Product Testing: Drugstore Liquid Foundations By: Christine Santua.
Us Drugstore Chains Research Report June 09
description
Transcript of Us Drugstore Chains Research Report June 09
Analysis of US Drug store chains
Knowledge Foundry Business Solutions
May 2009
Authors: Raj Bhatt ([email protected]), Vivek Bothra
This document is not intended to provide tax, legal, insurance or investment advice, and nothing in it should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Knowledge Foundry Business Solutions.
Contents
• Comparison of metrics
• Company-specific details
Source: NACDS, Credit Suisse
Drug retailing is a mature and competitive business
Store chains and mail order have been gaining strength over independent stores in dispensing prescriptions
Source : NACDS, Credit Suisse
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006 2007 2008
Chains IndependentsFood Stores Mass MerchandisersMail Order
Market Share of Prescription Rx Sales
Drugstore chains are perceived to be convenient and trustworthy for dispensing prescriptions
CVS, Rite Aid and Walgreen are the major US chain drug store chains
Sales ($Mn)
87472
26,289
59,034
0
20000
40000
60000
80000
100000
Cvs Corp. Rite Aid Walgreen
Stores
7483
4901
6,934
0
2000
4000
6000
8000
Cvs Corp. Rite Aid Walgreen
Employees
215,000
113,000
237,000
0
50,000
100,000
150,000
200,000
250,000
Cvs Corp. Rite Aid Walgreen
Comparison of the major drugstore chains (2008)
Source: Annual Reports, Yahoo Finance, Wikipedia.org
*
* Wal-Mart has 4100 pharmacies, Kroger has 1972; Target has 1400; Kmart has 1000; Supervalu has 920 pharmacies whereas Winn-Dixie has 400
Prescription drugs usually account for more than 65% of drugstore chain sales
Walgreens Sales Break Up 2008 (%)
65%10%
25%
Prescription Drugs Non prescription drugs General Merchandise
Rite Aid Sales break up 2008(%)
66.5%
33.1%
0.4%
Pharmacy Front end Other
CVS is the largest US provider of prescriptions
# Rx's dispensed in 2008 (MM)
617
316 300246
149
729
0
100
200
300
400
500
600
700
800
CVS Walgreens Medco RiteAid Walmart Express/NextRx
CVS leads in the West and the South-East, Walgreens in strong in the Mid-West and South-East, whereas RiteAid leads in the North-East
Source: Credit Suisse
Regional Market Share % (2008)
2831
13
34
1821
24
15
23
19 18
26
0
5
10
15
20
25
30
35
NorthEast West Coast SouthEast MidWest
CVS RiteAid Walgreens
%
While CVS and Rite-Aid have acquired stores, Walgreens has primarily opened new stores
Sources: 10k filling, annual reports, press releases
Drug Stores Acquired
701
0
529
95 120
423
2 9
1,862
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2006 2007 2008CVS Walgreen Rit e Aid
New Store openings
147 140188
475 501
608
40 47 33
0
100
200
300
400
500
600
700
2006 2007 2008CVS Walgreen Rite Aid
Stores Closed
117
47 43
94 85 94
32
183200
0
50
100
150
200
250
2006 2007 2008
CVS Walgreen Rite Aid
Stores Relocated
118136 130
66 6556
020406080
100120140160
2006 2007 2008
CVS Rite Aid
*
* Data for Walgreens is not available
Comparing organic growth, Rite-Aid has grown the slowest in the past few years
Source: Annual reports, Investor Presentations
Same-store Sales growth
0%
2%
4%
6%
8%
10%
2006 2007 2008
Years
CVS
Rite-Aid
Walgreens
Same-store Prescription sales growth
0%
2%
4%
6%
8%
10%
2006 2007 2008
Years
CVS
Rite-Aid
Walgreens
Same-store Front-end sales growth
0%
2%
4%
6%
8%
2006 2007 2008
Years
CVS
Rite-Aid
Walgreens
CVS has the best operating ratios -- but higher assets due to recent acquisitions
Operating profit/Assets
Operating Margin %Inventory Days of Sales Inventory/ Total Assets
Sales/Sq feet Sales/ EmployeeContribution Margin %
407
233 249
100
200
300
400
500
Cvs Corp. Rite Aid Walgreen
6.9%
-8.0%
5.8%
-10%
-5%
0%
5%
10%
Cvs Corp. Rite Aid Walgreen
21
27 28
0
10
20
30
CVS Rite Aid Walgeen
48
6680
0
20
40
60
80
100
Cvs Corp. Rite Aid Walgreen
10%
-25%
15%
-30%
-20%
-10%
0%
10%
20%
CVS Rite Aid Walgeen
15%
42%
32%
0%
20%
40%
60%
CVS Rite Aid Walgeen
843
388
813
0
200
400
600
800
1000
Cvs Corp. Rite Aid Walgreen
CVS has lower contribution margin but higher sales per sq ft and sales per
employee
CVS’ high inventory turnover may be due to the Caremark PBM
business
Rite-Aid has negative operating margins
driven by low sales/ sq ft and low productivity
843
429
813
0
300
600
900
Cvs Corp. Rite Aid Walgreen
Operating Margin
-10%
-5%
0%
5%
10%
2006 2007 2008
Years
Perc
enta
ge Cvs Corp.Rite Aid
Walgreen
Operating Margin
-30%-25%-20%-15%-10%
-5%0%5%
10%
Q1 Q2 Q3 Q4
2008
Perc
enta
ge Cvs Corp.Rite Aid
Walgreen
CVS has had a consistently higher operating margin–Rite-Aid had negative margins in 2008
CVS carries less than 45 days of inventory whereas RAD and WAG carry more than 60 days
Although CVS has faster inventory
turnover, the competition is catching up
Inventory (Days of Sales)
0
25
50
75
100
2006 2007 2008
Years
Cvs Corp.Rite AidWalgreen
Inventory (Days of Sales)
0
25
50
75
100
Q1 Q2 Q3 Q4
2008
Cvs Corp.Rite AidWalgreen
CVs turnover may be driven by the PBM
business
CVS has had consistently higher employee productivity than Rite-Aid and Walgreen
Sales/Employee
0
100000
200000
300000
400000
500000
600000
2006 2007 2008
Years
Dol
lars Cvs Corp.
