In the 16 years since Thomas M. Ryan took over what is now CVS Caremark Corp., the company’s annual revenue has grown from $5 billion to nearly $100 billion. It now stands at No. 18 on the Fortune 500.
In May, CVS announced that Larry Merlo, its longtime head of retail, would succeed Ryan as CEO next year.
(Since the announcement, CVS has become embroiled in a high-profile dispute with Walgreen Co. over drug-benefit plans; Merlo said he was precluded from commenting on it because he remains in charge of CVS/pharmacy.)
He spoke with Providence Business News last week about his plans for the company and its future in Rhode Island.
PBN: What led you to enter the pharmacy business?
MERLO: When I was in high school I loved math and science. I actually thought I wanted to be a doctor, and everybody, including my mother, kept saying, “you don’t want to be a doctor, they work too many hours.” And I actually had a chemistry teacher who said, “you ought to take a look at pharmacy.” That’s how I got interested in it.
PBN: Is it intimidating to be taking over a huge company like CVS?
MERLO: It’s certainly very challenging and very exciting. … But you think about the CVS/pharmacy retail business – that, as a business unit of CVS Caremark, is a $60 billion business. So that kind of helps put things in perspective.
PBN: CVS has grown dramatically over the last 20 years. Has something had to change in the company’s DNA?
MERLO: I guess I think back to when I joined CVS in 1990. It was a very successful regional drug chain here in the Northeast. As we grew, we recognized there may not be just one way to get the job done, and what works here in New England may not work nearly as well in the Southeast or the West Coast. We successfully transitioned from a regional to a national presence. … But the culture of taking care of the customer and doing what was right for the customer – that has served as a very good filter for us as our operation has evolved.
MERLO: Today, I think 75 percent of the U.S. population lives within 3 miles of a CVS, but we continue to see opportunities for continued retail growth. In the last 18 months, we’ve opened retail stores in six new markets, including Puerto Rico, and the CVS brand is being very well-received.
At the same time, we see continued opportunities for growth in things like CVS store brands. They offer high-quality products at savings to the consumer, and certainly in this environment that’s become increasingly important.
We’re playing around with some different concepts. You may be familiar with a beauty concept … called Beauty 360. The concept is an effort to bring what has historically been prestige beauty products that have been limited in availability … bring those products into the drugstore environment.
PBN: Could you ever imagine a CVS “superstore”?
MERLO: I don’t think that’s in our future. One of the things CVS stands for is convenience, and it’s certainly not just convenience of location, it’s convenience of the shopping experience. … The average shopper in the front end of our business is buying a little less than four items, so the ability to get in and out quickly is important. The new store at Providence Place is right around 13,000 feet, which is our prototype today.
PBN: Last year, the Caremark pharmacy-benefit management division lost billions of dollars worth of contracts for 2010. How is the effort by the PBM side’s new leader, Per Lofberg, to stabilize it going?
MERLO: Per is just a terrific partner who understands the PBM business extremely well. … I think he’s doing a terrific job. … Caremark … had made a number of PBM acquisitions over the years, and I think Per certainly sees some opportunities to do some additional integration.
PBN: How aggressively do you plan to expand the MinuteClinic retail health clinics? PBN: Now that health care reform has passed – although a lot of regulations remain to be written – what impact do you expect it to have on CVS Caremark? PBN: How about public policy? Does it matter to CVS what Rhode Island policymakers do?
MERLO: We’ve got over 500 clinics today in about 25 states. … The patient-satisfaction levels with the MinuteClinic service is just outstanding. The health plans see MinuteClinic as a viable option to quality care and at the same time helping them deal with their challenges of lowering costs.
MERLO: Overall, we believe it’s a net positive. … Thirty-two million uninsured Americans are going to have access to some type of coverage. That will increase the utilization of prescription products. … But there is so much that needs to be written in terms of just how the bill is going to be administered and regulated. I think we’re probably in the second inning of a nine-inning game in that.
PBN: How would you characterize CVS’ relationship with Rhode Island?
MERLO: We’ve got almost 6,000 employees here. We’re certainly very invested and very committed here. We just opened our first pharmacy call center down the street here. We’re in the process of building a finance center that will open probably in the first or second quarter of next year. We’re also in the process of relocating many of the employees from MinuteClinic from Minnesota to our complex here. So those three things in itself are going to add about 200 jobs to our campus.
At the same time, one of the core values that I think Tom [Ryan] has done an outstanding job of carrying forward is giving back to the communities in which we live and serve. If you think about some of our marquee events – the CVS Caremark Charity Classic, the CVS Caremark Downtown 5K – the Charity Classic in the past 11 years has raised $11 million for charities here in southern New England, and in the 10th year of the Downtown 5K we broke the $10 million mark. … I think we do a pretty good job of making Rhode Island a better place to live and work.
MERLO: We care deeply about health care policy. We would love to be at a point someday where we would be opening MinuteClinics at our retail stores here in Rhode Island [which would require legislative approval]. … Massachusetts has MinuteClinics now. •
