Shane Theriault, Pierre-Olivier Lachance, Garik Teriault, Sierra Daigle

A Strategic Management Case StudyYour Logo

Company OverviewCompany TimelineExisting Mission and Vision

New Mission and VisionExternal Assessment

Industry analysisOpportunities and threats CPM MatrixEFE Matrix

Internal AssessmentOrganizational StructureFinancial Condition Divisional AnalysisStrengths and weaknessesIFE Matrix

Overview

Strategy FormulationSWOT MatrixSpace MatrixIE MatrixGrand Strategy MatrixMatrix AnalysisQSPM Matrix

Strategic Plan for the FutureObjectivesStrategies

Implementation Issues EPS/EBITProjected financials

EvaluationBalanced Scorecard

CVS Caremark

2

• Melville had been founded in 1892 by shoe supplier Frank Melville.• Melville Corporation was incorporated in1922.• First Consumer Value Store (CVS) opens in Lowell, Massachusetts

in 1963.• The CVS name was used for the first time in 1964 with 17 locations.• Throughout the following decades they have purchased many other

pharmacies.– 1972 - Clinton Drug and Discount stores – 84 locations in Indiana and Midwest.– 1977 - New Jersey-based Mack Drug chain – 36 locations in New Jersey.– 1990 - Peoples Drug – 490 Locations throughout Mid-Atlantic– 1997 – Revco Chains – 2500 locations in Ohio, Mid-Atlantic, and Southeast US.

• Sales reached $1 billion in 1985• In 1993, formerly traded as MVL on the New York Stock Exchange,

the company now trades as CVS.• In 1995 and 1996, Melville Corp. sold off the company’s other

segments to focus on CVS.

Company Timeline

• In1999, CVS launched their CVS ProCare Pharmacy for complex drug therapies.

• In 1999, CVS acquired Soma.com, the first online pharmacy, and renamed it CVS.com.

• In 2004, CVS purchased 1,268 Eckerd drug stores and Eckerd Health Services, a PBM/mail-order pharmacy business, from J. C. Penney. as CVS.

• On July 13, 2006, CVS announced that it had entered into a definitive agreement to acquire Minneapolis-based MinuteClinic.

• On November 1, 2006, CVS announced that it was entering into a purchase agreement with Nashville-based Caremark Rx Inc., a pharmacy benefits manager. The new company is called CVS Caremark Corporation.

Company Timeline

Vision statement:

We strive to improve the quality of human life.

Mission Statement:We provide expert care and innovative solutions in pharmacy and

health care that are effective and easy for our customers.

Current Vision & Mission Statement

Our purpose is to guide people along the path of better health

Revised Vision Statement

At CVS Caremark we strive to improve the every day quality of human life by providing the highest quality pharmaceuticals and consumer products (2) in the United States (3). With the

help of our valued employees (9) and advancing technology (4), we will provide the premier shopping experience to all of our

customers, ranging from child to adult (1). Our goal is to reward our customers with the best prices and best service possible(7). CVS will continue to grow and improve through

investment and expansion opportunities (5) while always maintaining the highest ethical and moral standards (6). Most

importantly, we will continue to care and support the communities and the environment (8) that we are a part of.

Revised Mission Statement

External Audit

Industry Market Analysis

Share of 2011 Prescriptions RevenuesMarket shares are shown in percent.

2010 2011

% %CVS Caremark Corporations 20.120.7Walgreen Company16.2 16.5Rite Aid Corporation6.2 6.3Express Scripts, Inc.5.1 4.8 

2010-2011 Prescriptions Revenues(Billions)

2010 2011

CVS Caremark Corporations55.7 56.6

Walgreen Company44.9 45.1

Rite Aid Corporation17.1 17.1

Express Scripts, Inc.13.2 13.9

 

Industry Market Analysis

Opportunities & Threats

1. Organic food industry has rebounded from the recession quickly with growth rates back above 6% in 2011, bringing annual US sales above $26 Billion.

2. 1,0154,000 people will reach the age of 65 in the coming three years3. 71.7% of Americans report having internet access in their home. 4. Affordable Care Act passed in 2010 will extend medical coverage to

over 45 million Americans currently without coverage, starting in 2014.5. In 2011, patent drugs with annual sales of $12 Billion have expired.

