CVS announces next-day and same-day delivery

Dive Brief:

CVS on Monday announced nationwide next-day delivery of pharmacy and retail orders beginning in early 2018, with same-day delivery in some areas. Free same-day delivery launches in Manhattan in New York Dec. 4, for example, expanding to Miami, Boston, Philadelphia, Washington, DC and San Francisco in early 2018, according to a company press release.
The announcement came the same day that the drugstore retailer released its third quarter report, including a net revenue increase of 3.5%, or $1.6 billion, to approximately $46.2 billion, up from $44.6 billion in the year-ago period.
But front store same-store sales declined 2.8%, hurt by softer customer traffic amid efforts to pull back on discounts, partially offset by an increase in basket size, the company said.

Dive Insight:

CVS Health for a few years now has openly worked to morph from a traditional drugstore retailer to a more broadly defined health care provider — a position that led to the axing in 2014 of its tobacco sales and a greater emphasis on healthier food offerings and health-oriented beauty products. That pivot was evident not just in its raw third quarter numbers but also in executives' call with analysts Monday, when discussion about the company’s pharmacy and health care business overshadowed concerns about its retail business, according to a transcript from Seeking Alpha.

That didn’t spare them questions about Amazon, though, which is rumored to be getting into pharmacy sales. Amazon recently received regulatory approval from about a dozen states to do business as a pharmacy wholesale distributor, and the company already sells medical devices and employs executives to deal with health care-related regulatory issues. Some analysts believe that it’s only a matter of time before Amazon gets into the space.

CEO Larry J. Merlo didn’t rule out actually working with Amazon, but he emphasized that any tie-up would have to serve a need not otherwise being met. "If somebody's able to do something that perhaps doesn't exist in the marketplace, we're certainly open to understanding and working with them in that regard," he said of the possibility of working with Amazon. "[T]here’s a lot that we're doing today and there's more that can be done. So, you would never close the door on any type of partnership, but you have to look at what those capabilities may bring that aren't being met in the marketplace today."

While Amazon may be poised to enter pharmacy sales along the lines of Walmart's significant operations, it's not at all clear that it would take the approach that CVS, (whose executive suite includes a "chief medical offer," Troy Brennan MD, a physician who also holds a degree in public health), has of positioning itself as a serious healthcare delivery player.

Meanwhile, although the company’s pharmacy and health care delivery efforts were front and center, it’s clear that CVS intends to enlist its retail operations to drive traffic and sales. CVS Pharmacy president Helena Foulkes said that the company is experimenting with different incentives and payment options for its delivery effort. Delivery isn’t new for CVS — some 1,600 stores have been doing home delivery for a long time, and its partnership with delivery startup Instacart, which is also slated to expand — provides delivery from 2,800 stores, executives noted.

"[P]art of what we did is we've really looked at that experience and said, how do we make it even better there," Foulkes told analysts. "It's still fairly small there even in those stores, and I would say that's because ultimately, we think the best experience for the consumer is one where she can toggle back and forth and decide, some days she wants to come into the stores, and some days she just can't get out of the house and we need her to do it – we need to get those prescriptions to her."

Delivery is expensive, however, and Foulkes said that CVS, the largest drugstore chain in the U.S., has leveraged its scale to tamp costs down. But she also said the company continues to experiment with payment options. "In terms of the cost side of it, we do know that the cost per market can vary, but we've been able to use our scale to negotiate a low-cost competitive option that we think consumers will be willing to pay for, both in same and next-day delivery," she said. "And we've been piloting, as I said, different options, so we have a good sense for the elasticity and price. But we'll also be looking at options where maybe there will be free delivery with a purchase of some front store items. So we think it's that holistic review again of wherever, whenever and however she wants."