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CVS Health SWOT & PESTLE Analysis

ID : 52372953 | Mar 2018

COMPANY PROFILE - CVS Health

Business Sector : Retail Pharmacy and healthcare services

Operating Geography : United States, North America

About CVS Health : CVS Health Corporation (formerly known as CVS Corporation and CVS Caremark Corporation) is an American retail pharmacy offering health care services. It is headquartered in Woonsocket, Rhode Island. Its key business segments include, Pharmacy Services, Retail or Long Term Care, and Corporate. The Pharmacy Services provide pharmacy benefit management solutions, the Retail or Long Term Care vertical deals with selling prescription drugs and assortment of general merchandise, whereas the corporate piece offers management and administrative services. The company was founded by Stanley P. Goldstein and Ralph Hoagland in 1963. The business which initially started as a chain of health and beauty aid stores, gradually started adding pharmacies. Stocks of CVS trade on New York Stock Exchange as NYSE: CVS. As of 2017, the company employs 250,000 people.

CVS Health's mission statement states "Above all else … our mission is to improve the lives of those we serve by making innovative and high-quality health and pharmacy services safe, affordable and easy to access." The Company's vision statement states "We strive to improve the quality of human life." Its USP or unique selling proposition lies in being the U.S.A's largest pharmacy retailer and PBM (Pharmacy benefits manager) with a diversified portfolio of offerings.

CVS Health Revenue :
US$184.8 billion – FY ending December 2017 (y-o-y growth of 4.1%)
US$177.5 billion – FY ending December 2016

Competitive Analysis of CVS Health

The SWOT analysis for CVS Health is presented below:
Strengths
Weaknesses
1. Largest drug retailer in the U.S.A.
2. Leading Pharmacy benefits Company through Caremark pharmacy services
3. Consistent strong performance and financials building shareholder value
4. Broad spectrum of offerings in health and wellness with great accessibility.
5. ExtraCare loyalty program pushing OTC growth
6. Brand building for putting an end to tobacco sales
1. Embroiled in lawsuits and controversies over refill practices causing erosion of brand and money
2. Weak presence outside of USA
Opportunities
Threats
1. Acquisition of Aetna will help entry into new vertical of insurance and managed care.
2. Growth through acquisitions and collaborations
3. Growth in demand for anti-aging drugs
4. Aging population with increased prescriptive needs
5. Fighting the Opiate crisis
1. Conventional and un-conventional competition globally, in the drug retail sector and PBM (Pharmacy Benefit Manager)
2. Government regulations and interventions
3. Increasing competition from Mail order pharmacy

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Detailed SWOT Analysis of CVS Health

 

Strength

1. Largest drug retailer in the U.S.A.: CVS Health is the nation's largest drugstore chain operating over 9800 retail locations in 49 states, the District of Columbia, Puerto Rico and Brazil. The US drugstore market is ruled by 2 dominant players CVS Health and Walgreens. Drug Channels reported that these two behemoths attributed for over 29% of the total prescription dispensing revenues in America in 2016. A research by Barclays’ Meredith Adler points that over 50% of the drugstore markets in around 70 of the top 100 metropolitan areas are controlled by CVS Health and Walgreens. In 2017, CVS Retail Pharmacy segment's market share was approximately 56.58%. About 5 million customers are served by CVS Pharmacy each day and 2.4 billion adjusted prescriptions were dispensed or managed annually by them.

2. Leading Pharmacy Benefits Company through Caremark pharmacy services: Pharmacy Benefit Managers (PBMs) reduce prescription drug costs and improve convenience and safety for consumers, employers, unions, and government programs. They are a third party of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans.CVS Health is one of the largest PBM in the United States (the other 2 major players being Express Scripts and United Health Group) with the Company's PBM Mail choice segment's market share approximating to about 48.51%. In 2016, CVS was the large with the acquisition of Caremark in 2007, CVS entered the PBM arena and alongside integrated its extensive supply chain and distribution network. CVS earns about 70% of its annual sales from its holistic range of pharmacy benefit management services. CVS's revenue in Q2 FY 2017, from its pharmacy benefits-management (PBM) business, spiked 9.5% year over year, to $32.3 billion. This growth was attributed to soaring pharmacy-claim volume, higher brand-drug prices, and increased specialty drug volume. CVS operates PBM for its over 94 million PBM plan members through 68000+ retail network pharmacies.

3. Consistent strong performance and financials: CVS featured on Rank #7 on Fortune 500 list for years 2017 and 2016, a jump from Rank #10 in 2015. It has shown consistent performance and maintains a strong bottom line. Consolidated new revenues in Q4 2017 jumped 5.3% year-on-year to $48.4 billion with operating profit changing to $3.2 billion, soaring 5.7%. Free cash flow saw a leap of 143% to $642 million. Consolidated new revenues for full year of 2017 stood at $184.8 billion with 4.01% climb over FY 2016 and 15.8% climb over FY 2015 where the figure stood at $153.29 billion.

