If you need to buy any medicine or prescription drug, there’s probably a CVS store right around the corner. If there isn’t, well, you can probably order it online from their website and count on them to always come through.
That’s how deeply CVS has made its place in the minds of the US population. It’s not just a name synonymous with healthcare, but its logo is one that one knows they can trust to offer the best possible services.
Thus, it is unsurprising that the company has achieved such stunning numbers in recent years:
- An impressive revenue of $268.7 billion in 2020
- Share price of $66.07 in 2020
- A workforce of 300,000
- 9,962 stores across the US
- Conducted 15 million COVID-19 tests at more than 4,800 locations (FY2020)
- Over 4 million vaccine doses administered (FY2020)
CVS’s journey to reach this level is an interesting one and it starts well before the first CVS store and is quite different from any other pharmacy in the world.
So, let’s dive in and uncover CVS’ growth secrets!
An Unlikely Start To The Journey
It wasn’t until the 1960s that the name CVS was first used. However, the journey for the company had begun many decades earlier with the establishment of the Melville Corporation. Let's see how the paths of Melville, whose story lays the foundation for the mega pharmacy company CVS, came into business.
A Shoe Jobber’s Dream Opportunity
Not even close to the world of medicine and pharmacies, Frank Melville, was a hardworking shoe jobber in the city of New York. Unsurprisingly, his interests lay in excelling in the shoe industry and running his own business one day.
Eventually, a golden opportunity came knocking in 1892 when Melville’s employer had to leave town due to a growing burden of debt, leaving behind three stores for him to take over. Thus, Melville had a chain of shoe stores to run from day one!
Of course, if the business had been doing well, the previous owner would not have left in such distress. So, determined to make the most of this opportunity, Melville got to work to turn the business’ fortunes around. He managed to make the three stores into a small thriving chain and build a credible reputation in New York within a couple of years.
New Generation, New Energy
Melville's stores were doing well, but it was time for the business to take its next step and broaden its horizons. In 1909, John Ward Melville stepped into his father's business and brought with him a renewed energy and drive to take the brand “Melville” forward.
After a few initial bright years, World War 1 broke out, and Ward Melville was called to the front lines. There, serving in the army, an excellent opportunity presented itself amidst the war. He befriended J. Franklin McElwain, a shoe manufacturer hailing from New Hampshire.
Together, they came up with a lucrative idea to scale their businesses by mass-producing shoes and selling them at discounted prices under a new brand name. That name, they decided, would be “Thom McAn” – short for Thomas McCann, the Scottish golfer.
So, the catchy name and unique modeled store opened its first store in New York in 1922, offering a limited variety of simple shoes at a fixed and affordable price of $3.99. Also, with it came the formation of the Melville Shoe Corporation and a new era of growth for the Melville family.
The Thom McAn shoe stores were an instant hit, and the company was growing in popularity and customers each day. Within five years, the chain had grown to over 300 stores across the Northeast, and now, McElwain’s 20,000 shoe pair producing plant wasn’t enough to meet the rising demand! Thus, in 1927, the company set up a new plant in Worcester, Massachusetts, to expand its production capacity.
Coming Out Of The Great Depression
Thom McAn shoes were doing considerably well but little did Melville, McElwain, and the rest of the country anticipate the impacts of the Great Depression. Like all other businesses, Melville’s sales were considerably affected, dropping from $26.2 million to $20.5 million in 1932. At this point, many thought that the company would go bankrupt and not make it through the Great Depression.
However, the team at Melville proved more than capable of withstanding the difficult times and, through intelligent financial and managerial strategies, was able to make a strong comeback. In 1936, Melville Shoe was already making its first public offering to list on the New York Stock Exchange.
From there on, the company resumed its expansion trajectory, and by the end of the decade, its number of stores had doubled – reaching a count of 650.
Towards A Bigger Brand
By 1939, the Thomas McAn chain had grown into a huge name. Along with it, Melville’s smaller shoe stores, John Ward and Frank Tod were also doing reasonably well.
Hence, Ward Melville decided it was time for the business to consolidate its various ventures, form one unified company, and streamline its operations. The move also included the merger with J. F. McElwain Company, McElwain's manufacturing company, which by now was producing 11 million shoes annually – multifold times more than it could only a decade ago. Subsequently, in December 1939, the board and stakeholders approved the merger.