Additional patent expirations is expected to increase this number to above $30 Million in the coming year.

6. In 2008, the AAMC projected a shortage of 124 000 full-time equivalent physicians by 2025.

7. Medicare drug spending is expended to increase by 8.5% annually over the next decade.

Opportunities

1. Unemployment is at 8.5% 2. R&D costs are high, on average between $4 billion to $11 billion

per drug.3. Threat of large distributors such as, Target who already have over

1031 locations, entering the pharmaceutical market increasing competition

4. Walgreens increased prescriptions refills by 5.3% in the last year. 5. Increase demand for environmentally safe products6. Legalization of drug importation would lead to a national saving of

1.7 billion.7. Future government policy changes to regulation8. 48 million American adults did not fill prescription in 2010

Threats

EFE

  External Factor Evaluation Matrix (EFE)      

  Opportunities Weight Rating Weighted Score1. Organic food industry has rebounded from the recession quickly with growth rates back above 6% in 2011, bringing annual US sales above $26 Billion. 0.04 1 0.04

2. 1,0154,000 people will reach the age of 65 in the coming three years 0.09 3 0.27

3. 71.7% of Americans report having internet access in their home. 0.07 3 0.21

4. Affordable Care Act passed in 2010 will extend medical coverage to over 45 million Americans currently without coverage, starting in 2014. 0.09 3 0.27

5. In 2011, patent drugs with annual sales of $12 Billion have expired. Addition patent expirations is expected to increase this number to above $30 Million in the coming year.

0.09 2 0.18

6. In 2008, the AAMC projected a shortage of 124 000 full-time equivalent physicians by 2025. 0.08 4 0.32

7. Medicare drug spending is expended to increase by 8.5% annually over the next decade. 0.06 3 0.18

  Threats Weight Rating Weighted Score1. Unemployment is at 8.5% 0.05 2 0.102. R&D costs become high, on average between $4 billion to $11 billion per drug. 0.10 3 0.303.

Threat of large distributors such as, Target who already have over 1031 locations, entering the pharmaceutical market increasing competition 0.07 1 0.07

4. Walgreens increased prescriptions refills by 5.3% in the last year. 0.09 2 0.185. Increase demand for environmentally safe products 0.04 2 0.086. Legalization of drug importation would lead to a national saving of 1.7 billion. 0.04 2 0.087. Future government policy changes to regulation 0.04 2 0.088. 48 million American adults did not fill prescription in 2010 0.05 3 0.15

  TOTALS 1.08   2.83

Competitive Profile Matrix (CPM)

  CVS Walgreen Rite Aide

Critical Success Factors Weight Rating Score Rating Score Rating Score

Advertising 0.13 3 0.39 4 0.52 1 0.13

Market Penetration 0.11 3 0.33 4 0.44 2 0.22

Customer Service 0.10 2 0.20 3 0.30 3 0.30

Store Locations 0.14 3 0.42 4 0.56 2 0.28

Financial Profit 0.09 3 0.27 4 0.36 1 0.09

Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20

Market Share 0.08 4 0.32 3 0.24 1 0.08

Product Quality 0.05 4 0.20 3 0.15 3 0.15

Top Management 0.07 3 0.21 4 0.28 3 0.21

Totals 1.00   3.13   3.67   1.92

CPM

Internal Audit

Organizational Structure

Netflix recognizes three segments • Pharmacy Services• Retail Pharmacy • Corporate (Please note that this segment is not acknowledged in

the book’s case study)

Divisional Analysis

1. We operated 657 MinuteClinics in 25 states and the District of Columbia of which 648 were located within CVS/pharmacy stores

2. Our proprietary loyalty card program, ExtraCare ® , has well over 68 million active cardholders, making it one of the largest and most successful retail loyalty card programs in the country

3. CVS carries over 4,400 CVS/pharmacy and proprietary brand products,

4. Strong service assortments including Prescription management systems, Mail pharmacy, Minute clinic, eye care, discounted drugs agreements

5. $48 million in charitable contributions in 20116. cvs.com attracted at least 26 million visitors annually by 20087. 21st on the Fortune 500's list of largest corporation in US8. 4.6 Billion in free cash flow in 2011, a 39% increase over 2010's

number

Strengths

1. CVS has a smaller Gross Margin with 21.01% compared to its competitors: Rite Aid 26.54%; Walgreens 28.36%; Walmart 25.26%

