CVS' strategy is to move aggressively into
contiguous states and fill in existing mar-
kets through new-store openings and
acquisitions, including the Revco merger
in the second quarter of 1997. As the
biggest acquisition in the chain drug
industry, Revco catapulted CVS into the
No. 1 spot in terms of the number of
stores and in pharmaceutical sales, and
into the No. 2 position in total sales. It
also opened up the fast-growing South-
east to CVS' proven formula for success.
By moving quickly into new markets and
developing deeper penetration into exist-
ing ones, CVS creates cost efficiencies and
significant competitive advantages in the
managed care marketplace through mar-
ket leadership.
Opening new stores is key to CVS' commitment to continued growth, which is
why 80 percent of its capital investments are store related. With plans to
open 300 new or relocated stores a year, the company projects square-
footage growth of 4 percent to 5 percent in 1998 and beyond.
Store relocations play an important role in CVS' growth program. Right now,
only about 15 percent of the company's stores are freestanding. The rest are
in in-line shopping centers and malls. By moving these stores into stand-alone
and more convenient locations, CVS can achieve a 20 percent to 25 percent
increase in sales, primarily in its higher-margin front-store categories as cus-
tomers begin to use the stores differently. Its new prototype store is a free-
standing, 10,000-square-foot store emphasizing convenience and value with
destination categories such as 1-hour photo and drive-thru pharmacy in supe-
rior freestanding locations.
This strategy has proven extremely
successful as the company expands
from its northeastern stronghold into
the Southeast. CVS has opened 14
stores in metropolitan Atlanta, and
with the acquisition of Revco now
holds the No. 1 share in that market.
Before the Revco acquisition, though,
the CVS stores were already beating
company expectations and were per-
forming 40 percent better than the
Revco stores in the area.
The CVS Advantage
CVS executes its service-oriented, cus-
tomer-focused strategy by building upon
distinct competitive advantages. These have
been the building blocks of CVS' robust
growth and will enable CVS to achieve con-
tinued growth and build shareholder value.
MARKET LEADERSHIP: CVS holds the
No. 1 or No. 2 position in 80 percent of
the markets in which it operates. This
strong market share is especially key to
success in today's managed care environ-
ment, providing CVS with a significant
competitive advantage.
STRONG EXECUTION AT RETAIL: CVS'
same-store sales lead the industry in both
the pharmacy and front-store business.
CVS' core front store categories include
OTC, beauty and cosmetics, greeting cards,
photo finishing, convenience foods and
seasonal items. With its highly successful
category management approach, CVS can
tailor its product assortments market-by-
market, based on demographics, and max-
imize store productivity.
STATE-OF-THE-ART TECHNOLOGY: The
company's technological capabilities are
among the most advanced in the chain
drug industry. Its client server technology is
fast, flexible and scalable. This will give CVS
a tremendous advantage in assimilating the
Revco operations and in continuing to
drive its SG&A lower.
MANAGED CARE EXPERTISE: CVS has
been operating in some of the most highly
penetrated managed care markets in the
country, and has demonstrated that it can
sell, service and operate profitably in that
environment. As managed care grows, CVS
continues to gain a disproportionate share
of that fast growing segment.
FINANCIAL STRENGTH: CVS's focus on
being a premier growth company and con-
verting that sales productivity to SG&A
improvements has enabled the company to
continually expand its operating profit
margins. CVS expects to continue to
reduce SG&A through technological
improvements, acquisition synergies and
sales leverage. The company also has an
extremely healthy balance sheet and
expects to be a meaningful cash genera-
tor, even after an aggressive capital
expenditure program. Given its strong
cash flow outlook, the company expects
to have significant opportunities to
increase shareholder value.
Our strategy:
market leadership
for competitive advantage
