Why CVS' CEO Isn't Worried About Amazon

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Why CVS' CEO Isn't Worried About Amazon

By Jamie Grill-Goodman - 08/10/2017

CVS Health Corp. had a higher than expected quarterly profit. Net revenues for the second quarter of 2017 rose 4.5% to $45.7 billion. The second quarter results keep the company on pace to achieve its full-year targets, according to President and CEO Larry Merlo.

The top retail executive also doesn't see Amazon as a threat to the pharmacy business, despite speculation.

"There are many barriers to entry when you're looking at pharmacy," said Merlo. "I think most people are thinking about pharmacy as another distribution point. But pharmacy is also about the clinical outcomes that are provided."

"We've seen mail-order pharmacy decline to some degree over the last couple years, and patients put a lot of value in the trust and the relationship that they have with their retail pharmacist," noted Merlo. "So I don't think there's anything that is in the near-term world that changes those dynamics."

Merlo noted the CVS Pharmacy model is built on convenience, with 9,700 points of access and almost 80% of the U.S. population living within a few miles of a CVS. The retailer has also been working hard to define what omnichannel means for it and has been investing in digital tools and capabilities to improve its omnichannel experience.

A portion of the increase in the company's operating expense dollars year over year relates to investments made in process improvements and technology enhancements as part of the company's "enterprise streamlining initiative." CVS is working on new tools and processes designed to improve labor productivity across its enterprise pharmacy operations.

According to Merlo, the technology investments and enhancements are largely complete at this point and the company is now moving onto executing the new capabilities. The retail company is also piloting the use of technology to provide drug pricing information to both the patient and the prescriber at the point of prescription.

"This dramatically changes the conversation with policymakers, several of whom have expressed great interest in these capabilities," said Merlo.

Additionally, CVS's personalization and promotional strategies have been successfully contributing to growth in front store profitability. The company continues to enhance its digital presence to increase engagement with health and beauty shoppers, and has integrated digital manufacturer coupons into its app. CVS has also implemented new technology aimed at making digital communications more relevant. The tech automates the selection of products, offers, and messages, by leveraging advanced analytics and ExtraCare information.

"There's no question that Amazon is a competitor in the marketplace," said Merlo. "They've done a great job, and you don't take anything that they're doing for granted. But at the same time, I think that we have a lot of capabilities and a value proposition that can compete effectively in the market."