2. 8+ major legal cases against CVS in the last decade.3. Near all revenues are derived from the United State Market4. CVS has a goodwill value of 26458000 5. Fewer Physical(7,300) locations then next biggest competitor

Walgreens who has 8,5826. 657.8 million prescriptions filled versus 819 millions by Walgreens.7. CVS Caremark has a American Customer Service Index of 73

Weaknesses

IFE

Internal Factor Evaluation Matrix (IFE)Strengths Weight Rating Weighted Score

1. We operated 657 MinuteClinics in 25 states and the District of Columbia of which 648 were located within CVS/pharmacy stores

0.11 4 0.44

2. Our proprietary loyalty card program, ExtraCare ® , has well over 68 million active cardholders, making it one of the largest and most successful retail loyalty card programs in the country

0.09 4 0.36

3. CVS carries over 4,400 CVS/pharmacy and proprietary brand products, 0.05 4 0.204. Strong service assortments including Prescription management systems, Mail pharmacy, Minute

clinic, eye care, discounted drugs agreements 0.08 3 0.24

5. $48 million in charitable contributions in 2011 0.05 3 0.156. cvs.com attracted at least 26 million visitors annually by 2008 0.05 3 0.157. 21st on the Furtune 500's list of largest corporation in US 0.04 3 0.128. 4.6 Billion in free cash flow in 2011, a 39% increase over 2010's number 0.06 4 0.24

Weaknesses Weight Rating Weighted Score1. CVS has a smaller Gross Margin with 21.01% compared to its competitors: Rite Aid 26.54%;

Walgreens 28.36%; Walmart 25.26%0.08 1 0.08

2. 8+ major legal cases against CVS in the last decade. 0.05 2 0.103. Near all revenues are derived from the United State Market 0.07 2 0.145. CVS has a goodwill value of 26458000 0.05 2 0.106. Fewer Physical(7,300) locations then next biggest competitor Walgreens who has 8,582 0.10 1 0.107. 657.8 million prescriptions filled versus 819 millions by Walgreens. 0.06 1 0.068. CVS Caremark has a American Customer Service Index of 73 0.06 2 0.12

TOTALS 1.00 2.60

Financial Information

Ratio analysis

Growth Rate Percent CVS Caremark Walgreen Rite Aid

Net Income (YTD vs YTD)

Sales (5-Year Annual Avg.) 95835.2 63147 25534

Net Income (5-Year Annual Avg.) 3285.2 2201.8 (1085)

Dividends (5-Year Annual Avg.)

Profit Margin Percent

Gross Margin 19 28 27

Pre-Tax Margin 5 6 2

Net Profit Margin 3.2 4 2

5Yr Gross Margin (5-Year Avg.) 20.57 28.4 27

Liquidity Ratios

Debt/Equity Ratio .7 .85 4.42

Current Ratio 1.56 1.52 1.82

Quick Ratio .71 .53 .52

Company Analysis

Space Matrix

Possible Strategies:• Backward, forward, horizontal

integration• Market penetration• Market development• Product development• Diversification

Grand Strategy Matrix

Possible Strategies:• Backward, forward, horizontal

integration• Market penetration• Market development• Product development• Diversification

SWOT Matrix

12

12

12

12

Take advantage of increase in environmental conservation. (W2, W7, T5, T7)Expand and spread out revenues internationally (W3, W5, W6, T3, T4, T6)

SO Strategies

ST Strategies

Increase number of proprietary brand products by 20% (S3, S6, OS3, O5, O7)Increase marketing of Minute Clinics services by 15% (S1, S4, O2, O4, O6, O7)

Exlusivity contract with Target to intall MinuteClinics and prescription pharmacy (S1, S4, O3, O4, O8)Increase discounts to ExtraCare members. (S2, S3, S4, S5, T3, T4, T6, T8)

Increase the number of physical location by 2100 over 3 years. (W3, W5, W6, O2, O4, O6, O7)Increase staff sensitivity training and accessebility for aging population and disability (W2, W7, O2, O4, O7)

WO Strategies

WT Strategies

Matrix Analysis

Alternative Strategies IE SPACE GRAND BCG COUNT

Forward Integration x x 2Backward Integration x x 2Horizontal Integration x x 2Market Penetration x x 2Market Development x x 2Product Development x x 2Related Diversification x x 2Unrelated Diversification x 1Retrenchment DivestitureLiquidation