In 1940, Melville’s sales continued their climb, reaching the company’s highest yet - $40 million. The same year, Melville shoes marked the landmark production of their 100 millionth pair of shoes. In the following decade, despite WWII raging on, its revenue consistently grew, solidifying its position in the market.
1952 was the first year that the company’s sales declined – from $92 million to $90 million – ever since Melville and McElwain had merged. Quickly reacting to the situation, the management identified that the problem lay in the company's selected variety of shoes.
Before this, these very limited, simple options had contributed to the company's success. However, times were changing, and with the competition in the industry becoming more intense, there was a need to diversify, add variety, and specialize in a wide range of products.
Therefore, in 1952, along with adding more women’s and children’s products to its stores, the Melville Corporation went through with a major acquisition of the Miles Shoes. This included the company’s 151 stores which immediately helped boost overall sales to $108 million and bring Melville back on track.
The Nation's Largest Shoe Retailer
In two years, the company to 12 factories producing ample supply of shoes for over 850 stores. Also, in 1956, Ward Melville became Chairman of the company while Robert C. Erb succeeded him as President.
Following a few years of planning, in 1960, Melville created a new division called Meldisco, which’s function was to supply family shoes to a number of self-service discount department stores. This enabled the company to register $151 million and $176 million in revenue in 1961 and 1962, respectively. However, the profit fell from $6 million to $5 million.
Then, in 1964, Francis C. Rooney assumed the post of President and went about making key changes to the company's operations that ensured not only revenues were soaring but also the profits. In 1967, sales reached a high of $260 million, and by the end of the decade, the corporation consisting of Thom McAn, Miles, and Meldisco brands had over 1400 outlets – making it the largest shoe retailer in the USA.
Key Takeaway 1: Tailor Your Products According To The Market
In its early years, Melville Corporation had generated significant revenues from its simple and affordable brand of shoes. That was what was selling the market, and customers were more than receptive. However, post-WWII, the market scenario changed, and due to the competition, customers had more variety to choose from. Accordingly, Melville organically expanded its variety and acquired Miles Shoes, offering much more options to the customers.
Consequently, the company was already back to rising revenues within a year and rarely experienced another dip – all by keeping their offering according to what customers wanted to buy.
The Launching Of CVS Stores
While the 1960s saw Melville Corporation’s rapid rise to the top, another company working in a different industry was setting up shop in another part of the country. However, soon, they were to become part of the same corporation. Let’s discover how the CVS brand came into being and how its paths crossed with Melville.
From The First CVS Store To A Thriving Chain
In 1963, brothers Stanley and Sidney Goldstein, along with their partner Ralph Hoagland opened a health and beauty products store in Lowell, Massachusetts. Their goal was simple: to offer maximum value to their customers. Hence, the name Consumer Value Stores (CVS) was sort of a no-brainer. Within a year, this one store had grown into a 17-store chain. Plus, the iconic CVS logo was developed displayed on CVS stores across the country.
The company’s most significant growth decision was yet to be made. In 1967, CVS added pharmacy departments to its stores – one day, this moment would be seen as the defining moment for the company in the pharmacy industry.
Melville Acquires CVS
Melville was looking to diversify its operations and was exploring the drugstore industry as a potential market to invest its money in. Thus, the fast-growing CVS chain caught its attention, which now consisted of 40 stores. The takeover was officially completed in 1969. Continuing its growth, CVS was up to 100 stores by 1970. But Melville was following an aggressive expansion policy at this time, and 100 stores were simply not enough.
In 1972, the company completed a takeover of Clinton Merchandising, Inc. This allowed Melville to absorb 80 Clinton Drug and Discount stores that almost doubled the size of the CVS brand and opened a gateway to the Midwest and Northeast.
Melville & CVS Boom
The rate at which Melville was expanding, it definitely was not going to stay confined to the US borders. Along with bringing in the Bally shoe line from Switzerland to the US, the company explored ventures to take the Thom McAn shoes to Japan.
