CVS Announces Significant Private Brand Portfolio Changes

GOLD EMBLEM FRONTThis past Thursday, December 13, 2012 Woonsocket, Rhode Island based drugstore CVS Caremark held its annual Analyst Day in New York City. The retailer outlined its strategic growth framework as well as providing an indepth review of CVS Caremark’s, which included a prominent role for their evolving Private Brand portfolio. The company also provided 2013 guidance, highlighting a healthy outlook for growth across the enterprise. CVS executive participants included: Nancy Christal – Senior Vice President of Investor Relations, Larry J. Merlo – Chief Executive Officer, President, Director and Member of Executive Committee, David M. Denton – Chief Financial Officer and Executive Vice President, Per G. H. Lofberg – Executive Vice President, Jonathan C. Roberts – Executive Vice President, President of Pharmacy Benefit Management Business, President of the CVS Caremark Pbm Business and Chief Operating Officer of Pharmacy Benefit Management Business, Mark S. Cosby – Executive Vice President and President of CVS Pharmacy, Andrew J. Sussman – Associate Chief Medical Officer, Senior Vice President, President of MinuteClinic and Chief Operating Officer of MinuteClinic, Troyen A. Brennan – Chief Medical Officer and Executive Vice President and Mike McGuire

“Going into 2012, we set challenging, yet achievable, financial targets and I am pleased to report that we outperformed those expectations. Earnings per share and cash flow are expected to be solidly ahead of our initial plan,” said Larry J. Merlo, president and chief executive officer of CVS Caremark. “These strong results set the stage for continued enterprise growth in 2013 and beyond.”

At the meeting, Dave Denton, executive vice president and chief financial officer, reaffirmed the company’s guidance for 2012 and outlined CVS Caremark’s guidance for 2013. The company expects to deliver adjusted diluted earnings per share from continuing operations of $3.84 to $3.98 in 2013, an increase of 13.25% to 17.25%, and GAAP diluted earnings per share from continuing operations of $3.59 to $3.73 per share.

At the meeting, company executives outlined key challenges and opportunities emerging in the health care environment, highlighting how CVS Caremark is uniquely positioned to drive results in the rapidlychanging environment. Merlo provided a strategic growth framework that is guiding the company’s efforts to address the changing needs of customers and clients while capitalizing on its unique suite of assets to enhance shareholder value.

“Health care is going through a period of intense change, change that will be accelerated by the implementation of the Affordable Care Act (ACA) as well as underlying demographic shifts, advances in technology and changes in consumer and patient behavior,” remarked Merlo. “The future health care environment will be defined by the more than 30 million newlyinsured Americans as a result of ACA; incentives for physicians to improve outcomes, quality and cost effectiveness of care; rising prevalence of chronic disease; and growth in pharmacy that is primarily driven by innovation in biologic specialty drugs. Additionally, shifts in funding sources for health care coverage will increase the importance of providing costeffective, highquality, innovative solutions to government programs and health plans.”

“We continue to believe that our goals of providing greater access and convenience, improving health outcomes and lowering overall costs align very well with the direction in which health care is headed,” said Merlo. “We are leveraging our enterprise assets to provide solutions that drive longterm growth and value.”

Executives identified the highest priority initiatives that define the company’s strategic growth framework, including advancing new breakthrough interventions to improve medication adherence; transforming primary care through the accelerated growth of MinuteClinic and expansion of its breadth of services; expanding specialty pharmacy services; identifying opportunities to deliver solutions addressing provider needs to support patient outcomes; partnering more closely with health plans; expanding digital capabilities across the enterprise with the goal of addressing patient information and product needs in a seamless fashion and of course Private Brands.

“Our strategic growth framework provides the lens through which we will make strategic investments and prioritize initiatives,” Merlo concluded. “We are capitalizing on our suite of assets to drive results and enhance value for clients, customers and shareholders.”

Mark S. Cosby – Executive Vice President and President of CVS Pharmacy provided a closer look at the evolution and optimization of the Private Brand portfolio as a core differentiating retail growth strategy.

CVS - Total Home - Fabric Softener“Let’s now move to another front store sales initiative, store brands. They represent 17% of our front store sales and 26% of our front store growth over the last 4 years. They’ve also been a big margin driver for us as their margin is, on average, 2x the size of our national brand margin. As you can see, our leading in store brand category is health care, with a 35% share. There’s opportunity for growth, clearly, in the other areas of the store.

We have an aggressive game plan for growing our store brands across the store, with a goal of moving from the current 17% penetration towards a goal of well over 20%. We are building our open organization capability to deliver upon this goal. We are defining our white space and the plans to fill that white space, focusing on our existing brands as well as developing new differentiated brands.

In 2013, we are redefining our Gold Emblem consumable brand. The brand has been rebuilt to provide improved taste appeal and a new contemporary packaging design. We will update the packaging in all 260 of our SKUs, and we’ll improve the product quality in 25% of those SKUs based on taste and quality test assessments. The brand will be relaunched in stores in January, just in time for the Super Bowl.

We also had some news to share about the launch of our Total Home brand. This brand will consolidate many different home brands, and at 150 SKUs into one cohesive quality brand story, covering a broad range of home products. We are very bullish on this brand, and you will start seeing it in the beginning of 2013, setting up a formal launch in May of next year. So we do have a strong game plan for growing our store brands.”

A couple of things to note from the provided packaging images – Gold Emblem appears to have two tiers Gold Emblem and Gold Emblem Select in addition to that the packaging no longer carries any connection to CVS separating food from the CVS retail brand. This reinforces the positioning of the CVS brand as a “healthcare expertise” brand.

Total Home will significantly modernize and consolidate the CVS Private Brand portfolio however it still maintains a CVS logo on the bottom left hand side of the primary panel which is potentially a mixed message from a retailer trying to position its Brand as “healthcare expertise.”

Overall a much needed improvement to an aging and complex Private Brand portfolio.

Source: Seeking Alpha

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Christopher Durham
Christopher Durham is the president of My Private Brand and the co-founder of The Vertex Awards. He is a strategist, author, consultant and retailer who built brands at Delhaize-owned Food Lion, and lead strategy and brand development for Lowe’s Home Improvement. He has consulted with retailers around the world on their private brand portfolios including: Family Dollar, Petco, Staples, Office Depot, Best Buy, Metro (Canada), TLW (Taiwan) and Hola (Taiwan). Durham has published five definitive books on private brands, including his first book, Fifty2: The My Private Brand Project. In 2017, he will debut his newest book, Vanguard: Vintage Originals, a visual tour of innovation and disruption in private brand going back to the mid-1800’s. Dynamic in his presentation while down to earth and frank in his opinions, he has presented at numerous conferences, including FUSE, The Dieline Conference, Packaging that Sells, Omnishopper and PLMA’a annual trade show in Chicago. Durham lives in Charlotte, NC with his wife, Laraine, and two daughters, Olivia and Sarah.