Slow and steady: CVS’ entry into Brazil a slow dance, not a samba
It’s official. During its most recent quarterly conference call with analysts, CVS Caremark revealed what many had anticipated: Its acquisition of privately held Brazilian drug store chain Drogaria Onofre was complete.
The move is not financially material to CVS Caremark, but it does mark its first foray into the international drug store space. The 44-store chain is the eighth-largest drug store chain in Brazil and, according to published reports, posted gross revenue of R$1.2 billion (Brazilian reals) in 2011.
"As you know, we have been exploring opportunities for possible international expansion, and we have said many times that our approach would be measured and we would exercise financial discipline. We believe this acquisition is a great example of that strategy and action," Larry Merlo, CVS Caremark president and CEO, told analysts.
CVS Caremark’s measured approach to international expansion is quite different from the approach taken in 2012 by rival Walgreens, when it acquired a 45% stake in the U.K.’s Alliance Boots — with the option to acquire the remaining 55% stake over the next three years — in a move that thrusts it into 25 countries, including several high-growth pharmacy markets in Europe and Asia.
"Onofre has a strong reputation in the marketplace. They do a great job in tailoring their stores to market to different customer segments. And we view Brazil as an attractive market," Merlo told analysts.
In Brazil, pharma sales from 1996 to 2012 have grown at an approximately 12.5% CAGR, with generics up 25%, Citi Research analyst Deborah Weinswig stated in a recent research note.
"Growth in the market has been driven by the combined impact of declining unemployment, growth in real incomes and the aging of the population. Additionally, there has been an increase in individuals covered under healthcare plans, and the number of available insurance plans has recently doubled," Weinswig stated.
There currently are about 3,760 drug stores in Brazil, and the top five chains have roughly 30% of total sales — the top 10 chains represent 34% of sales — Weinswig noted, and independents account for 48% of sales.
Past consolidation in Brazil has been mostly local, and CVS Caremark is the first foreign company to enter the Brazilian drug store space. And it is speculated that the move by CVS could spawn the next big round of consolidation. In fact, Merlo indicated that there could be other opportunities for the company in Brazil.
"I think one of the other keys for us is the market is recessive to chain pharmacy. Chains are pretty prevalent in the Brazil market, but at the same time, it’s still fragmented. I think the largest player has about a 9% share," Merlo told analysts. "So we see the opportunity for growth and, … there may be other opportunities acquisition-wise as we move down the road."
Bricks imitate clicks imitate bricks to catch attention, wallet share of omnichannel shopper
According to research, ownership of smartphones and tablets in particular have grown rapidly over the past couple of years, and that has created a multi-headed omnichannel hydra of a customer who retailers across all channels are desperately trying to appease.
A Pew Research Center study released in September 2012 found that since May 2011, the share of U.S. adults who owned a smartphone grew from 35% to 45%, and among those ages 18 years to 29 years, the figure had already reached 66%. At the same time, the percentage of people using their smartphones to browse the Internet grew to 55%, including 17% who used them for most browsing. "My smartphone is a PC; my laptop is a PC; my tablet is a PC," PricewaterhouseCoopers director of retail and consumer practice Jerry Blaesing told DSN.
Smartphones are but one facet of omnichannel marketing by retailers, but they’re growing in importance. "Now you’ve got a culture that’s been conditioned on getting instant access to everything, particularly as you skew younger," Dan McKone, a partner in the retail and consumer goods practice L.E.K. Consulting, told DSN. "Generation Y wants instant access to information and transactions, and the iPhone and Galaxy have made that easy. Retailers are realizing they can’t just have a conversation through a traditional channel — they’ve got to have a multifaceted communication with their customers."
It all boils down to convenience, which 28% of shoppers in a recent PwC survey cited as a principal reason behind shopping online. That’s why same-day delivery has grown in importance among online retailers. In March, Google began piloting Google Shopping Express, allowing residents of the San Francisco Bay area to order items online from off the shelves of nearby retailers, including Walgreens, Target and Raley’s, and have them delivered to their homes. Another online retailer, Shutl, launched in March in New York, San Francisco and Chicago, and allows omnichannel retailers to offer delivery of online orders within a one-hour window of choice.
Also in March, CVS launched an app for the Apple iPad that features a 3-D "virtual store," allowing customers to access pharmacy services, the ExtraCare loyalty card program, the photo center, Minute Clinic and departments where they can shop.
In the April issue of Costco Connections magazine, Costco Wholesale debuted more than 50 digital watermarks in articles and ads. The transparent watermarks are embedded on the page and allow the magazine’s 8.6 million readers to scan them; view product information, videos and store information; and make purchases after downloading Digimarc’s app.
All this focus on omnichannel means changes in the way things happen in the physical store. "A lot of people say the website needs to look like the store, but I think the store needs to look like your website," Blaesing said.
Hointer, a men’s jeans store in Seattle founded by a former supply chain and fulfillment executive from Amazon, has already taken this route: Customers scan QR codes on tags and go to a dressing room to try the jeans on. If they don’t want them, they can drop them in a chute that automatically removes them from their digital "shopping cart."
Understanding the Hispanic-American consumer
With the steady accumulation of purchasing power attributed to the Hispanic-American community, marketers more and more are targeting Latinos. Here’s why: the Hispanic-American population numbers more than 54 million today, with a total buying power of $1 trillion — expected to reach $1.5 trillion in the next two years — and 1.8 million households generating incomes greater than $100,000. DSN called in Reny Diaz, director of client engagement for Nielsen, for additional perspective about the Hispanic-American opportunity.
Reaching this audience requires significant investment, but if a brand is large enough and/or it particularly resonates with the Latino shopper the return can be huge, Diaz told DSN.
For the full audio Q&A, click here.