CVS Pharmacy and Pulling Off Tobacco Products

Business Strategy - CVS Pharmacy Strategy. CVS Rebranding Strategy CVS took out tobacco from its stores' shelves one month earlier than was planned originally. This move plus the alteration of the company's corporate name is targeted at helping the company rebrand as a health care company. With a name such as CVS health, the company believes that not being part of the tobacco distribution system is good for the company in the long-term and is aligned with the company's new focus on health.

CVS health had also announced that it was to launch a campaign against smoking. Observers were surprised by CVS Caremark Corporation (NYSE: CVS) when it made the announcement concerning its stance on Tobacco. The announcement was accompanied by a big banner proclaiming the new logo and name of the company across the NYSE (Sheets, 2014). The company's rebranding, they said, is aimed at assisting people be of better health.

The rebranding is also positioning the company for an even bigger role in the provision of healthcare services - services going beyond the common business model of retail pharmacy. They say that because they have always have been at the forefront of innovation, they will continue delivering innovative products and so enable businesses and people as well as communities manage health more effectively and in a more affordable manner by having programs in specialty pharmacy, medication adherence as well as walk-in medical clinics.

Earlier on, the company had made an announcement that having tobacco on the shelves of its stores conflicted with their mission as well as their stance on good health. It had been said by officials from the company that it was not mere coincidence that this decision was made at the time of rebranding (Cheney, 2014). The company noted that the company's new name is in line with the goals of the company as a new kid in the block in the market of health care service providers.

They said that they are actively involved in shaping the outlook of healthcare as well as its future by rolling out medication adherence programs, having walk-in medical clinics and giving support to the patient who come with complex or chronic conditions.

Some of their offerings include: Programs for the management of chronic conditions Programs for connecting patients and pharmacists to assist them stick to the medications prescribed Having digital capacity to support the programs They are also planning to liaise with health plans and physicians in order to give medication, clinical support, monitoring of chronic conditions as well as wellness programs. The company is offering programs to manage chronic conditions as a way of expanding their revenue stream.

With the high cost of medical care, their offerings gives these patients an affordable way to manage their conditions as CVS accepts most insurance plans and their rates are more manageable. Health care costs in the United States is growing each year and becoming prohibitive for a majority of the population. CVS customers can take advantage of the affordable offerings and so make savings in healthcare. In fact, the company is positioning itself to take advantage of opportunities brought forth by Obama's Affordable Care Act.

The Affordable Care Act has lead to many Americans seeking access to health care. CVS is positioning itself to take advantage of this fresh group of customers by expanding their product offering. It is now providing a range of healthcare products tailored for various needs and the new branding efforts are in line with that. With its new name, CVS Health, the company is more appealing as a destination for health services.

More people can now go to a CVS store not just to buy drugs but also to get other health services not offered at your typical pharmacy. CVS has partnered with various other providers in the health space to increase their product offering. This is aligned with their new found goal of a focus on health. Various players in the industry have applauded the decisions CVS has made in the recent past especially the move to so away with tobacco from its shelves.

It is in CVS interest that they partner with these health institutions so as to support their programs. Digital programs are crucial as a supplemental offering to the various programs they now offer. The competitors are running smoking cessation programs and CVS is seeking to improve its smoking cessation program. The competitors categorically stated that stopping sale of tobacco was completely unnecessary as reducing smoking in America can not be done by simply reducing the availability of tobacco.

They touted their programs of tackling the root problem as more efficient and useful. Officials at the company are saying that the rebranding efforts are to help the company align with the bigger roles it is to play in the expanded business model. Because of its culture of always bringing forth innovative products it has to strategize to serve its clients effectively and meet their needs (Chenney, 2014). The rebranding will be of help to CVS in 2 ways.

One, health conscious consumers and those seeking to stop their tobacco usage are likely to get the needed support at CVS and so shop at their stores. Second, because of its commitment to health care, it will be taken more seriously by other players in the market as well as potential partners. Because a key component of the business model of the company is partnering with various players in the health sector, this decision will go along way in smoothening future efforts.

