7 ways CVS is driving growth in its stores
At CVS Health’s annual Analyst Day held Wednesday here, Helena Foulkes, CVS/pharmacy president, shared significant details on the progress CVS Health has made to drive growth in its stores.
The challenge across the front-end, Foulkes said, is that customers are going to retailers less often. “CVS/pharmacy is combating this by driving larger baskets and more incremental sales, particularly in core businesses like health and beauty,” Foulkes said. And CVS/pharmacy has been getting the job done. Even after exiting tobacco, CVS’ average basket size across the front-end is up 2%. And in such higher-margin core categories as health and beauty, it’s up 4%.
“But the important challenge for us is to drive profitable growth and continue to attract new pharmacy patients,” Foulkes said. “This is the job of our front store team.” It’s a strategy that focuses on higher margin categories like health and beauty at the expense of lower-margin, declining categories like photo and general merchandise.
And it appears to be working — in reset stores CVS/pharmacy is seeing a 2.5% performance improvement since the remodel, Foulkes told analysts.
One year ago, Foulkes presented five key themes for how CVS/pharmacy would drive growth at the front-end of its stores, and build back the loss of some $2 billion in annual revenues from its decision to quit the cigarette business. On Wednesday, Foulkes reported on the significant progress the company has made along each of these fronts:
Better Health Made Easy
CVS/pharmacy is placing a greater emphasis on health with a remodeled “health quadrant” showcasing key categories like vitamin, allergy and cold and “healthier-for-you” food options now in about 450 of its stores. In those remodeled stores, sales of health items are up 1.9% and sales of better-choice food items have contributed to an 8.5% lift in consumables. And as many as 75% of CVS’ shoppers have indicated an intention of shopping more for on-the-go snacking at CVS.
CVS Health is also expanding on innovative health-oriented services in the store, including a pilot of hearing and optical centers in 12 stores. “It’s a great complement to the patient care initiatives offered in our retail pharmacies,” Foulkes said. “By expanding into vision and hearing, we’re giving customers a convenient, single destination for their healthcare needs.”
Elevate Beauty
CVS/pharmacy has also been giving its whole beauty offering a makeover. In the past year, CVS has elevated its cosmetics wall across 4,500 locations, installed more self-service customer units in 1,600 stores and elevated its facial offerings in 2,000 stores. “The enhanced cosmetics wall is more inviting with hot spots to show her colors and new trends,” Foulkes said. “We’re stepping up the facial care look and feel and we’re dedicating end-cap space to beauty elevation in our top stores.”
The overall result is a more upscale look and feel in the beauty department throughout the store that has contributed to a 3.7% lift in beauty and personal care sales in those remodeled stores.
MyCVS Store
Personalization is a key aspect of CVS’ front-store growth strategy and a recurring theme that plays out in a number of ways, including its “MyCVS” store clustering initiatives. Foulkes shared results in its “y Mas” stores, 11 stores in the south Florida market it remodeled earlier this year to present a new Hispanic consumer-friendly store format, with bi-lingual signage and staff and unique offerings and products.
Sales are up 10% in the CVS y Mas stores, Foulkes noted, with sales up 11% in consumables and up 20% in beauty.
Important, CVS has identified as many as 700 locations throughout the chain with matching demographics. “While we plan to expand the CVS/pharmacy y más concept to additional stores in south Florida, along with markets in Los Angeles and Puerto Rico in 2016, we will need to learn more before we expand more aggressively,” Foulkes said. [pb]
Customer-Driven Personalization
CVS/pharmacy has also been busy leveraging its insights from its ExtraCare loyalty program to feed a more personalized, one-to-one relationship with its customers, and drive more efficient — and more lucrative — promotional investment, deemphasizing promotions on low-margin categories (read: soda) and prioritizing slower moving, but higher margin categories (read: vitamins).
“We’ve made it a point of emphasis in our evolving promotion and personalization efforts to embrace circular promotions that are accretive to margin,” Foulkes said. “The aspiration of our personalization initiative is to aim for the best of both worlds — offers that drive both high sales and high margin growth.”
Those kinds of personalization will pay dividends, Foulkes said, as they target higher value front store customers — the 30% of CVS/pharmacy front-end shoppers who generate 80% of its front-end revenues. “We know a lot more about these shoppers based on their needs and behaviors,” Foulkes said.
Foulkes presented analysts one example of what a high-value customer looks like to CVS, who likes to buy hair color and who is sensitive to promotion. “Our strategy with her is to establish a routine and create a reason for her to visit us weekly,” Foulkes said. “We leverage one-to-one personalized offers based upon her needs.”
The result of that one-to-one communication is an average weekly spend increase of 38% and average redemption rates are up almost two times, Foulkes said.
Digital Innovation
CVS/pharmacy is investing significantly in an enhanced digital shopping experience. “In just one year the smartphone has become the preferred online hub for ExtraCare customers,” Foulkes said.
According to Foulkes, digitally engaged consumers visit stores six times more per year and spend 4.5 times more. They also fill prescriptions at a rate of 2.4 times higher than non-digital customers, Foulkes said.
Blue Cross/Blue Shield pilot
In three Minnesota stores, CVS/pharmacy has created a walk-in customer service center for Blue Cross/Blue Shield in space once occupied by a declining photo business. “As we test new store formats, this was an opportunity to pilot a different use of the downsized photo lab,” Foulkes said. “For the health plan, having a retail presence inside the CVS store is a cost-effective way to drive member acquisition, engagement and retention. For consumers, it’s a convenient way to access information about their health insurance. For CVS, we see the opportunity for the member to make increased trips to our retail pharmacy,” she said.
On Target
Wednesday also served as the official close of CVS Health’s acquisition of Target’s pharmacy and retail clinic business, opening the door to several new markets for CVS — including Seattle, Denver, Portland, Ore. and Salt Lake City.
CVS/pharmacy has a significant opportunity to grow its pharmacy business in Target stores, Foulkes explained. CVS/pharmacy on average fills twice as many prescriptions per pharmacy versus the average legacy Target pharmacy. And currently, only 5% to 7% of Target customers use Target pharmacies — a number CVS Hea