CVS and Its Big Bet on Health

In February 2014, CVS Caremark announced its decision to stop selling tobacco products at all of its 7,700 locations nationwide in an effort to better align with their corporate purpose – to help people on their path to better health. By forgoing roughly $2 billion in retail cigarette sales per year according to CVS, CVS hopes to reduce the number of tobacco users and tobacco-related deaths.

CVS’s bold move also aims to strategically position itself to win in the future. Parallel to eliminating the sale of tobacco products, CVS Caremark rebranded itself as CVS Health with clear intentions of becoming perceived as a health care destination and making itself more appealing to the health-oriented consumer. This commitment to health enables them to build strong relationships with healthcare providers for prescription management contracts and pharmacy services, which surged by 16% in 2014 compared to the prior year and represents 63% of revenue.

The brand shift also has implications for how it serves and is perceived by consumers, which is why CVS should not stop at cigarettes in my opinion. If CVS is truly committed to its purpose of improving the health of consumers, then why stop at cigarettes? Why not eliminate junk food and sugary beverages and replace them with healthier alternatives? I believe that this approach could have both business and brand benefits for CVS.

For context, consumer preferences are changing. In the past five years, U.S. sales volume of carbonated beverages have declined at 1.5% per year, according to Euromonitor, as consumers have become more aware of what they are consuming and began to place a higher importance on health. Some countries, like Mexico, have even enacted taxes on sugary beverages and junk food in order to combat rising obesity rates.

In terms of demand for healthier foods, U.S. sales of organic foods are expected to grow at a rate of 14% per year between 2014 and 2018. By replacing candy bars with Kind Bars or Coca-Cola with Vita Coco, CVS would be making the strong statement that it is a company that stays true to its renewed mission. A product assortment that aligns with its stance on health would reinforce CVS’s positioning and be a clear demonstration of its commitment to improving consumer health. As Simon Sinek stated, “People don’t buy what you do, they buy why you do it.”

Furthermore, organic and health-oriented foods typically command higher price points. On average, organic foods are 47% more expensive than their conventional counterparts and yet, consumers are clearly willing to purchase these products as shown by the threefold increase in U.S. organic food sales in the past decade.

This shift would also align well with the preferences and needs of CVS’s consumer base, which is younger, more progressive, and more health-oriented compared to key peers such as Rite Aid and Walgreens. According to a study conducted by CivicScience, CVS has the highest concentration of millennials among its competitors and is most preferred by those making an annual income of $50K-$125K. In addition, CVS consumers are most likely to try new things and follow trends in health.

If CVS takes this route and phases out unhealthy foods, it could eventually shift from the CVS of today to the health store destination of tomorrow. Imagine a convenient location where one can browse a full spectrum of healthy snacks, ranging from locally produced ice cream to additive free beef jerky, all while waiting for your prescription refill or vaccination.

Share this post

Related Posts