Fast Five Shorts | CVS To Launch New “Mini-Stores”
In the latest edition of Omni Talk’s Retail Fast Five sponsored by the A&M Consumer and Retail Group, Alvarez & Marsal, Mirakl, Simbe, Infios, and Ocampo Capital Chris Walton, Anne Mezzenga, along with guest hosts from the Alvarez & Marsal Consumer and Retail Group Chris Creyts and David Schneidman break down the week’s retail news. In this short, they cover:
For the full episode head here: https://youtu.be/zoe5hsCC9jU
This podcast uses the following third-party services for analysis:
Podcorn - https://podcorn.com/privacy
Transcript
CVS is rolling out new mini adorable stores.
Speaker A:According to the Wall Street Journal, CVS Health is preparing to open dozens of stores offering full service pharmacies but very limited retail.
Speaker A:The new stores will be on average less than 5,000 square feet or not even half the size of a typical CVS location.
Speaker A:The company said the 12 new stores are expected to open over the next year in cities and towns throughout the US and will still stock health related products such as over the counter cough and pain medications or first a care.
Speaker A:Missing from their aisles, however, will be the vast array of consumer items such as greeting cards, groceries, nail polish and others for decades that have been a staple of CVS and other national drugstore change chains.
Speaker A:Sorry Dave, let's go to you.
Speaker A:What do you think of CVS's overt move to mini stores?
Speaker A:What do you think that signals about the state of pharmacy retailing?
Speaker B:So, so, and I'm, I'm quite intrigued with this model.
Speaker B:I think we all know that the drug category as a whole is going through this real big inflection point and so they need to find some way to innovate.
Speaker B:And separating pharmacy from the convenience store I think is a really interesting idea that it's been a long time coming in the industry, especially here in America as in Europe, it's already like that.
Speaker B:And so currently the drug retailers, they serve different purposes and they have different clients and in, and especially in less urban spots.
Speaker B:In urban spots you can rationalize there's, you do it all in one like a one stop shop at your local pharmacy to get food as well.
Speaker B:But in more suburban areas I think you're serving different clients and this can help on a wide array of things.
Speaker B:It can reduce your fixed costs around rent, improve your labor.
Speaker B:I think the assortment will have a huge, you know, positive impact around on shelf availability and inventory management.
Speaker B:And then you also have to want to be less promotionally focused.
Speaker B:You know, I'm sure if we walk into not even a cvs, but really any drugstore, you'll see there's a lot of of your standard household goods on promotion which really drives down your profitability.
Speaker B:Overall, I think this is a really interesting concept.
Speaker B:I would love to know if they're having some sort of impulse buy section still, whether that's seasonal or some snacking or some sort of DSD piece.
Speaker B:I didn't see anything on that.
Speaker B:That would be something that I'd love to learn more about.
Speaker B:But overall I'm not going to say I'm bullish right now, but I think it's a very interesting concept that, you know, with a 12 store pilot.
Speaker B:Why, why wouldn't they do it?
Speaker A:Right, right.
Speaker A:It gives them a way to like you were saying, like minimize theft, minimize operations and promotions and all the things that they have to do to manage that front end of the store and really focus on, you know, what's bringing them revenue in the, in the near term.
Speaker A:And that's, you know, the pharmacy business, the over the counter business.
Speaker A:And you just want to still be able to get your Quest protein chips is what I'm hearing when you pick up your prescription.
Speaker B:Uh, yeah, I, I, I, I would, I would love that.
Speaker B:I love the big bags.
Speaker A:Yes, right.
Speaker A:Not, not the mini grab and go.
Speaker A:You want the solid size.
Speaker A:Well, we'll, we'll figure out how they can make a CVS just for you, Dave.
Speaker B:Uh, but I mean it is true if you think about it, it's, it's an intentional run for some sort of medical need.
Speaker B:Unless you're in a more really urban area where it's, then it's a little bit more convenient.
Speaker B:So I think this model is, is super intriguing and I can't wait to experience one of them.
Speaker A:Right.
Speaker A:Chris Kreitz, where do you fall?
Speaker C:Yeah, I think similar in line with what Dave said, you know, I think there's a notion that the long term pharmacy model needs to change.
Speaker C:I think this is experimenting to say what could it look like?
Speaker C:I think the only thing I'd build to what Dave said is, uh, I think there's some testing here on the interaction between the front end and the pharmacy and what that dynamic really is.