Moreover, despite the shoe business accounting for 71% of Melville's sales in 1974, the company also wanted to solidify its non-shoe operations. Thus, expanding the CVS chain was high on the agenda.
Already in 1974, of the $765 million earned by Melville, CVS had contributed more than $100 million. Plus, it had a total of 232 stores – 45 of which included pharmacies. In 1977, Melville bought Mack Drug Co. chain, adding 36 more drugstores to the tally.
These expansions into the non-shoe businesses continued to the end of the decade, even after Ward Melville's passing. By 1978, the company operated 3,812 stores, generating a revenue of $1.75 billion, around only which half was due to shoe sales.
Key Takeaway 2: Recognizing Potential in Growing Businesses
Melville had grown into one of the largest retail companies in the world, but most of its revenues were still being generated from its shoe operations. Melville explored other lucrative fields, realizing that future growth lies in putting its eggs in different baskets.
Here is where it found the CVS chain to have immense potential for growth. Melville simply acquired the CVS chain and provided it with all the opportunity to grow with a series of mergers, new locations, and investments. Thus, not only did Melville accelerate a growing CVS’s growth, but it also boosted its own profits and gradually reduced its dependency on the shoe business.
The Shift Away From Shoes Continues
Melville entered the 1980s on the back of 26 straight years of rising profits. Its 4500+ stores now employed more than 48000 workers. Likewise, CVS placed as one of the top ten pharmacy chains in the USA, with over 400 stores and revenues accumulating to $414 million.
In the subsequent years, Melville continued its policy of reducing its dependency on the shoe business, which was further accelerated by a period of recession.
Growth During The Recession
In 1982, Melville was firmly established as the US’ largest shoe retailer with over 5200 stores. By 1983, sales amounted to a stunning $3.3 billion. However, these years were also marked by the economic recession, due to which the company had to take prompt and hard-hitting measures.
The company brought down its factories from seven to one and downsized 2000 employees. It also closed down several shoe stores, including 72 McAn’s. These measures, however, in no way meant that the company was losing out on profits. In fact, Melville earned $4.7 billion in revenues and $219 million in profits in 1985. The drivers behind this growth were the company’s non-shoe ventures, notably CVS that, for the first time, achieved a staggering $1 billion in sales.
Goldstein Takes The Wheel
CVS was one of Melville’s most valuable assets, and the company’s faith in the chain was only affirmed when CVS cofounder, Stanley Goldstein, became President. Thus, in his tenure, exponential growth for both Melville and CVS could be expected.
One of his most significant moves at the start of his presidency was acquiring 25 Heartland and Pharmacity drugstores in 1987, further strengthening the CVS chain. The following year marked CVS’ 25th anniversary – a chain that now generated $1.6 billion from its 750 outlets.
Moreover, Goldstein continued his predecessors’ approach of phasing out of the shoe business. By 1989, it only accounted for 22.5 percent, while apparel (36%) and drugstores (28%) had become the heart of the Melville brand.
A Period Of Ups & Downs
Melville began the 1990s with its biggest drugstore chain acquisition yet. Peoples Drug Stores, a chain with almost 500 stores, came under the CVS banner, propelling the company in the Washington, DC, Pennsylvania, Maryland, and Virginia markets. Unsurprisingly, Melville, too ended the year on a high note with $8.68 billion sales.
Unfortunately, the following years were not as rewarding for both due to economic slowdown. In 1992, CVS had to sell its 85 stores in California to American Drug Stores Inc. for just $60 million, resulting in its exit from the state.
For Melville, the impact was even more severe. It had to restructure and close down 8000 stores – 390 of which were Thom McAns. It also had to shut down its smaller business of toys and accessories. This meant that now, the focus was on CVS and the apparel business – which combined accounted for more than 60% of Melville’s profits.
CVS Rises To The Challenge
While Melville overall did not recover immediately from the setbacks, CVS was up and running and making waves in no time. In 1994, when Tom Ryan, who over a period of twenty years had worked his way up from a pharmacy intern, became President of CVS, the chain was now 1,350 stores big.
It became the backbone of Melville, generating $4.3 billion of Melville’s $11.3 billion (38%). In the same year, CVS launched PharmaCare, entering the managed care industry offering its services to employers and insurers.