• Backward & Forward integration Not feasible• Short supply and delivery chain

• Market penetration• SO2 - Increase marketing of Minute Clinics services by 15% (S1, S4, O2, O4, O6,

O7)• ST1 - Exclusivity contract with Target to install MinuteClinics and prescription

pharmacy (S1, S4, O3, O4, O8)

• Market development• WT - Gain locations and expand internationally (W3, W5, W6, T3, T4, T6)

• Product development• SO1 - Increase number of proprietary brand products by 20% (S3, S6, OS3, O5,

O7)

• Diversification• WT – Take advantage of increase in environmental conversation. (W2, W7, T5,

T7)

Possible Strategies

QSPM

Opportunities Weight AS TAS AS TAS1. Organic food industry has rebounded from the recession quickly

with growth rates back above 6% in 2011, bringing annual US sales above $26 Billion.

0.04 0 0.00 0 0.00

2. 1,0154,000 people will reach the age of 65 in the coming three years

0.09 3 0.27 4 0.36

3. 71.7% of Americans report having internet access in their home. 0.07 4 0.28 2 0.144. Affordable Care Act passed in 2010 will extend medical coverage

to over 45 million Americans currently without coverage, starting 0.09 3 0.27 4 0.36

5. In 2011, patent drugs with annual sales of $12 Billion have 0.09 3 0.27 2 0.186. In 2008, the AAMC progected a shortage of 124 000 full-time

equivilant physicians by 2025.0.08 1 0.08 2 0.16

7. Medicare drug spending is expended to increase by 8.5% 0.06 1 0.06 2 0.12

Threats Weight AS TAS AS TAS1. Unemployment is at 8.5% 0.05 2 0.10 3 0.152. R&D costs become high, on average between $4 billion to $11

billion per drug.0.10 0 0.00 0 0.00

3. Threat of large distributors such as, Target who already have over 1031 locations, entering the pharmaceutical market increasing competition

0.07 2 0.14 4 0.28

4. Walgreens increased prescriptions refills by 5.3% in the last year.

0.09 4 0.36 3 0.27

5. Increase demand for environmentally safe products 0.04 4 0.16 2 0.086. Legalization of drug importation would lead to a national saving

of 1.7 billion.0.04 0 0.00 0 0.00

7. Future government policy changes to regulation 0.04 0 0.00 0 0.008. 48 million American adults did not fill prescription in 2010 0.05 4 0.20 3 0.15

Increase the number of brick and morter

locations by 5% annually

Increase Marketing

Ependitures by 15%

QSPM

Strengths Weight AS TAS AS TAS1. We operated 657 MinuteClinics in 25 states and the District of

Columbia of which 648 were located within CVS/pharmacy stores

0.11 4 0.44 3 0.33

2. Our proprietary loyalty card program, ExtraCare ® , has well over 68 million active cardholders, making it one of the largest and most successful retail loyalty card programs in the country

0.09 3 0.27 4 0.36

3. CVS carries over 4,400 CVS/pharmacy and proprietary brand products,

0.05 4 0.20 2 0.10

4. Strong service assortments including Prescription management systems, Mail pharmacy, Minute clinic, eye care, discounted drugs agreements

0.08 4 0.32 2 0.16

5. $48 million in charitable contributions in 2011 0.05 3 0.15 1 0.056. cvs.com attracted at least 26 million visitors annually by 2008 0.05 4 0.20 2 0.107. 21st on the Furtune 500's list of largest corporation in US 0.04 3 0.12 2 0.088. 4.6 Billion in free cash flow in 2011, a 39% increase over 2010's

number0.06 3 0.18 4 0.24

Weaknesses Weight AS TAS AS TAS1. CVS has a smaller Gross Margin with 21.01% compared to its

competitors: Rite Aid 26.54%; Walgreens 28.36%; Walmart 25.26%

0.08 4 0.32 2 0.16

2. 8+ major legal cases against CVS in the last decade. 0.05 3 0.15 1 0.053. Near all revenues are derived from the United State Market 0.07 0 0.00 0 0.004. CVS has a goodwill value of 26458000 0.05 2 0.10 1 0.055. Fewer Physical(7,300) locations then next biggest competitor

Walgreens who has 8,5820.10 1 0.05 4 0.20

6. 657.8 million prescriptions filled versus 819 millions by Walgreens.

