How Is CVS Health Changing Its Business?

Ever since CVS (CVS -1.07%) changed its name to CVS Health, the company has been trying to embrace that name. That started with the chain stopping the sale of cigarettes. Now, the company has been testing a new store model that will devote more floor space to wellness. This will involve offering more medical care, classes, and having healthcare concierges that help customers navigate their healthcare needs.

A full transcript follows the video.

This video was recorded on Feb. 26, 2019.

Shannon Jones: Let's shift gears. Let's talk about the other big story that's been on the radar for a lot of investors. We've actually gotten a ton of questions about this particular company, and that's CVS Health, ticker CVS. CVS is basically moving forward with their plans to transform the healthcare delivery model. Dan, what can you tell us about that?

Dan Kline: What caught my eye is, we've all followed, CVS got rid of cigarettes a few years ago. That was a move that cost them billions of dollars. You could argue that they made some of that volume up with the shelf space. They were walking away from a ready business because it didn't jive with the name CVS Health. Since then, they've bought Aetna. They've embraced this, "We're going to manage your healthcare relationship." The first step of that was adding MinuteClinics to about 1,100 of its stores. Those are walk-in clinics, similar to what any community has but inside a CVS where you can get a flu shot, you can get some simple diagnoses, you can do maintenance medications, things like that.

Now, they're testing what's called the CVS HealthHUB. The HealthHUB takes about 20% of their floor space and devotes it to things like yoga classes. When you walk in, there's a health concierge, and he might point you toward a dietary plan, or, they're going to be selling hard medical goods like canes. You're going to walk in and have a catered concierge experience. They're not going to get rid of snacks and wine, but they're going to focus more on health and helping their customer, who may not have access to full-on healthcare in every case, do the best they can get. Figure out if you have diabetes, how to maintain it, weight loss classes, community seminars. They haven't entirely figured out all of the pieces of it, but it's going to be more of a community center approach than a convenience store approach.

Jones: It's a pretty innovative approach to continue to drive traffic into their stores, and hopefully drive sales beyond some of their lower-margin household items. What's actually driving this change for them? What are they trying to get ahead of?

Kline: They're trying to get ahead of Amazon, the healthcare market, and Teladoc. They want you to have to come to CVS. They don't want you to go to Teladoc, who then sends your prescription to Amazon or Walgreens or whoever else they partnered with. They want to own the healthcare process. This is about keeping you in those stores where, yes, you fulfill your prescription, but you also might buy a magazine, a Hot Wheels car, an As Seen On TV product. What else do they sell at CVS?

Jones: Everything.

Kline: A beach chair. This is about leveraging what they are in a better way to get you in the store. It's also the first step of getting closer to Aetna and CVS being integrated.

For me, the challenge on this isn't whether it's a good idea. It's execution. Have you been to a CVS?

Jones: Many times.

Kline: Have you noticed that some CVS stores are better than others when it comes to, I don't know, having anyone working there? [laughs]

Jones: Customer service? Absolutely, Dan! [laughs]

Kline: In my neighborhood, there's a number of CVS stores. The nice, new one is really well-staffed. You go to the pharmacy counter and all the technology is there. If you go to the older one, there's one employee in the store and he's nowhere near the register. I don't know how they're not getting robbed blind. Maybe they have good security. But, if you say you're going to have a yoga class at two o'clock on Tuesday, you'd better have a yoga teacher there. If you're going to start having machines that tell you your blood pressure might be high, you have to have the person that explains what the next steps are. So, this takes CVS from becoming, let's call it a traditionally run convenience store, where the quality of employees is going to vary based on location, based on level of interest of management toward that store. You're going to need almost a Starbucks-level of customer support. CVS has not shown an ability to do that.

I think this is a great idea, but this could also become, "Remember three years ago when CVS offered yoga classes?" and it gets completely forgotten, and there's a couple of machines in there that do some medical testing that nobody remembers how they work. There's a very big red light.

Jones: Yeah, I totally agree.

Kline: Well, a yellow light. Not a stop, a caution.

Jones: A pink flag. I totally agree. I think for them, with such a high-touch healthcare model, you're really going to have to up customer service. That'll be a question mark for me. I am glad to see they're actually piloting this, though. They're not rolling it out to all stores. They're only doing it with a handful.

Kline: Three.

Jones: I'm glad to see that they're taking a very measured approach.

Kline: And I will say they've done well with MinuteClinic. That was an outside company that... do they own it? Sorry, listeners, I don't remember if they own it or if they're just licensing it. But that's a good experience if you've ever had to go in for some minor healthcare need. If you do a Teladoc, which I think a lot of our insurance is encouraging these days, they can't send you the prescription. At least in my state, they can't. You still have to have it called into a CVS and go there. But if I go to a MinuteClinic, it's one trip. I don't have to do two things. And I get it. Teladoc, I can do in my living room. I didn't really go anywhere. But it does make the process a lot easier. Things like flu shots and others, they've brought access to communities that didn't have easy access to that type of stuff, and they've executed it pretty well. I found the MinuteClinic to be a better experience than your typical walk-in clinic in most neighborhoods. Where I live in West Palm Beach, Florida, it's particularly important because transporting elderly people to doctors' offices is an actual civic function that we have a bussing service that does. So, being able to take a group from a senior home all at once to a CVS for just routine blood pressure checks and refilling medication, that actually does clear up a problem, in admittedly an older state.

Check out the latest earnings call transcript for CVS.