Key Takeaway 3: Focus On Profit-Making Sectors
In many ways, Melville’s diversification policy was an interesting one. It went from a shoe company to a multi-industry giant and gradually limited itself to just the pharmacy and clothing businesses.
This strategy of moving towards profit-making businesses and shedding low-profit or loss-making sectors proved very fruitful for the company as it was able to sustain the impacts of economic recession and keep making profits on the back of its most successful chains.
Moreover, the reliance on and success of CVS signaled that the firm was on the path to making itself one of the leaders in the drugstore industry.
Melville Becomes CVS
By 1995, it was becoming more and more clear that CVS was the real profit-making business and although apparel unit was doing better than other units, it could not be sustained. Thus, following successive periods of faltering financial performance, Melville finally decided to let go of all its other operations and focus solely on CVS.
The CVS Corporation
Selling of all its other businesses, including the Thom McAn brand which had been the driving force in early years, Melville marked the end of mostly successful era. Now, a new era began with the company officially being renamed to the CVS Corporation and Goldstein retaining his position as Chairman and CEO.
With a clear objective of excelling to the top of the drugstore industry, CVS wasted no time in making some bold moves. It acquired Revco D.S., Inc. for $2.8 billion in stock plus taking over $900 million of the company’s debt. To gain approval from regulatory authorities CVS had to sell 120 Revco stores. However, it was a small sacrifice given Revco had a presence in 17 Midwestern, Southeastern, and Eastern states with its 2,600 drugstores.
This was the largest takeover in the retail pharmacy, propelling CVS to the biggest firm in terms of size with nearly 4,000 drugstores in 24 states. The next year, the company added Arbor, a billion-dollar revenue-making chain of 200 stores, for just $1.48 billion. This also put CVS at the top of the largest prescription drug dispensing companies, with an 11% share of the market. Now, it only trailed, Walgreens, its biggest competitor in the industry, in terms of revenue.
Along with acquisitions, CVS also looked to organically open new stores and replace older locations with more convenient and efficient freestanding sites and drive-through pharmacies.
The End Of Goldstein Era
From founding CVS to seeing it become the largest pharmacy in the state, Goldstein’s journey with the brand was remarkable. But after serving for more than 36 years, he decided to step down and hand control to Ryan.
Like Goldstein, Ryan had spent most of their career with CVS, and the two had worked closely as CEO and president. Thus, continuing the legacy, Ryan too took the company to the new height, albeit in a different way.
In 1999, his first major acquisition was of Soma.com, the first online pharmacy of its kind. It was later rebranded as CVS.com allowing customers to order prescriptions online for mail delivery or in-store pickup. Ryan also launched CVS ProCare, a specialty pharmacies chain, which offered services to patients with complex and chronic diseases.
ProCare was only CVS’s first step in the specialty pharmaceuticals industry. The market was estimated to be worth $16 billion in 1999 and CVS wanted to cash in on its potential. Thus, the company acquired Stadtlander pharmacy, a thriving firm in specialty pharmaceuticals industry, for $124 million. Consequently, CVS ProCare became the largest specialty pharmacy in the country with 46 stores. Overall, CVS achieved $20 billion in revenues with a staggering $746 million in profits for the year 2000.
Key Takeaway 4: Stay One Step Ahead Of The Competition
As soon as the Melville corporation became the CVS Corporation, the company focused on cementing its position in the drugstore industry through a series of acquisitions, the most prominent being the takeover of Revco. This immediately shot the firm to the top, trailing only Walgreens in terms of revenue.
However, this wasn’t the only successful merger CVS made. Its acquisition of Soma.com meant that it had an established online presence much before its competitors. Similarly, realizing the potential in specialty pharmaceuticals, it jumped in and developed CVS ProCare into a dominant firm in the upcoming industry.
Thus, CVS covered every possible avenue of growth in the future and managed to establish itself ahead of its competition.
From CVS Corporation To CVS Health
Carrying on its successful run, in 2000, CVS entered the Tampa, Florida, and Michigan markets for the first time, and Mississippi, a year later. It seemed the CVS’s dominance would continue unhindered – and so did but not without some strategic acquisitions and restructures.