The company is currently affiliated to over 41 health providers and is making efforts at growing that number since the Affordable Care Act has grouped health care providers among accountable care organizations. While CVS may be the first pharmacy to halt tobacco sale in its stores, Target was the first big retail store to halt the sales. This was done way back in 1996. Some other small retailers followed their lead including Wegmans Food Market Inc. that did this in 2008 (Sheets, 2014).

The decision the company made has been a serious public health win. The decision is also very shrewd and can later mint profits for the company as it positions itself as a major player in the healthcare provider space. The company's new name is CVS Health. This could also mean that CVS is taking steps to align its operations to Obama's Affordable Care Act.

The Act brings forth great opportunities for CVS to exponentially grow - not just in the business of pharmacies but also the expansion of MinuteClinics that give basic primary care in their stores. There are plans to grow the number of stores offering this from 900 that existed last year to an estimated 1,500 by the year 2017. The company is continually opening new clinics every quarter and its revenues are growing.

A key component of these openings is partnering with hospitals and insurance systems and having cigarettes in their store directly contradicts this goal. There is no use of having tobacco on their shelves any more. Fresh customers brought by the decision are likely to stay longer and get their prescription medicine at CVS. This strategy is bound to make more money than would cigarettes.

More money can be brought in if the company is perceived as a place one can stop by to receive healthcare and also to purchase healthcare products (Friedman, 2014). Porter's Five Forces Model 1. Threat of Entry: there is a low threat of entry into the pharmacy market because of the prohibitive cost of entry. Entering a single market like Memphis is however easier since erecting just one store isn't as hard (Itorbett, 2013). 2.

Threat of Rivalry - there is a high threat of rivalry as pharmacies can be found in nearly every corner. Price cutting is a competitive strategy in the store front. This isn't common though in the main pharmacy as the price is often set by the wholesaler. Promotions like gift cards as well as price marching are common, however. 3. Threat of substitutes: there are substitutes for the products at the front store in various locations at supermarkets and gas stations. Medications, however, can't be substituted (Itorbett, 2013). 4.

Threat of suppliers: the operations of companies are dependent on their suppliers. When there is no medication, there is no pharmacy. Displays also work well in attracting clients. Suppliers alone aren't the problem as shortages can occur at the manufacturing plant too (Itorrbett, 2013). 5. Threat of buyers: the buyer count for pharmacy benefit providers and pharmacies is limited. Smaller pharmacies are continually being acquired by bigger chains like CVS and Walgreens (Itorbett, 2013).

The inherent financial risk in CVS stopping selling tobacco was thought to be offset by the PR hallo that would be created. This differentiation might just help the store win new business in other operations of the corporation like administration of prescription drugs (Zibro, 2014). Effects of the rebranding of CVS as a company focused on health and what impacts it could have on its competitors What impacts are in store for CVS following the change of name and their fresh focus on healthcare.

With a name like CVS Health, it is guaranteed that some ripples will be felt in the market. A bumpy tobacco road CVS made the announcement that it was doing away with tobacco from the shelves of its stores. The goal was met much earlier than they had anticipated. While it was estimated that the decision could cost CVS about $2 billion in revenue, there hasn't been an effect on the stock price until now.

The concern is if the price of the stock will remain this stable or if it will slide down the drain with time. If CVS reports lower figures, its stock might take a hit. Whether it bounces back after such a hit is for us to wait and see. Little detail is given about the figure being floated around but we can safely say it is an approximate. If the figure turns out to be more gigantic, then the stocks will definitely take a hit (Speights, 2014).

Margin Trading While CVS had posted an impressive 18.3% gross margin sometime back, that number showed a drop of forty basis points in comparison to the same time in 2013. Just like all its main competitors, the company has issues with reimbursements. Another factor also exists for CVS' drop margin. The pharmacy benefits management (PBM) arm of the business is rapidly growing - even faster than its retail business. While this is not bad, its profit margins are lower compared to the retail business.

