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Cvs Pharmacy History

A lot has changed about the small health and beauty aids store that brothers Stanley and Sidney Goldstein, along with their partner, Ralph Hoagland, opened, May 9, 1963.

For one thing, that store, in Lowell, Mass., didn't even have a pharmacy counter.

Today, CVS operates more than 4,000 stores with revenues projected to top $24 billion by year's end, and almost all of them have pharmacies.

The Goldstein brothers didn't have any designs on pharmacy. They weren't pharmacists; they were distributors. As owners of the distribution operation Mark Steven Service Merchandisers, the Goldstein brothers had made a living supplying HBAs primarily to New England-area grocery stores. Because of the relationship to Mark Steven, the Goldsteins could guarantee themselves a much sharper price than any other retailer Mark Steven also may have been supplying, so they could pass on that value to the customer. Consumer Value Stores were dean, uncluttered and well stocked.

That was the essence of the chain that the Goldstein brothers created almost 40 years ago. And it proved a most successful business model. Certainly if it had not, it is inconceivable that it ever could have reached the size and scope that CVS Corp. has evolved into today. By the end of 1964, the Consumer Value Stores had reached a count of 17 stores with about $3.3 million in sales that year. That translates to annual sales of about $194,000 per store.

Today, the average CVS store generates sales of more than $5.5 million a year, and pharmacy represents about 68 percent of the business. Pharmacy is CVS' core business today. And that is a reflection both of how much CVS has changed, as well as how much the pharmacy business has changed over the last 40 years. "It is what defines us," CVS c airman, president and chief executive officer Tom Ryan told Drug Store News.

In 1967, CVS officially entered the pharmacy business, opening its first two stores with pharmacy departments in 1967 in Cranston and Cumberland, R.I. It finished that year with about 23 stores and sales of $6.3 million.

But the move into pharmacy certainly did not signal an overnight reinvention of the business. It wouldn't be until the mid-1980s that CVS would begin to sharpen its focus on pharmacy.

The company was still very much a chain of HBA stores m 1969, when the Goldsteins sold the business to Melville Corp.--whose portfolio at the time included Thom McCann--in a move to gain capital to fuel the further expansion of the business. Certainly, the Goldsteins had taken the chain a long way in slightly more than five years, reaching 40 stores with sales of $20 million at the time of the sale to Melville. For CVS, the merger paid off rather quickly. Within one year, the chain had more than doubled in size, topping 100 stores.

Still, just three of those stores had pharmacies.

CVS thrived under Melville through the 1970s--through a rather aggressive regimen of organic new store development and merger and acquisition activity for the time. In 1972, CVS moved into upstate New York and Michigan with its purchase of 84 Clinton Drug and Discount Stores. In 1977, it swallowed up the 36-store, New Jersey-based Mack Drug chain, extending the company into New Jersey and extending its reach in New York State. By 1980 the company had expanded its market penetration beyond New England, operating more than 400 stores with annual sales of more than $400 million.

But arguably one of the single biggest events of the decade m terms of shaping the company's future occurred in the summer of 1974. That was when a 21-year-old pharmacy major at the University of Rhode Island found a tie in the back of his closet and drove for the first time from the Kingstown campus to Woonsocket to work as a pharmacy intern in CVS store No. 590. That intern was Tom Ryan, of course, and when he graduated a year later, he was hired as a pharmacist in the very same store. And so began a career that has stretched nearly 30 years--all with CVS. He would become one of just three chairmen and chief executive officers in the company's history, a key architect of the company's growth and a major part of CVS' evolution from a chain of small HBA stores into the retail pharmacy force it is today.

By the beginning of the 1980s, CVS was well on its way to becoming the crown jewel of the Melville empire, of which it was already among the top five of Melville's 17 retail banners. CVS was developing a reputation for ruthless efficiency, driving double-digit profit increases that Melville brass could not ignore.

And CVS president Stanley Goldstein was a fast-rising star in the company. By 1984, Goldstein was named executive vice president of Melville, paving the way for Harvey Rosenthal, CVS' former senior vice president of marketing, to become only the second president in CVS' history. And CVS was continuing to grow at a steady pace, adding 55 stores that year, 50 stores in the year prior and another 60 stores in 1985.

Ryan's star also was rising fast in the company. By New Year's Day 1982, a 30-year-old Ryan was named director of pharmacy and then vice president of pharmacy in 1984.

Right in between, Congress approved direct-to-consumer drug advertising, and CVS executives already had begun to see the writing on the wall. The shift was on, and pharmacy was becoming a much bigger part of the mix. In 1974, the year Ryan did his internship in Woonsocket, CVS operated about 230 stores, 45 of them, or just about 20 percent, operated pharmacies. By 1985 CVS was operating about 600 stores, roughly two-thirds with pharmacy departments.

