, and even Best Buy) have experimented with recently. But this is still a pretty bold move, especially for a retail sector where prescription business typically makes up somewhere between 60% and 70% of a pharmacy’s overall sales. The other reason this is such a big deal is because Walgreens is clearly the 500-pound gorilla in the pharmacy sector — with 8,300 locations (including Duane Reade and a few regional brands), Walgreens is the nation’s largest retail pharmacy chain, and anything they do is going to have a profound impact as it ripples through the competition.
Fundamentally, I see this is as a good thing; the only possible downside would be if these moves somehow take away from their prescription traffic, but I don’t see much danger of that happening with Walgreens. If you take a step back, it does seem to be part of a broader pattern of retailers finding new and creative ways to make the best use of the assets they already have in place to drive more traffic and broaden their appeal. In the case of Walgreens, perhaps the most significant of those assets is real estate. They already have these great locations (which, in the pharmaceutical sector, the brands sometimes own, in stark contrast to most other retailers who usually lease). It’s just about leveraging that value. They have already paid the big bucks for the access and visibility advantage that comes with being a freestanding store on a hard corner; they just need to maximize those advantages by making a concerted effort to get people to come in more often — not just for prescriptions.
Drug stores have kind of understood the value of diversifying their offerings for some time, but I think Walgreens’ plans are clearly taking it to the next level. Given the brand track record, however, I have to say that I think it’s got a good chance of working out for them. What do you think? Can you envision a future where more and more people are swinging by the drugstore on their way home from work to pick up something for dinner? Let’s keep the conversation going! I always appreciate your comments below, or through [email protected].
Click here for past columns by Jeff Green.
CVS delivers strong Q2
WOONSOCKET, R.I. — CVS delivered strong second-quarter results and is moving forward with plans to leverage the upcoming changes under health reform.
“We are very pleased with our strong operating results enterprise-wide in the second quarter. Operating profit increased 15%, overall, with the PBM growing about 32%, and the retail business growing nearly 9%,” said Larry Merlo, president and CEO of CVS Caremark. “Considering our strong operating results to date and all other factors affecting our outlook for the remainder of the year, we are narrowing our earnings guidance for 2013.”
Under its revised guidance, full-year adjusted EPS is expected to be between $3.90 and $3.96 compared with its previous range of $3.89 to $4.
For the second quarter, net revenues totaled increased 1.7%, or $534 million, to $31.2 billion. Income from continuing operations attributable to CVS Caremark increased 15.9% to $1.1 billion.
In looking at how its PBM business performed during the quarter ended June 30 and the 2014 selling season, Merlo told analysts that the PBM model continues to resonate well in the marketplace and the company is pleased with the results to date.
During the quarter, revenues in the PBM segment rose 2%, or $377 million.
For 2014, gross wins are $4.4 billion to date, while net new business stands at $1.7 billion. Merlo shared with analysts what clients have been focused on during the selling season: managing specialty spend across the pharmacy and medical benefits, and the upcoming changes due to health reform.
“As a result, we are seeing interest across our entire suite of specialty capabilities. … We believe our differentiated approach to specialty is driving lower overall costs while improving health and providing value for both payers and patients,” said Merlo, who noted that specialty revenues rose 19% during the quarter.
In addition to managing specialty costs, clients also are focused on the changes resulting from the Patient Protection and Affordable Care Act.
“We continue to believe that Medicaid expansion and individual, small group coverage in the public Exchanges will be a long-term secular growth trend resulting in a significant amount of new coverage for people who have previously been uninsured,” Merlo said.
While details around the Exchanges, such as plan designs and rates continue to emerge, Merlo said that the company is “well-positioned” given its retail footprint and existing relationships with health plans and managed Medicaid plans.
“We have had a lot of dialogue with health plans about collaborating with us on innovative programs that support their overall Exchange strategy and these discussions also encompass how they can partner with us across our retail touch points, while tapping into our direct-to-consumer marketing expertise to attract and retain members,” Merlo said. “We also discuss how MinuteClinic can support care management and wellness programs for the newly insured.”
“We believe all of the activity around the Exchanges will serve as a catalyst for broader collaboration opportunities with our health plans,” Merlo added.