4. Broad spectrum of offerings in health and wellness with great accessibility: Apart from retail pharmacy and PBM, CVS offers diversified services for minor illness and injuries, wellness services like screenings and monitoring, vaccinations and injections, urgent care and long term management of chronic conditions, through its more than 1,100 MinuteClinics conveniently located, operating 7 days a week with no appointment required. These clinics get over 37 million patient visits and have a 95% customer satisfaction rating. CVS is also the United State's largest specialty pharmacy. They have developed unique solutions for improving patient care under controlled costs. Comprehensive care and online accessibility are the key features of this sector and programs like Specialty Connect, MyHealth Teams and accordant Health Services help disease management on individual case basis for people with rare chronic conditions. With the acquisition of Omnicare and Target in 2015, 1670+ Target pharmacies and 80 new clinics were added to CVS, which has increased its store presence and accessibility galore shown CVS superior specialty services growth.

5. ExtraCare loyalty program pushing OTC growth: ExtraCare® subscribers save and earn rewards on every purchase done via online more or physical stores – from home care goods and beauty products, to gifts for kin and kith, as well as wellness products and prescriptions. Members scan their cards at the ExtraCare Coupon Center in order to benefit from unique offer where they get a window into a summary of their coupons and available ExtraBucks Rewards, free “CVS money” etc. Since its launch ExtraCare program have worked on dispensing innovative features tailored to bring personalized value for their customers. As of 2017, there are 62million ExtraCare members enrolled.

6. Brand building for putting an end to tobacco sales: In 2014, CVS Health was the pioneer pharmacy retailer to slam the brakes on selling tobacco. This decision came at a pricey cost of losing 2 billion in annual sales from tobacco products but it projected the Company in good light and proved its commitment to health and improving lives. It greatly boosted CVS Health's brand image and eversince CVS has been investing $50 million over a 5 year term to extend their commitment to helping people to lead healthy tobacco-free lives.

Weakness

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Opportunity

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Threat

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The PESTLE/PESTEL analysis for CVS Health is presented below:
Political
Economical
1. Political implications from the opioid epidemic
2. Advocating public policies for improved customer outcomes
1. Downsizing of the Affordable Care Act and corporate tax reforms to change market dynamics
Social
Technological
1. Ageing population in the United States to boost spending on healthcare
2. Growing demand for premium skin-care products in emerging markets
1. Merger with Aetna to create strong consumer health care technology platform
Legal
Environmental
1. Uncertainty in consolidation deals due to antitrust regulations1. Enterprise-wide environmental strategy and compliance measures
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Detailed PESTLE Analysis of CVS Health

 

Political

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Economic

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Social

1. Ageing population in the United States to boost spending on healthcare: United States will witness a considerable growth in the number of people in the age bracket 65 and above from 2012 to 2050 according to census.gov data. As of 2012, 43 million people were in the age category 65 and above which will shoot up to 83 million by 2050. This will provide a major growth fillip to the entire healthcare industry with a direct correlation existing between persons age and spending on healthcare. As per 2012, National Health Expenditure Data, personal healthcare spending by 65 years older population stood at $18,988 which was approximately 3 times the spending per working-age person at $6,632. Thus, this increase in the growing pool of aged population will aid to CVS Health's long-term growth.

2. Increasing chronic diseases in United States a major concern: Increasing number of chronic disease cases in the United States is a major concern and more so is the growing cost of treating. The traditional health care system in the country lacks convenience and coordination which makes frequent engagement with consumers and patients difficult. For instance, as of 2017 there are approx. 30 million Americans suffering from diabetes, costing the health care system approximately $245 billion annually. The integration of CVS and Aetna will create strong platform which will enable remote monitoring of key health indicators. Patients can start receiving text messages whenever their sugar levels deviate from normal, receive counseling on medication adherence and take part in ancillary health related services.

Technological

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Legal

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Environmental

1. Enterprise-wide environmental strategy and compliance measures: The importance between the environment and human health is being increasingly realized. CVS as a healthcare company working towards improving people’s lives needs to set the highest standards for long-term sustainability of its business. The company has undertaken several initiatives such as reduction in energy use, increasing use of renewable, reduction in usage of raw materials and waste generated and employing LEED and Energy Star standards in the construction amongst others to minimize the enterprise-wide climate-related impacts. CVS Health has also developed an internal Environmental Compliance Policy which applies across its job functions. The company ensures that it is in compliance with federal, state and local environmental laws. It has also developed programs and appropriate trainings for its employees so as to ensure that regulatory requirements are properly implemented.

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CVS Health SWOT and PESTLE analysis has been conducted by and reviewed by senior analysts from Barakaat Consulting.

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