If you have not been to a CVS lately, you might be in for quite a surprise. Under CEO Larry Merlo, CVS is on a transformational journey from competing in the “red ocean” of all things retail convenience to becoming a destination for wellness and healthcare by focusing on the 80% of services a patient could receive at a primary care physician. The concept, called HealthHub, should be in about 600 of the 10,000 locations by YE 2020, and over the last year has demonstrated some impressive results. Through focusing on “the 80” of patient services, CVS has created an accessible and affordable care facility and service within the community. At a CVS with HealthHub, you can visit a doctor, get a prescription, have it filled, pick-up a few ancillary wellness items, and get back to recovery in a hurry. Where else can you do all that in one stop?
CVS has taken some bold steps. Several years ago (2014) they walked away from selling tobacco products and began the transformation from a “jack of all trades” convenience store to becoming a leading provider of health and wellness solutions. As they transform, more store space is dedicated to offering wellness, holistic and nutritional solutions, at attractive margins, in addition to the care provided at the HealthHub by certified medical personnel. What does this mean for business? A location with HealthHub reduces non-pharmacy products carried by 20%, which would imply a significant drop in sales. In actuality, sales of the items they do stock are INCREASING, and they continue to stock progressive health & wellness solutions.
CVS is figuring out the “magic” of 80/20. One of the primary principles of 80/20 is PLS or Product Line Simplification. To the uninitiated, it sounds counter-intuitive, but implementing a sound and data-based PLS initiative can both decrease the number of products or items sold AND increase the sales and profitability of the remaining business. How? Through the beauty of simplification and focus. Most companies have a long-tail of small products sold that make up 80% (or more) of their products/items but only generate 20% (or less) of their sales dollars. Guess what happens when a company reduces that massive product count that is causing all kinds of operational, sales, data tracking, stewardship and maintenance complexity?
- Increased focus on the products that are the core: the higher value $ sales, higher profit, more differentiated items
- Reduced distraction managing the complex tail of low value items, including a smarter allocation of resources, improved operational efficiency and better organizational alignment
- Overall sales INCREASE behind the renewed emphasis on the core, more innovation is driven against the most important items, and the entire business realizes more profitability by selling more of the profitable items while eliminating unnecessary costs
Taking bold strategic decisions like CVS has done means taking risks. Will this strategy be successful? This story is still being written, but early indications are more than encouraging, and when factoring in socio-economic factors like an aging population, concerns around affordable healthcare, the interest among Gen Y & Z in more natural and wholesome foods/snacks, and a desire to still have a personal touch when it comes to medical diagnosis and advice, it appears CVS is on to something.