If this trend continues and the company's weight shifts towards PBM, its rivals might post better figures than them (Speights, 2014). The fall season Shareholders have been on a fantastic ride as far as the shares are concerned with the shares gaining by double digits in 2014. The score for the shares was 76% in the last 2 years but just like all good things, it will end. When the investors have the thought that this is not sustainable and they begin demanding profits, this run is bound to end.

Looking at the stock over the past months, there is a possibility that the stock has reached a ceiling. They have been valued at their highest in the past 5 years. While this does not spell doom, the shares can drop if the investors are unhappy with any financial results posted (Speights, 2014). Changing for good There are other factors that can potentially pose problems for the stock of CVS. A likely threat is market headwinds. Even with these considerations, the future looks bright for CVS.

It was smart of the company to shift their focus on healthcare and they are positioned to be a leader in the market. The store stands to gain from Affordable Care Act as huge numbers of Americans get Medicaid as well as private insurance. Change is taking place at CVS, but will it be permanent? Investors might bail out. The best of investors are very shrewd and can take big profits and recognize opportunities before anyone else spots them.

Going straight to the point, I think a new product is being developed that will transform the landscape entirely. Analysts are anticipating with bated breath the vast potential that comes with such a prospect. Outsmarting Wall Street in this game will take reading the Motley Fool's report on the blockbuster's dream team (Speights, 2014). Last year, 28 attorney generals from various states stated that they had sent letters requesting pharmacies to stop selling tobacco since it gives the wrong message to those shopping at the stores.

Certain groups have stated that availing cigarettes at the stores makes those who want to quit smoking crave the sticks and make impulse buys. Rite Aid and Walgreen have said that they are taking action against tobacco usage. Walgreen is making plans to give their customers access to a smoking cessation program they have developed online. Ride Aid does coaching on reducing the use of nicotine. The two companies do not have in place any plans to quit the business of selling tobacco.

They are saying that stopping addiction at the source is better than making it harder for addicts to satisfy their cravings. Their belief is that helping smokers quit the habit is more helpful to America than out-rightly stopping selling the products. Walgreen is of the opinion that the market share of tobacco sales held by pharmacies is so insignificant it can't make any lasting impact (Giblom and Cortez, 2014).

Approximately half of cigarette sales in the United States take place at the gas station and convenience stores, as per Euro monitor, a research company. Rite Aid is continually evaluating what should be on its shelves, says Ashley Flower, a spokeswoman of the company. No particular references were made by her as concerns tobacco. Wal-Mart and Kroger Co.

have previously indicated that no plans are in place for them to halt the sale of tobacco as their goal is meeting customer demand when it is legal to do so (Giblon and Cortex, 2014). Currently, CVS has approximately 900 "Minute Clinics" scattered across the country where medical practitioners write prescriptions for such conditions like bladder infections, strep throat as well as joint pains. They also do physicals for kids joining college and carry lab tests for diabetics and individuals with hypertension.

They accept most of the insurance plans and out of pocket payments can be made for ailments that are not covered by insurance. The chain is hopping to have 1,500 of such clinics running around the country by the year 2017. Besides that, the company has a fledgling business in CVS/Caremark that runs programs for prescription-drugs for insurers and companies and pharmacy prices. The image change will cost them a lot.

Cigarette sales to be lost are to the tune of $2 billion and the company's executives have not made it clear what the company stands to gain by making the drastic decision. Healthcare providers have appreciated the company's efforts, though, but it remains to be seen if it will draw in customers from other drugstores like Rite Aid and Walgreens (Vara, 2014). It is still not clear what financial gains the company stands to make from the move and no competitor has followed their lead.

The corporation said that the renaming is consistent with the company's new found commitment to health and the culture of innovation in the company. The CEO was emphatic that the brand had gained a huge boost from the decision than they could have gained from a 10-year promotion. Even President Obama commented on the move and one hundred thousand tweets were generated by the move. It was a major differentiation strategy.