0.06 0 0.00 2 0.20

7. CVS Caremark has a American Customer Service Index of 73 0.06 4 0.24 3 0.18TOTALS 4.93 4.51

Increase Marketing

Ependitures by 15%

Increase the number of brick and

morter locations by 5% annually

Strategy formulation

Strategy

Grow to Win

ObjectivesFirst Year

- Increase marketing expense by 50% in 2012- Acquire Rite Aid

Second Year - Increase marketing expense by 25% - Renovate a 1/3rd of Rite Aid Locations to CVS Caremark

Third Year - Increase marketing expense by 25% - Renovate half of remaining Rite Aid Locations to CVS Caremark

3 Year Goal Annual Objectives

- Increase in Demand - Supply shortage of Health Care providers - Location is a large Critical success factor - Great Cash flow and financial stability - Close Competing firms

Strategic Fit

Marketing Expense:- 2009 = $317 Million- 2011 = $211 Million- 2012 Increase to $316.5 Million- 2013 Increase to $395.5 Million- 2014 Increase to $496.5 Million

Estimated Acquisition Cost- $1,000,000,000

Strategy Costs

Implementation

- Cost of Acquisition- Changes in Government

Regulations- Anti-trust laws

Foreseeable issues

Capital Needed: 1,165 millionStock Price: $40.78Shares Outstanding: 1,338 million

Interest Rate: 5%Tax Rate: 39%

Dividends: 647 million (2011 amount)

Projected Financials Assumptions

EPS/EBIT

EPS

6,500,000,000 7,400,000,000 2.60

2.70

2.80

2.90

3.00

3.10

3.20

3.30

3.40

Projected Income Statement

Projected Balance Sheet

Projected Ratios

Strategic Evaluation

Balance Score Card

Area of Objectives Measure or Target Time Expectation Primary ResponsibilityCustomers1 Customer satisfaction Customer satisfaction surveys Yearly SVP Health Care/Strategy

Marketing Officer

2 Brand identity Industry reports/Market Cap. Higher than competitors

Yearly SVP Health Care/Strategy Marketing Officer

Employees1 Employee Satisfaction Survey Semi-Annual Chief Human Resources

Officer2 Service Training Number of training seminars Semi-Annual Chief Operations Officer

Operations1 Retail locations Increase number of stores by 700 Yearly Chief Operations Officer

2 MinuteClinic locations Increase MinuteClinic locations by 100

3 Years Chief Operations Officer

Business Ethics1 Ethics Training # of ethics training sessions Yearly Chief Human Resources

Officer2 Patient Awareness "Learn about your medicines"-

medicinal informationYearly Health Care/Strategy

Marketing OfficerFinancial1 Revenues Increase by 15% each year Yearly CFO2 Ratio Analysis Better than competitors/industry

Avg.Yearly CFO

• New CEO at end of 2011• Order Refill is the most visited area of their Website• Revenues increased by 15% in 2012• Market cap increased by 12%• Stock price increased to $48 a share• Earning per share increased 2.59 in 2011 to 3.03 in 2012

Update

Questions

CVS Caremark. (2012). 2011 Annual Report. Woonsocket.CVS Caremark. (2013). Company History. Retrieved from CVS

Caremark: http://info.cvscaremark.com/about-us/our-purpose/company-history

CVS Caremark Corp. (2013). Retrieved from Business Insight: Essentials: http://bi.galegroup.com.ursus-proxy-3.ursus.maine.edu/essentials/company/25141?u=maine_fortkent

Gross, D. D. (2014, April 6). CVS Caremark Corporation. Retrieved from nternational Directory of Company Histories: http://bi.galegroup.com.ursus-proxy-3.ursus.maine.edu/essentials/article/GALE|CX1302600043/b1ad641bc1714a5e67e86d926fbacac7?u=maine_fortkent

Rite Aid. (2012). 2011 Annual Report. East Pennsboro Township.University of Oregon Investment Group. (2011). CVS Caremark

Corporation. Eugene: University of Oregon.Walgreen. (2012). 2011 Annual Report . Chicago.

References

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