Before shifting to its retail segment, Merlo provided an update on the sanctions imposed earlier this year by CMS on its SilverScript Medicare Part D prescription drug plan, which prevents the company from marketing SilverScript or enrolling new members.
As previously reported by sister publication Drug Store News, CVS Caremark is working to resolve service issues related to its SilverScript Medicare Part D prescription drug plan. Issues with SilverScript enrollment processing resulted from an enrollment system conversion and brought about an increase in call volume and issues related to claims processing, including, in some instances, not being able to have claims adjudicated at the pharmacy.
“We have revised our plan and expanded the timeline for remediation. Based on our latest estimate, we now expect our remediation efforts will be completed sometime near the end of the year,” Merlo told analysts. “… Given this current timeline, we do not expect that we will be able to participate in the 2014 annual enrollment period when it begins in October. In addition, until the sanction is lifted, we do not expect to receive new auto-assigns from CMS for 2014 in the regions where we qualify.”
Revenues in the retail segment rose 1.9% during the quarter. Same-store sales increased 0.4% with pharmacy same-store sales increasing 0.8%. However, it was the 0.4% dip in front-end same-store sales that caught much of the attention.
Merlo did indicate that the shift in the Easter holiday negatively impacted (by 65 basis points) the front end, and noted that front-store margins “expanded nicely in the quarter.” The company also is increasingly focusing on personalization to drive more profitable sales.
“We continue to focus on driving more profitable sales through the targeted promotions we offer to ExtraCare card holders, and we are focused on increased personalization to accomplish this,” Merlo said. He added that the company continues to expand its personalized offers that are delivered at the point of sale. In fact, in the second quarter alone, the company issued more than 3 billion of such offers. The company also has significantly expanded its personalized offers that are delivered via email.
Once again, its MinuteClinic reported impressive revenue growth with sales up 32% compared with the year-ago period.
The company ended the quarter with 684 clinics in 25 states and District of Columbia. Expansion plans call for the opening of 150 clinics this year, and to end 2013 with nearly 800 clinics with about 30% expansion in new markets.
“Our long-term goal is to create a national, primary care platform to provide integrated, high-quality care that is convenient, accessible and affordable, and new services will continue to be developed to address the shortage of primary care physicians and to support patients impacted by the epidemic of chronic disease,” Merlo said.
Cabela’s implements new mobile solution
Specialty retailer and direct marketer of hunting, fishing, camping and related outdoor merchandise, Cabela’s, has selected Sage North America payment solutions as the sole mobile payment processing provider for its seven 2013 Cabela’s Club Family Outdoor Days events.
Cabela’s Club Visa recently switched to Sage Mobile Payments, a payment card industry-compliant mobile payments product that comes bundled with a Sage merchant account. Cabela’s Club Family Outdoor Days events are open exclusively to Club Visa cardholders. The events offer participants an opportunity to get hands-on experience and instruction in sporting clays, .22 rifle shooting, archery and fly fishing.
"Sage Mobile Payments allows us to quickly and easily accept payment for onsite registrations for our Family Outdoor Days," said Haley Steinkuhler, event coordinator for Cabela’s Club Visa. "The built-in functionality and intelligence of Sage Mobile Payments mean we can accept payments, email receipts, track cash, access reports and more."
Sage Mobile Payments was successfully deployed at four outdoor events. The three remaining Family Outdoor Days events will take place in Prior Lake, Minn., on August 10; Cedar Fort, Utah, on August 24; and Kearney, Neb., on September 28.
"Cabela’s had an immediate need for a mobile payment acceptance solution that would help them better serve their Family Outdoor Days participants," said Marc Palombo, SVP at US Dataworks. "Sage Payment Solutions, and specifically Sage Mobile Payments, was a great fit in terms of ease of implementation and the Cabela’s consolidated payment strategy."
"We’re excited to be a valued partner to Cabela’s and US Dataworks," said Mike Hackney, VP of business development for Sage Payment Solutions. "Sage Mobile Payments is a true business solution offering back-office integration, robust reporting tools and commercial-level support. We welcome US Dataworks to the Sage Payment Solutions ISV Partner Program, which provides software developers with the technical documents and marketing and sales resources necessary to market their product integrated with our payment products."