Forming CVS Caremark
Through CVS PharmaCare, the company was one of the largest companies in the mail order and pharmacy benefit management business. Then, in 2004, by buying 1,268 Eckerd Stores and Eckerd Health Services, the CVS ensured that its market share was the highest in the industry.
In the following year, the company decided to explore the health clinic business - which was one of the few untapped areas of pharmacy business for CVS. Initially, it partnered with MinuteClinic, opening in-store clinics at three locations. In 2006, when MinuteClinic was accredited by the Joint Commission, CVS acquired its complete operations and automatically became the leading retail health clinic provider in the country. In the same year, CVS Corporation also cemented itself in Southern California and Midwest by buying 700 stand-alone Sav-On and Osco drugstores.
While CVS was growing its operations, another firm, Caremark Rx, Inc., was making insignificant inroads in the drugstore sector. Realizing that together, both companies could achieve much faster and sustainable growth, they agreed to a monumental merger, establishing CVS Caremark – USA’s largest integrated pharmacy services provider.
As had been CVS’s strategy for several years, CVS Caremark took over Longs Drug’s 541 stores in California, Hawaii, Nevada, and Arizona. Alongside this, MinuteClinic was positioned to work with healthcare providers across the country to enhance the quality of healthcare and make it affordable for a larger population. 2011 also saw CVS surpassing $100 billion in revenue indicating how successful its recent acquisitions and changes had been.
CVS Health – Commitment To HealthCare
2014 was a big year for CVS. The company announced it was removing all kinds of cigarettes and tobacco products from its stores and launching a national smoking cessation program. This meant the firm was willing to forgo $2 billion in revenue to promote better health standards for its customers and the general public.
While the revenue loss was significant, CVS Caremark’s growth as it purchased Coram, specialty infusion services, and enteral nutrition division of the Apria group. The company also changed its name to CVS Health to make a public statement of its renewed commitment to offering a wide range of health care services of the highest level.
Showing The Right Way To Grow
Following its smoking cessation program, CVS Health rigorously pursued health care initiatives across the country without losing focus on expanding its operations.
In 2014, it added Navarro Discount Pharmacy, the largest Hispanic-owned drugstore chain in the US, to its brand. In 2015, it took over as the leading provider of pharmacy services to long-term care facilities, Omnicare. Soon after, it acquired over 1,600 pharmacies and clinics from Target. Within the span of two years, CVS had assumed control of some of the biggest brands and competitors in its various pharmacy niches.
On the other hand, it launched multiple social programs, including:
- Be The First: a $50 million investment consisting of a 5-year plan to promote the first tobacco-free generation
- Increasing access to naloxone, an opioid overdose-reversal medication
- Offering affordable generic epinephrine auto-injector to treat allergic reactions
- Resisting high-cost drugs to keep health care affordable
- Entering the insurance industry with Aetna
On The Front Lines During COVID-19
The COVID-19 pandemic has been one of the worst healthcare and economic crisis the world has seen in recent years. Many companies were driven out of business or suffered huge losses.
Although CVS’s business did slow down temporarily, it was to be expected that the company would not take long to recover through its various healthcare and pharmacy streams. Its teams were on the ground, conducting COVID-19 testing at 4,800 sites. It was the country’s largest provider of the service with over 15 million tests conducted up till January 2021.
As vaccines began to be approved and released for public use, CVS was again at the forefront and by August 2021, it had administered 30 million vaccine doses and 29 million COVID-19 tests.
The company did not, however, take the opportunity to maximize its monetary returns in the pandemic. Instead, it focused on extending care to all affected sectors of the society by paying special attention to reducing racial health inequities in Black and Hispanic communities and investing $50 million in social causes.
This was separate from the $600 million CVS had already spent over the course of five years to empower Black and other marginalized communities in the US.
Key Takeaway 5: Growth & Social Responsibility Can Work Together
Prioritizing social responsibly and the general welfare of the public is not on the agenda of many large firms. Mostly, they do not see any profit or growth incentive in it.
However, CVS realized that as a firm directly working for healthcare enhancement, it was its responsibility to enable access via affordable healthcare provision and discourage any harmful products, such as tobacco, regardless of its monetary impact.