No one knew CVS for standing out for one specific thing in the past but now the brand can be associated with this noble move (Schoultz, 2014). Several opportunities and challenges exist in the market. For instance, healthcare cost is rising and there are an increasing number of people wanting to have access to the healthcare system. The nation, for instance, will be short of 45,000 physicians by the year 2020. A problem exists because preventive care is not covered by the rush.

With the cost of healthcare rising, preventive care is needed more than ever as it could be troublesome for several people to access care in the future due to the prohibitive costs. This could be grave. CVS is taking advantage of this opportunity to equip their pharmacies for more functions than just selling drugs (Schoulz, 2014). Would Walgreens Pharmacy be willing to adopt a similar strategy? Walgreen is the largest retail store of its kind in the U.S.

Offering its customers various products including convenience foods, beauty care, personal care as well as seasonal goods and prescription drugs. It also has Health Services operations (Holsted, Jones and Levin 2012: 3). It is clear that Walgreen is not going to reconsider its position on cigarettes and stop selling them. There are no major financial benefits they are likely to get by halting tobacco sale. There was a merger with Alliance Boots and it is consolidating its different functions and trying to cut costs.

The headquarters of the company will still be in the United States. Reports indicate that the finance executive who was ousted had made an error in financial reporting that lead the company to lose at least $1 billion. Walgreen, however, isn't making use of finances as a scape goat for avoiding stopping selling tobacco. They believe that America's smoking problem can't be blamed on retailers. Their belief that addressing the cause of the issue is more helpful to America than eliminating tobacco from store shelves.

The company's PR response to CVS decision to stop selling tobacco reiterated this stance and they quoted several studies to support their claim. The two competitors, however, are putting more effort in smoking cessation programs. Walgreen's decision, it seems, is to continue selling tobacco as it helps smokers quit the habit through their programs (Japsen, 2014). Rite Aid Corp and Walgreen Co.

- retail pharmacies that strategically position cigarettes at their stores - are saying that assisting smokers overcome their addiction is effort enough and following in the footsteps of CVS is utterly unnecessary. They do not have any plans to do so, at least not in the near future. CVS has shown that stopping the sale of tobacco in pharmacies cannot drive a business to its death bed. The company still reports significant revenue and still growing despite the cut taken in tobacco sales.

Its competitors do not have units concerned with pharmacy benefits and still have to stock tobacco, says Jeff Jonas, a Gabelli Funds portfolio manager. Their performance does not match CVS' and so its necessary that they still sell tobacco. Rite Aid is servicing debt and funds seem very important to them right now. Walgreen also has issues with its acquisition of Alliance Boots. I think the stance of the two chains can be changed if they achieve stable or better financial standing.

An Evecore ISI analyst, Ross Muken, thinks that while cash flow is still important to Rite Aid, Walgreen stands a chance if it opts out of tobacco sales. Pressure from the public to follow in CVS' footsteps is rising and various campaign groups are pressuring the more to make the shift. The shift by CVS could have been easier as they have other stronger streams of income like Caremark Unit that brings in 54% of total revenue.

The revenues from Caremark means that the company can stand missing out on the $2 billion revenue (Giblon and Cortez, 2014). Walgreen says that the portion of tobacco sales handled by pharmacies is just 4% and it is insignificant to the overall desired effect of halting tobacco sales in pharmacies. Shoppers will still go to other stores to purchase tobacco. Its strategy of helping smokers is offering programs tailored at assisting smokers quit (Ziobro, 2014).

People can just walk to the nearest gas station and get a pack if tobacco is not sold in pharmacies, they say. Studies in San Francisco and Boston have however proved that the model adopted by CVS might be helpful in reducing the number of deaths attributable to tobacco. Walgreen might find it hard to forgo the financial benefits of selling tobacco in its stores. Most of the tobacco is strategically placed such that they become almost an impulse buy for people leaving their stores.

The revenue foregone is significant especially if no clear alternatives exist. CVS can however afford to forgo the tobacco revenue as they.