Fast Five Shorts | CVS To Launch New “Mini-Stores”

Summary

Podcast Summary: Omni Talk Retail - "Fast Five Shorts | CVS To Launch New 'Mini-Stores'"

Release Date: March 14, 2025
Host: Omni Talk Retail
Guests: Dave, Chris Kreitz, Chris Walton

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Introduction

In the "Fast Five Shorts" episode of Omni Talk Retail, the focus is on CVS Health's strategic initiative to introduce a series of new "mini-stores." These smaller retail locations aim to redefine the traditional pharmacy model by emphasizing essential health services while scaling back on the extensive retail offerings that CVS is known for. Hosts Chris Walton and Anne Mezzenga, along with guest experts Dave, Chris Kreitz, and Chris Walton, delve into the implications of this move for the retail and pharmacy industries.

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CVS's Mini-Store Strategy

The episode opens with the host announcing CVS's plan to launch dozens of mini stores across the United States. These stores, as reported by the Wall Street Journal, will average less than 5,000 square feet—less than half the size of a typical CVS location. The primary focus will remain on full-service pharmacies and essential health-related products, such as over-the-counter medications and first aid supplies. Notably, these mini stores will exclude a wide range of consumer items like greeting cards, groceries, and beauty products, which have historically been staples of CVS and other national drugstore chains.

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Dave's Insights on the Mini-Store Model [00:57]

Dave expresses intrigue and optimism about CVS's innovative approach, highlighting it as a necessary evolution in the drug retail sector, which is undergoing significant transformation. He points out that separating pharmacy services from convenience retail aligns more closely with European models and caters to different customer needs in suburban versus urban areas.

"I'm quite intrigued with this model. I think we all know that the drug category as a whole is going through this real big inflection point and so they need to find some way to innovate." [00:57]

Dave emphasizes that this separation can lead to reduced fixed costs, improved labor efficiency, and better inventory management. He also raises questions about the absence of impulse-buy sections, such as seasonal items or snacks, which are common in larger stores, and expresses interest in how CVS will address this aspect.

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Operational Focus and Cost Management [02:53 - 03:20]

The host builds on Dave's points, discussing how the mini-store concept allows CVS to minimize theft and streamline operations by focusing solely on high-revenue areas like the pharmacy and over-the-counter products. This approach reduces the complexities associated with managing a broad retail assortment, thereby enhancing operational efficiency.

"...really focus on, you know, what's bringing them revenue in the, in the near term. And that's, you know, the pharmacy business, the over the counter business." [02:53]

The conversation touches on the potential for maintaining customer satisfaction by offering full-sized products, moving away from the "grab and go" model to ensure that customers can still obtain their preferred product sizes.

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Chris Kreitz on Pharmacy and Front-End Dynamics [03:54 - 05:10]

Chris Kreitz delves deeper into the long-term implications of CVS's strategy, questioning how the removal of the front-end retail component might impact pharmacy operations. He speculates that if the front end drives significant traffic, its absence could adversely affect prescription sales, potentially undermining the entire concept.

"They're testing... can we still keep all the high margin health sales on the retail end with a very stripped down assortment?" [05:00]

Kreitz highlights the importance of balancing the high-margin health sales with a curated assortment that does not detract from the pharmacy's primary function. He raises concerns about whether a limited assortment might lead to a decline in overall sales or impact prescription volumes.

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Chris Walton's Merchandising Perspective [05:52 - 07:05]

Chris Walton provides a merchant's viewpoint, describing CVS's move as a smart segmentation strategy. He references CVS's existing partnership with Target as a foundation that informs their understanding of operating a focused pharmacy-only model. Walton underscores the importance of comprehending traffic dynamics, especially in urban areas where the pharmacy might not be the primary traffic driver compared to convenience shopping.

"...it's just about balancing that out and understanding the puts and the takes with it across a smart segmentation strategy." [07:05]

He also notes that CVS plans to continue opening traditional stores alongside the mini stores, suggesting a dual approach to cater to different market segments and consumer preferences.

