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CVS Sees Sales Opportunity in Customers Visiting Stores for COVID-19 Vaccines

Largest US Drugstore Chain Hopes 25 Million Monthly Shots Will Drive Long-Term Loyalty

Photo Courtesy of M.Rode-Foto.

CVS Health is looking to turn visitors to its brick-and-mortar stores for vaccinations into long-term customers as it takes on a central role in delivering COVID-19 shots.

The nation’s largest drugstore chain, part of the Federal Retail Pharmacy Program to boost access to vaccines, is staffing up to dispense as many as 25 million monthly shots to customers once the doses become more available. That could be a boon to foot traffic in its more than 9,900 stores and a potential driver of over-the-counter drug and other retail sales.

The federal program, which includes the second-biggest U.S. drugstore chain, Walgreens, is a public-private partnership aimed at providing coronavirus inoculations at more than 40,000 retail and long-term care pharmacies nationwide.

Walmart’s pharmacies, as well as Rite Aid stores and a number of other large retailers including Kroger, Costco, Publix and Albertsons, are among the 21 national pharmacy partners involved in rolling out the vaccination.

As part of a larger plan to better integrate CVS’ brick-and-mortar sites with its growing digital business, the pharmacy is offering in-store discounts and promotions to encourage front-of-the-store shopping while those who get the shot must wait to make sure they have no adverse reactions. The optimism is drawn from the nearly 8 million new customers Woonsocket, Rhode Island-based CVS said it acquired last year through COVID-19 testing.

“We do see an opportunity with the vaccines and building relationships with new customers to convert them to long-term CVS Health customers,” Jon Roberts, CVS’ chief operating officer, said on a fourth-quarter earnings call Tuesday.

While demand is far outstripping vaccine supply, Roberts expects CVS will receive about 500 million doses between now and the end of June, with an influx in April. That spells marketing opportunities.

“Customers, after they get the vaccine, have to wait 15 minutes as we observe them,” he said. “We’re going to give them a series of value-adds to encourage them to engage further.”

Folks looking for vaccinations are digitally connecting with CVS first through emails and text messages, giving the healthcare giant a treasure trove of customer contact information it will use to develop the relationship.

“I would think of it beyond just the add-on front store [but] as adding new customers to the CVS channel and getting their pharmacy business plus their front-store business,” Roberts said.

HealthHubs Strategy

Since its $69 billion purchase of Aetna, CVS has focused on building HealthHubs as easy-access, in-store medical facilities. More than 20% of the retail space is set aside for healthcare services.

The company is still on track to create 1,500 HealthHubs in stores by the end of this year while opening 1,800 test sites at drive-thru locations. CVS said it also introduced “Return Ready,” testing for businesses and universities looking to bring workers and students back to work sites. And, through Aetna, CVS has designs on re-entering the Affordable Care Act exchanges the Biden administration is reopening, though planning is still in preliminary stages.

CVS said it already has performed about 15 million coronavirus tests at its stores since the onset of the pandemic and has delivered some 3 million COVID vaccines in more than 40,000 long-term care facilities. Those shots, however, were immaterial to fourth-quarter results, the company said.

COVID testing added about $400 million to CVS’ total revenue in the quarter, the company said. And it expects COVID-related activities, including shot-related shopping, could ring up $400 million to $500 million in 2021. Retail sales rose 6.6% in the quarter over last year’s results, but front-end sales, typically high-margin receipts, slipped 1.8%.

Filled prescriptions were higher by 2%. CVS noted there were lower seasonal flu prescriptions and a drop in long-term care prescriptions that it concludes was tied to the pandemic.

Operating income in the quarter, however, tumbled nearly 17% as foot traffic into its stores fell, some of it because of a drop in flu and long-term prescriptions that also feeds into sales of cold medicines and tissues.

GlobalData analyst Neil Saunders believes CVS is just not doing enough to attract front-end shopping in categories such as cosmetics and skin care.

“It is clear that CVS’s front-of-store retail strategy continues to have a negative impact on performance,” Saunders said in an email. “Although the chain benefited from higher levels of foot traffic early in the pandemic as consumers came in for all kinds of household consumables and essential supplies, this has since dissipated.

“This highlights a retail issue [that] predates the pandemic: CVS is not a destination people actively choose to go to; it is a convenient option that is used when no alternative is available or when it is too much hassle to go shop somewhere else,” he said.

That leaves CVS “very vulnerable” to wider shopping trends, and CVS should “map out a strategy for success” in retail, according to Saunders. “Shopping habits have evolved as a result of the pandemic, so now is an ideal time to explore how CVS can be a more compelling player in the retail arena,” he said.

Source: 2021 CoStar News.

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