CVS Way Forward: Express Pickup And ‘Owning The Last Mile’

By the numbers, CVS’ Q3 wasn’t inherently terrible — revenue was up, same-store sales increased and earnings per share grew year over year.

And yet, CVS found itself in the penalty box with investors, taking a 16 percent haircut in stock price because the firm officially lowered its earnings outlook for the year.

“Very recent pharmacy network changes in the marketplace are expected to cause some retail prescriptions to begin migrating out of our pharmacies this quarter,” said CEO Larry Merlo in the earnings statement. “In addition, we are currently experiencing slowing prescription growth in the overall market, as well as a soft seasonal business. These factors combined are leading us to reduce the mid-point of our guidance for this year by $0.05 per share.”

That was last month’s news. Going into 2017, CVS is looking forward and ahead to what’s next: consolidating its gains as the last-mile leader in American pharmacy and building out a better customer experience.

The Last Mile 

“We own the last mile of care.”

That pronouncement came from Merlo during his final meeting of the year with Wall Street analysts. He clarified that the last mile CVS serves in its retail operations spans mail services, retail brick-and-mortar pharmacies, retail clinics, long-term care and infusion service capabilities.

The key, Merlo noted, is CVS’ unique ability — due to its scale — to connect critical touchpoints within the modern health care system, including providers, patients, senior living/long-term care, employers, government and health plans.

And, Merlo noted, CVS is more diverse and suited up to compete going forward than one might assume on first glance.

CVS anticipates Medicare and Medicaid will run to its favor due to higher utilization rates. Though that will bring with it potentially lower margins, Merlo noted that the firm’s large advantage with Medicare patients should mean the increased volume could end up being more decisive.

Merlo also highlighted forthcoming efforts to expand its menu of services and fulfill a great swatch of customer needs. Primarily touted in this regard is the rapidly forthcoming launch of Maintenance Choice 3.0 in 2017, which will include new options for patients to fill prescriptions either at a CVS store, via its new Express Curbside option, or through a new same-day delivery service CVS Health also plans to roll out in 2017.

“We have an extensive suite of leading assets, which, on their own, would be industry-leading,” Merlo noted.

Promoting Those Assets

While same-day delivery is on the docket and being test-piloted at certain New York stores, CVS Express has been open for public use since April of this year.

To use the app, consumers download it, pick a home store and then tap to select their order. When the order is ready for pickup, users get a text and head to the store. And, because it is a curbside pickup program, CVS even delivers it.

For the holidays, CVS is also working hard to get that service a little bit more out into the public consciousness with a bit of extra promotion. Users who sign into the app to place an Express Order will get an immediate $10 on any purchase over $15.

Same-day delivery is planned to roll out in 2017. That will start with what is being piloted at present — the delivery of non-pharmacy goods — though CVS confirmed that it will be adding pharmacy delivery services early in the new year.

So, can CVS really own the last mile? It certainly has a strong chance, particularly since its acquisition of Target’s pharmacy brand has rapidly grown its footprint. But the competition is bulking up. Walgreens and Rite Aid will, for the first time, be challenging CVS as a single entity — and one with a larger physical footprint.

But CVS thinks it doesn’t need to win on size, if it can win on service. We’ll keep you posted on how it shakes out.