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Competitive Pressures and Future Considerations [07:05 - 08:05]

The host raises concerns about CVS's competitive advantage in same-day prescription delivery, noting that competitors like Walmart, Amazon, and Walgreens are enhancing their delivery timelines. This shift could challenge CVS's reliance on in-store pharmacy traffic, especially if consumers prefer the convenience of home delivery, particularly when unwell.

"...if you have a small format that's only pharmacy, does that go away when that can be delivered to my house, especially when you're not feeling well?" [07:05]

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Final Thoughts and Delivery Optimization [08:05]

In closing, Chris Walton hopes that CVS's mini-store design incorporates efficient delivery and pickup processes. He suggests that a smaller assortment could facilitate easier and more streamlined operations, enhancing the overall customer experience.

"...the fact that it's such a small assortment should make the delivery and pickup of those goods that much easier to operate as well." [08:05]

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Conclusion

The episode provides a comprehensive analysis of CVS Health's initiative to launch mini stores, exploring the potential benefits and challenges of this strategic pivot. Experts discuss how this move aligns with broader trends in pharmacy retailing, including cost management, inventory optimization, and adapting to changing consumer behaviors. While the mini-store model offers promising avenues for innovation and efficiency, concerns about maintaining pharmacy traffic and competing with emerging delivery services remain pivotal factors that CVS will need to navigate as it tests and potentially scales this new retail format.

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Transcript

[Host]

CVS is rolling out new mini adorable stores. According to the Wall Street Journal, CVS Health is preparing to open dozens of stores offering full service pharmacies but very limited retail. The new stores will be on average less than 5,000 square feet or not even half the size of a typical CVS location. The company said the 12 new stores are expected to open over the next year in cities and towns throughout the US and will still stock health related products such as over the counter cough and pain medications or first a care. Missing from their aisles, however, will be the vast array of consumer items such as greeting cards, groceries, nail polish and others for decades that have been a staple of CVS and other national drugstore change chains. Sorry Dave, let's go to you. What do you think of CVS's overt move to mini stores? What do you think that signals about the state of pharmacy retailing?

[Dave]

So, so, and I'm, I'm quite intrigued with this model. I think we all know that the drug category as a whole is going through this real big inflection point and so they need to find some way to innovate. And separating pharmacy from the convenience store I think is a really interesting idea that it's been a long time coming in the industry, especially here in America as in Europe, it's already like that. And so currently the drug retailers, they serve different purposes and they have different clients and in, and especially in less urban spots. In urban spots you can rationalize there's, you do it all in one like a one stop shop at your local pharmacy to get food as well. But in more suburban areas I think you're serving different clients and this can help on a wide array of things. It can reduce your fixed costs around rent, improve your labor. I think the assortment will have a huge, you know, positive impact around on shelf availability and inventory management. And then you also have to want to be less promotionally focused. You know, I'm sure if we walk into not even a cvs, but really any drugstore, you'll see there's a lot of of your standard household goods on promotion which really drives down your profitability. Overall, I think this is a really interesting concept. I would love to know if they're having some sort of impulse buy section still, whether that's seasonal or some snacking or some sort of DSD piece. I didn't see anything on that. That would be something that I'd love to learn more about. But overall I'm not going to say I'm bullish right now, but I think it's a very interesting concept that, you know, with a 12 store pilot. Why, why wouldn't they do it?

[Host]

Right, right. It gives them a way to like you were saying, like minimize theft, minimize operations and promotions and all the things that they have to do to manage that front end of the store and really focus on, you know, what's bringing them revenue in the, in the near term. And that's, you know, the pharmacy business, the over the counter business. And you just want to still be able to get your Quest protein chips is what I'm hearing when you pick up your prescription.

[Dave]

Uh, yeah, I, I, I, I would, I would love that. I love the big bags.

[Host]

Yes, right. Not, not the mini grab and go. You want the solid size. Well, we'll, we'll figure out how they can make a CVS just for you, Dave.