It did temporarily cause the company to lose out on revenue but helped create a more positive and trustworthy image in the public – a crucial milestone for any firm looking to achieve sustainable growth in today’s competitive markets.
CVS’s Journey In A Nutshell
When Frank Melville took over those three shoe stores from his employer, he could not have imagined that he was laying the first brick for a building that would become a pharmacy giant, more than a century later. Over its journey, CVS underwent many transformations, acquisitions, and challenges but today, it is one of the largest, if not the largest pharmacy companies in the US.
Growth By Numbers
In recent years, CVS has experienced considerable growth following its rebranding to CVS Health. Here is an overview of its impressive growth in numbers from 2015 to 2020.
For a firm to have survived and persevered for so many years and undergone radical industry changes is a remarkable achievement.
CVS’s success can be attributed to its timely strategies and calculated decisions throughout. Let’s recap some of those approaches that have defined the company’s growth from start to now:
Deliver Products According To Customer Preferences
Melville’s initial success was due to its simple and affordable range of Thom McAn shoes. When competition grew and customers preferred having a fashionable variety to choose from, the company was quick to make the change.
Then, during Melville and CVS’s journey, the company always kept eye on what industries and products were looking attractive to customers and invested its resources accordingly.
This allowed the brand to proactively respond to changing market situations and rarely ever offer a product that would go unsold due to a dip in customer demand.
Hence, a key factor in CVS’s growth is the simple fact that customers have kept coming back to it, knowing the company has just the product or service they need.
Collaborative Growth Is Faster Growth
CVS’s acquisition by Melville was the result of the company seeking growth opportunities outside its shoe industry. Hence, instead of having to build a business from scratch, CVS’s lucrative growth prospects tempted Melville to enter the drugstore business.
Consequently, a firm already on the trajectory upwards, CVS found many more opportunities to expand with the support from Melville and it established itself as an industry leader fairly quickly. Likewise, Melville’s profits shot up through CVS without having to apply resources to build a foundation in the pharmacy world.
After that, CVS regularly bought businesses, such as Stadtlander, to establish itself in markets where it had little or no share but the profit potential was huge. Hence, the rate of CVS’s growth over the years has been nothing short of astonishing.
Let Go Of Loss-Making Ventures
A successful business doesn’t only know when it’s the right time to acquire or expand, it’s also prepared to recognize and shut down operations that are not going to hold back its growth.
For a few years, Melville’s diversification policy was successful but eventually, the company was operating in too many un-related industries – some of which’s contributions to profits were hardly significant. Moreover, the shoe business – the core of Melville – also did not show promise for the future.
Thus, the company was prepared to make the difficult decision of letting go of all its businesses that would not be profitable for long and focus on just its apparel and drugstore units. Eventually, it stuck to the drugstore, CVS, which turned out to be more than a fruitful decision and went on to become the leading pharmacies in the country.
Explore Innovative Avenues To Stay On Top
Once Melville Corporation was officially CVS, it was clear that the company would not venture out of the pharmacy business for a while. Hence, its growth was to be focused on this sector.
However, this did not mean that CVS’s opportunities were limited. In fact, the company explored and capitalized on nearly every area of the pharmacy business, providing it with multiple avenues of growth. More importantly, many of these areas were growing sectors, such as the managed care, online orders and mail delivery, health clinic industries, where there was no clear market leader or CVS’ competitors had yet not made a move.
Thus, smartly, the company acquired businesses in these sectors and firmly placed itself as the dominant product provider without having to face much competition. Moreover, these growing industries provided CVS with a futuristic and sustainably mapped out growth.
Grow Without Compromising On Social Welfare
One of CVS’s key objectives in recent decades has been to prioritize the overall improvement of healthcare services in the country. Many times, this has meant forgoing profits and resisting expensive drugs for the greater good.
For instance, removing all tobacco and smoking-related products from its stores cost the company an estimated $2 billion loss in annual revenue. Still, the company made consistent efforts to discourage the public from these harmful products.
Moreover, CVS has invested significantly in eliminating racial healthcare inequality in the US and making a statement with its measures.
To top it off, despite these seemingly not so profitable decisions, CVS has continued to grow at a very fast pace, showing that a company can make money and make a difference, simultaneously!