Rite AidWalgreen
Sales/Employee
0
20000
40000
60000
80000
100000
120000
Q1 Q2 Q3 Q4
2008
Dol
lars Cvs Corp.
Rite AidWalgreen
Rite-Aid has much lower sales per square foot than its rivals
Pls. note that the 2008 CVS number does not include Longs’ Drug store which have a much lower average of $598 per sq. ft
Sales/Square foot
0100200300400500600700800900
2006 2007 2008
years
dolla
rs
Cvs Corp.Rite AidWalgreens
These numbers are for the retail segment
… and smaller, right-staffed stores
Avg Store Sq Foot
1386612500
10472
0
5000
10000
15000
CVS Rite aid Walgreens
Employee/Store
2923
34
0
10
20
30
40
CVS Rite aid Walgreens
Company-specific details
CVS Caremark is positioning itself as an integrated healthcare company
CVS covers most states except the North-West
CVS was primarily an east coast
retailer till 2003
Minute Clinics are staffed by nurse practitioners and currently focus on acute conditions
(e.g., Flu)
Its store-brand sales have increased 47% over the past four years
• Completed acquisition of Longs Drugs and Rx America – to gain strength on the West Coast
• Successfully launched Proactive Pharmacy Care – a Pharmacy Benefits Management program– to compete against traditional PBM programs as well as drug retailers• Proven to improve adherence to prescriptions• Uses plan design based on a ‘Customer Engagement Engine’ that uses customer
behavior, evidence-based medicine• already $8.9 BN in sales• More than 8 MM ExtraCare Health cards• 250 Maintenance Choice enterprise customers
• Focusing on specialty pharmacy -- 30 conditions including hemophilia, MS, RA • 20 mail order pharmacies and 52 specialty retail pharmacies • generating revenue of $ 10+ BN
• Pharmacy service initiative (PSI) and IT initiative (RxConnect ) to improve the prescription filling process
• Launched call center to free up pharmacists time – and improve customer service
Key strategic initiatives at CVS Caremark
Walgreens has a rich history of innovation
• 1950 – self service stores
• 1968 – Child-proof containers
• 1981 – Satellite-linked stores
• 1991– POS scanners
• 1992 – Drive-through pharmacies
• 1999- online prescription history
• 2002 – multi-language prescription labels
• 2005 – online digital photo printing
Walgreens has a wide spread store network
Key strategic initiatives at Walgreens
• Slowing store growth
• Re-inventing the customer experience • ‘Affordable Essentials’ program• Prescription Savings program has 1.7 MM+ members –offers discounts on more
than 5000 generics; and 90-day supplies at a dollar a week• Optimizing assortment at a store level – to sell more front-end items• Optimizing pricing and promotions• Rolling out new ‘Customer-Centric Retailing (CCR)’ format• Enhance shopping experience by improving sightlines, layout and signage• Collaborating with vendors to leverage insights e.g., Baby care layout
• Transforming community pharmacy by the POWER program (centralizing data entry, data review and clinical review of prescriptions)• Allows pharmacists to strengthen their role as trusted clinicians• Reduces overall pharmacy costs• Rolled out in all Florida stores and now launching in Arizona
Key strategic initiatives at Walgreens (contd.)
• Expanding health & wellness and specialty pharmacy• 273 Take Care clinics and 364 Worksite Health Centers catering to 180+
enterprise clients and millions of consumers• Specialty/ Infusion centers
• Rewiring for growth – driving major cost reduction and productivity gain• Strategic sourcing of indirect spend• Reduce corporate overhead and store labor• Balance workload to free up pharmacists’ time
Rite-Aid has a strong presence on the east coast and in select west coast markets
Source: Rite Aid presentation
Key strategic initiatives at Rite-Aid
• Focused store growth program
– Growth focused on key strategic markets
– Segmented stores using sales and profitability performance (High EBITDA margin stores; High volume, lower EBITDA margin stores; Good volume; Low volume)
– Emphasis on relocations
– “Customer World” pharmacy centric store format prototype
• Strengthen pharmacy operations
– Improve customer service using
• ‘Ready when promised’ program
• grow ‘Automated Courtesy Refill’ program
• Use new ‘Nexgen’ KPIs
• Focus on service at under-performing stores
– Differentiated loyalty programs – senior “Living More”, Rx Savings Card
– Focus on health and wellness programs
Key strategic initiatives at Rite-Aid (contd.)
• Improve front-end operations
– Continue to grow private brand penetration (currently 13% of front store)
– Differentiating with GNC within-a-store
– “Living More” senior loyalty program
– Maximize prescription switches to OTC
– Optimize front-end assortment and use new pricing model and ad zones to drive sales
• Continue operational improvements
– Improve store productivity through implementation of best practices across stores
– Inventory reduction initiatives without sacrificing customer satisfaction
– Expenses aligned with sales level with continued focus on SG&A reduction initiatives
– Reduction in supply chain costs