[Dave]

Uh, but I mean it is true if you think about it, it's, it's an intentional run for some sort of medical need. Unless you're in a more really urban area where it's, then it's a little bit more convenient. So I think this model is, is super intriguing and I can't wait to experience one of them.

[Host]

Right. Chris Kreitz, where do you fall?

[Chris Kreitz]

Yeah, I think similar in line with what Dave said, you know, I think there's a notion that the long term pharmacy model needs to change. I think this is experimenting to say what could it look like? I think the only thing I'd build to what Dave said is, uh, I think there's some testing here on the interaction between the front end and the pharmacy and what that dynamic really is. I think everyone thinks the pharmacy drives the front end and I think this is kind of testing that a little bit to say if we take out all of the front end, is there any in adverse impact on the pharmacy itself, which would be the downfall of this concept? Right. If you start losing scripts because people want to be able to get multiple things on that shopping trip, then this concept starts to unravel. So I think they're testing this, they're testing, you know, some other formats as well. I think this is more exploring. You know, can we still keep all the high margin health sales on the retail end with a very stripped down assortment? How, how sharp can we get with our assortment before we start to lose those sales? And will it have any inverse impact on our scripts at the pharmacy if we don't have a massive selection of health products? So yeah.

[Host]

Right. It's, it's, it's great that you bring that up, Chris. Because I think it's, you know, really balancing the points of, like, we know there's a markup on some of those, you know, beauty products, there's a markup on the food, there's a markup on those convenience items that you're talking about. But then how does that balance with, you know, how much they're losing due to theft, how much the real estate, you know, per square foot costs in these larger CVS stores? So there's a lot going on there that you're right. I think they'll be able to pressure test here with those 12 stores to see how much of an impact it makes. Chris Walton, you're the merchant of the group here. What are your thoughts on this approach that CVS is taking with the many stores?

[Chris Walton]

Yeah, I mean, I. I don't think it says that much about the pharmacy industry. I think when you get right down to it, I think it's just a smart segmentation approach. And so I kind of would echo what David and Chris, you know, were saying, I think, you know, on the small format of just being a pharmacy, basically. I think the interesting thing about this is CVS has kind of tested this already by way of their relationship with Target. So they know if they're only in the pharmacy business, what the operations of that look like and the profitability of that looks like. So that gives me credence to understand that they know what. They know what they're up against. But to Chris's point, they have to understand what the traffic dynamics are that comes with this type of format. But the other thing the article says, which is interesting, I think it's important to point out, is they still plan to open 30 traditional stores, which is three times the amount that they're going to open up this pilot. So I think the other thing that I call out, and because I made this mistake, I'm interviewing CVS's chief merchant at Shop Talk on stage. Yeah, and I actually made the mistake in my prep with him. I said, like, you know, but the pharmacy is such an important aspect of the traffic driving. And he's like, no, it's. It's not always the case. And to David's point, in urban areas, it's flipped. So, you know, the. The pharmacy is less important than the grabbing go. So. So I think, you know, you. It's just about balancing that out and understanding the puts and the takes with it across a smart segmentation strategy. So that's what this is all about to me.

[Host]

Yeah, I think. I think the only thing I'D add here at the end is that they also still have the advantage in a lot of places of being the only place that you can go to get your prescription within a matter of minutes or hours where there's not same day delivery of prescriptions. However, I think that's, that still is not something that they can rest their laurels on either. Because I think we're going to start to see increasing same day delivery. We're seeing that with Walmart, with Amazon, with, you know, Walgreens. And if as those, those timelines get reduced and you're starting to see more same day delivery, I think CVS being the place where they're seeing, you know, 80% of traffic in some stores is due to the pharmacy and prescription. Like will they be able to still rely on that? And once, you know, if you have a small format that's only pharmacy, does that go away when that can be delivered to my house, especially when you're not feeling well? I think that's something too that will have to be factored into some of these decisions in the term.

[Chris Walton]

Yeah, and hopefully they're thinking about that in the design of this prototype too. Like, you know, the fact, the fact that it's such a small assortment should make the delivery and pickup of those goods that much easier to operate as well.