And a clear gap was developing between the pharmacy-haves and the pharmacy-have-nots. CVS' pharmacy locations were generating sales of about $2 million a year; the non-pharmacy locations brought in about $1 million. A year later, almost 70 percent of its stores operated pharmacies.

CVS also was forging a reputation in the industry for operations efficiency and its use of data to sharpen front-end performance ."Slow-turning items, which CVS can quickly identify through its sophisticated systems of inventory control, are constantly being dropped from the CVS mix," Drug Store News wrote in April 1987. The investment was making CVS' front-end increasingly more productive by replacing underperforming SKUs with more profitable items. The same year, CVS began computerizing its pharmacy departments, rolling a new IBM pharmacy system into 500 of its stores.

As the '80s drew to a close, Ryan would find himself a member of CVS' top executive team, having been promoted to executive vice president of operations effective New Year's Day 1990--just one year after having been named senior vice president of pharmacy.

With the 1990s began a period in which CVS would outgrow its corporate parent, distancing itself from its retail siblings in Melville. The combination of the rise in DTC advertising, the steadily emerging presence of managed care and a rash of new drug introductions with the promise of much more to come had positioned pharmacy as a very strong, long-term retail player. Certainly, much stronger than the rest of the retailers in Melville's portfolio that would p rove not nearly as insulated from the recession of 1991. Suddenly, Americans didn't have a lot of extra money for leather jackets and new furniture, and sales at retailers such as Wilson's and This End U p began to soften considerably. And, in general, Melville's retail chains also were facing increasing pressure from discount stores, such as Wal-Mart, which certainly had a leg up in a tough economy.

All of this created enormous pressure on CVS, which had doubled in size during the 1980s. By 1990, Melville's sales growth had flattened, and profits were falling; yet in the midst of it all, CVS was producing very positive growth numbers. CVS finished 1989 with sales of $1.95 billion, up 16 percent, with operating profits up 29 percent to $166 million. CVS was still itching to grow, and clearly, the Melville empire that had taken it so far, was reaching its limits.

But not before Melville would pull the trigger on the biggest acquisition deal in its history, a deal that would catapult CVS for the first time into the top echelons of the retail drug business. In summer 1990, Melville added 500 Peoples Drug stores to its CVS division, acquired from the Canadian holding company Imasco at a p rice of $330 million. Given the restructuring Peoples' executives had successfully implemented over the prior few years and the favorable results it was producing, the deal was one a many in the industry had not expected.

The purchase of Peoples by CVS caught many by surprise," wrote Drug Store News in its July 9, 1990, issue, "but the deal makes sense for both sides. It significantly extends CVS' regional presence, where it will build on notable operational strengths. For Imasco, which helped Peoples to foster a turnaround, the cash infusion gives a shot to the bottom line by reducing debt."

CVS emerged from the deal a chain of more than 1,300 stores with annual sales of about $3 billion, ranking CVS for the first time in its history among the top five drug chains in the United States in both sales and store count. Melville committed $35 million to incorporating the best of CVS with the Peoples stores, folding in such CVS design elements as lower-rising gondolas and low counters in pharmacy to emphasize patient counseling. However, CVS was a virtual unknown in the mid-Atlantic markets it entered for the first time via the deal, and executives opted to keep the Peoples name on the stores. A year after the deal, CVS had retained about 350 of the Peoples stores. In 1994. it officially changed the name on the stores to CVS.

In addition to the obvious contribution the Peoples deal made to growing CVS' store base, the deal also taught CVS a thing or two about the seasonal and general merchandise business. The Goldsteins' original vision for CVS was not long on sundry items. In fact, the company's early belief was that such categories tended to deflect focus on what CVS believed to be its core business. Today, that business is worth about $1 billion in sales to the chain, and significantly helps pad CVS' gross margins.

By December 1991, CVS was forced to pull up stakes in Southern California, a market it began to cultivate in the 1970s, but one that was still separated by more than half the country from the next-closest CVS store in Michigan. CVS agreed to sell all 85 of its stores to American Drug Stores.

"Without acquisitions, it was a difficult to build a big enough market share to be competitive," CVS president Harvey Rosenthal told Drug Store News for its Jan. 6, 1992, issue. "I have mixed feelings about it because people worked very hard at it for a long time, the stores continue to show improvements, and it's a growing market."

At the same time, Melville's growth engines were beginmng to slow down, though, CVS did manage to pick up another 50 stores or so through the 1993 acquisitions of New York's Long Island-based Austin Drug and Richmond, Va.-based Standard Drug chains.