Speaker C:I think everyone thinks the pharmacy drives the front end and I think this is kind of testing that a little bit to say if we take out all of the front end, is there any in adverse impact on the pharmacy itself, which would be the downfall of this concept?
Speaker C:Right.
Speaker C:If you start losing scripts because people want to be able to get multiple things on that shopping trip, then this concept starts to unravel.
Speaker C:So I think they're testing this, they're testing, you know, some other formats as well.
Speaker C:I think this is more exploring.
Speaker C:You know, can we still keep all the high margin health sales on the retail end with a very stripped down assortment?
Speaker C:How, how sharp can we get with our assortment before we start to lose those sales?
Speaker C:And will it have any inverse impact on our scripts at the pharmacy if we don't have a massive selection of health products?
Speaker C:So yeah.
Speaker A:Right.
Speaker A:It's, it's, it's great that you bring that up, Chris.
Speaker A:Because I think it's, you know, really balancing the points of, like, we know there's a markup on some of those, you know, beauty products, there's a markup on the food, there's a markup on those convenience items that you're talking about.
Speaker A:But then how does that balance with, you know, how much they're losing due to theft, how much the real estate, you know, per square foot costs in these larger CVS stores?
Speaker A:So there's a lot going on there that you're right.
Speaker A:I think they'll be able to pressure test here with those 12 stores to see how much of an impact it makes.
Speaker A:Chris Walton, you're the merchant of the group here.
Speaker A:What are your thoughts on this approach that CVS is taking with the many stores?
Speaker D:Yeah, I mean, I.
Speaker D:I don't think it says that much about the pharmacy industry.
Speaker D:I think when you get right down to it, I think it's just a smart segmentation approach.
Speaker D:And so I kind of would echo what David and Chris, you know, were saying, I think, you know, on the small format of just being a pharmacy, basically.
Speaker D:I think the interesting thing about this is CVS has kind of tested this already by way of their relationship with Target.
Speaker D:So they know if they're only in the pharmacy business, what the operations of that look like and the profitability of that looks like.
Speaker D:So that gives me credence to understand that they know what.
Speaker D:They know what they're up against.
Speaker D:But to Chris's point, they have to understand what the traffic dynamics are that comes with this type of format.
Speaker D:But the other thing the article says, which is interesting, I think it's important to point out, is they still plan to open 30 traditional stores, which is three times the amount that they're going to open up this pilot.
Speaker D:So I think the other thing that I call out, and because I made this mistake, I'm interviewing CVS's chief merchant at Shop Talk on stage.
Speaker D:Yeah, and I actually made the mistake in my prep with him.
Speaker D:I said, like, you know, but the pharmacy is such an important aspect of the traffic driving.
Speaker D:And he's like, no, it's.
Speaker D:It's not always the case.
Speaker D:And to David's point, in urban areas, it's flipped.
Speaker D:So, you know, the.
Speaker D:The pharmacy is less important than the grabbing go.
Speaker D:So.
Speaker D:So I think, you know, you.
Speaker D:It's just about balancing that out and understanding the puts and the takes with it across a smart segmentation strategy.
Speaker D:So that's what this is all about to me.
Speaker A:Yeah, I think.
Speaker A:I think the only thing I'D add here at the end is that they also still have the advantage in a lot of places of being the only place that you can go to get your prescription within a matter of minutes or hours where there's not same day delivery of prescriptions.
Speaker A:However, I think that's, that still is not something that they can rest their laurels on either.
Speaker A:Because I think we're going to start to see increasing same day delivery.
Speaker A:We're seeing that with Walmart, with Amazon, with, you know, Walgreens.
Speaker A:And if as those, those timelines get reduced and you're starting to see more same day delivery, I think CVS being the place where they're seeing, you know, 80% of traffic in some stores is due to the pharmacy and prescription.
Speaker A:Like will they be able to still rely on that?
Speaker A:And once, you know, if you have a small format that's only pharmacy, does that go away when that can be delivered to my house, especially when you're not feeling well?
Speaker A:I think that's something too that will have to be factored into some of these decisions in the term.
Speaker D:Yeah, and hopefully they're thinking about that in the design of this prototype too.
Speaker D:Like, you know, the fact, the fact that it's such a small assortment should make the delivery and pickup of those goods that much easier to operate as well.