Between 1993 and 1995, CVS added about 80 stores. But CVS orchestrated some extremely important moves during that time, including the modernization of the technology that drove its business as well as the introduction of category management at the chain. Perhaps most notably, it is during this period that Ryan rises to the very top of the company, replacing Rosenthal in 1994 as CVS president and chief operating officer.

Of course, the truly defining moment in the company's history came in 1996, when CVS successfully spun away as a stand-alone company, crawling out from under a restructured Melville. The year before, the company had made the decision to regroup around the better-performing assets in its port-folio, divesting itself of its weaker ones. Gone within the year were Marshall's, Wilson's, Kay Bee and This End Up. Melville was recast as two stand-alone compaines: Footstar, which encompassed the chain's footwear businesses, and CVS, which initially also included Bob's Stores and Linens N' Things. A year later, it was rid of Bob's and Linens, as well.

The biggest win of the Melville restructuring was that it gave CVS the financial wherewithal to compete more aggressively in the acquisition market. Within four months of CVS' October 1996 bell-ringing ceremony from the floor of the New York Stock Exchange to mark its first day of trading under its new stock symbol, the company announced that it was purchasing 2,600 Revco stores in a stock-swap transaction worth $2.8 billion. The deal, the largest in the history of drug store retailing, pushed CVS to the very top of the industry with more than 3,800 stores, more than any other drug retailer in America.

A year later, it added what many considered to be the finest of the regional chains, Arbor Drugs. The deal, which came with a p rice tag of some $1.48 billion, brings CVS' total store count to more than 4,000 stores, a count where the chain has hovered since, focusing largely on remodeling and relocating the stores it received in the two deals. Just two months after announcing the Arbor deal, the company named Ryan chief executive officer, succeeding Stanley Goldstein. Goldstein remained chairman of the board for one more year, before passing the mantle one more time to Ryan in 1999.

Last year CVS became the first drug chain to introduce a national customer loyalty card program. CVS' Extra-Care program reached 30 million members earlier this year, and the chain remains the only national drug retailer with such a program.

RELATED ARTICLE:

1963

Stanley Goldstein and others open the first CVS store, carrying health and beauty aids, under the name Consumer Value Stores in Lowell, Mass., on May 9.

1964

By the end of the year, the chain has grown to 17 units doing $3.3 million.

1967

CVS opens its first stores with pharmacies in Rhode Island.

1969

Seeking backing to continue expansion, Goldstein sells the company to Melville Corp.

1970

CVS store count hits 100. Three units include pharmacies.

1974

CVS tops $100 million in sales. The store count reaches 232, including 40 stores with pharmacies.

1980

CVS ranks among the top 10 drug chains in store count with 408 units. Sales of $414 million garner the No. 15 spot for the chain in dollar volume.

1981

Construction begins in Woonsocket, R.I., on a new CVS headquarters.

1983

Sales climb to $734 million. The store count hits 513 outlets.

1984

Senior vice president of marketing Harvey Rosenthal is named president of CVS. He succeeds Stanley Goldstein, who is named executive vice president of Melville Corp.

1985

The chain hits the $1 billion sales mark.

1986

CVS names Stanley Goldstein president and chief operating officer. The next year he is named chairman and chief executive officer.

1987

CVS opens a 193,000-square-foot DC in Rancho Cucamonga, Calif.

1989

A DC opens in New Jersey. In September, CVS begins airing commercials in New York. Tom Ryan is named executive vice president of operations.

1990

Melville buys 500 People's Drug Stores from Imasco for $330 million. This puts CVS in the Washington, Pennsylvania Maryland, Virginia and West Virginia markets.

1993

Chainwide rollout of POS scanning is finished.

1994

Tom Ryan is promoted to president and chief executive officer. He succeeds Harvey Rosenthal, who is named president and chief operating officer of Melville Corp. The Rx2000 system is rolled out chainwide.

1995

CVS opens its first store in Manhattan.

1996

CVS enters Atlanta. After restructuring at Melville, CVS spins off as standalone public company.

1997

CVS acquires 2,500-plus-store Revco chain for $2.8 billion. In September, CVS teams up with Pfizer on its CVS Health Connections, a community-based health care resource initiative.

1998

CVS acquires Arbor and breaks the 4,000-store mark. Ryan is named chief executive officer.

1999

Ryan is named chairman. CVS acquires Soma.com and relaunches it as CVS.com. CVS announces entry into Tamoa. Fla.

2000

CVS announces plans to enter Chicago and Fort Lauderdale and Orlando, Fla. CVS acquires Stadtlander Pharmacy; ProCare becomes the largest specialty pharmacy provider in the United States.

2001

CVS announces plans to enters Phoenix Las Vegas, Dallas, Houston and Fort North. CVS becomes the first national drug chain with loyalty ard program--the ExtraCare card.

2003

CVS turns 40.

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