INDUSTRY | CATEGORY ANALYSIS

Pharmacies and drug stores retail a range of prescription and over-the counter (OTC) medications, health and beauty items, toiletries, and consumable goods directly to consumers on a walk-in basis.

Industry companies may also provide basic health and photo processing services.

$216 billionin revenue

$4.3 billionin profit

30%

12%27%

31%Walgreens

CVS Caremark

Other

Rite Aid

Industry StructureLife Cycle Stage: MatureRevenue Volatility: LowCompetition Level: HighIndustry Globalization: Low

Key External DriversPer capital disposable incomeNumber of hospital visitsNumber of people with private health insuranceNumber of senior adults (65+ years)Federal funding for Medicare and Medicaid

INDUSTRY | CATEGORY ANALYSIS

Health Care ReformThis is a double-edged sword. Although sales volume can benefit as more people gain coverage, the government is expected to initiate cost cutting, which could affect profit margins.

Aging PopulationThe number of people in the United States who are 65 or older will jump to roughly 47 million by 2015 and to 55 million by 2020. This age group fills an average of more than 25 prescriptions per person annually – 30 percent more than people between the ages of 55 and 64.

Blockbuster and Generic Drug IntroductionsNearly $100 billion in branded drug sales will lose patent protection over the next six years.

Outside Factors that Affect the Industry

INDUSTRY | CATEGORY ANALYSISIndustry Segmentation

Pharmacy & Drug Stores

Segmentation among products

Pharmacy & Drug Stores

Segmentation among demographics

INDUSTRY | CATEGORY ANALYSISIndustry Segmentation

Prescription Drug Wholesaling

Retail pharmacies create the greatest demand for prescription drugs.

Warehouse Clubs and Supercenters

Pharmaceuticals for this segment are significantly less important than for retail pharmacies.

COMPETITIVE ANALYSIS

2009 Revenue2009 Operating

IncomeNumber of

Stores

$63,355 $3,247 7,522

$48,990* $4,158 7,025

$26,289.3 $50 4,780

(In millions, except for number of stores)

*Not including PBM sales or operating income

“Inspiring a healthy life in your communities.”

“Improve the quality of human life.”

“With us, it’s personal”

Other pharmaceutical retail competitors include mail order pharmaceuticals, mass merchants, super centers, warehouse clubs and grocery stores.

Retail Pharmacy Segments

COMPETITIVE ANALYSIS

Revenue from Pharmaceuticals

Facebook Fans Twitter Followers

$41,181(65%)

598,701 9,089

$33,313*(68%)

17,918 10,512

$17,246(67%)

3,479 567

(In millions, except for number of stores)

*Not including PBM sales or operating income

“Inspiring a healthy life in your communities.”

“Improve the quality of human life.”

“With us, it’s personal”

Other pharmaceutical retail competitors include mail order pharmaceuticals, mass merchants, super centers, warehouse clubs and grocery stores.

Retail Pharmacy Segments

CVS/pharmacy Brand

HISTORY

In 1963, the first CVS store, selling health and beauty products is founded in Lowell, Mass. by brothers Stanley and Sidney Goldstein and partner Ralph Hoagland. CVS stands for Consumer Value Stores. Within a year, the chain grows to 17 stores. In 1967, CVS begins operating its first stores with pharmacy departments.

By 1984, CVS reaches $1 billion in annual sales. Throughout the nineties, CVS ramps up its acquisition growth strategy. By 2005, CVS/pharmacy becomes the largest pharmacy retailer in America while serving more than 400 million customers. In 2007, CVS Corporation and Caremark Rx, Inc. complete their transformative merger, creating CVS Caremark, the nation’s premier integrated pharmacy services provider.

‘09 Revenues for Retail Pharmacy Percentage of Revenue Dollar Amount*

Prescription Drugs 68% $37,642

OTC and Personal Care 11% $6,089

Beauty/Cosmetics 5% $2,768

General Merchandise and Other 16% $8,857* in millions

CVS/PHARMACY BRAND

CVS/PHARMACY BRAND

CORE BUSINESSES

RETAIL PHARMACY

With more than 7,000 CVS/pharmacy and specialty pharmacy locations across the country.

MINUTECLINIC

More than 560 of CVS/pharmacy stores in 25 states now feature a MinuteClinic, the U.S. leader in retail-based health clinics.

PBM SERVICES

Payors and patients count on Caremark for a broad range of services, from managing pharmacy benefits to filling prescriptions by mail or offering clinical expertise.

CVS/PHARMACY BRAND

CULTUREAt CVS Caremark, they understand how much a company's culture impacts its people and ultimately its performance. That's why, soon after the merger in 2007, they quickly established a unifying Vision, Mission and set of Values that defines the company and serves as a guiding beacon for how they conduct our business every day.

VisionStrive to improve the quality of human life.

Mission Improve the lives of those CVS serves by making innovative and high-quality health and pharmacy services safe, affordable and easy to access.

Values

Accountability Respect Integrity Openness Teamwork

CVS/PHARMACY BRAND

GROWTH AS A STRATEGY

CVS Corporate focuses on convenient store locations, customer service and satisfaction, and product selection and price. The company has been restructuring and streamlining to improve returns with these focuses at the center of its strategy. It has also expanded its store development program, which has involved a combination of entering new geographic markets, adding stores within existing markets and relocating stores from strip malls to freestanding locations.

The company continues to acquire additional stores which is inline with its aggressive expansion strategy. In 2006, CVS acquired 700 drugstores and a distribution center from Albertson’s, Inc. This followed its 2004 acquisition of 1,260 Eckerd stores. Most recently, they have acquired Longs Drug Stores in 2008.

CVS/PHARMACY BRAND

PAST ADVERTISING CAMPAIGNS

Last year, CVS spent and estimated $142 million in measured media, not including advertising costs associated with the ExtraCare loyalty program. Most communications revolve around promotional offers, coupons, direct mail and the ExtraCare loyalty program.

2007 – For All The Ways You CareIn an attempt to reach the caregivers, CVS launched a campaign and contest to show that CVS cares as much as caregivers do. They know that the woman who cares for children, elderly and husband, is also the one that chooses the pharmacy, so they chose to portray her as a heroine. The execution received significant criticism and near the same time Walgreens also introduced communications that were similar in concept, but different in executions.

VO from TV Spot: “It’s in your nature to care for others. To listen, to advise, to always be there. Isn’t it nice that there’s a pharmacy that cares as much as you do? CVS/pharmacy. For all the ways you care.”

CVS/PHARMACY BRANDFor All The Ways You Care Website

CVS/PHARMACY BRANDFor All The Ways You Care TV Spots

CVS/PHARMACY BRAND2009 - Service Based Communications

2009 campaign to ExtraCare bucks from prescription sales. This is aimed at mom’s who make the majority of prescription and health decisions.

2009 campaign to promote the ReadyFill refill prescription program. This is aimed at the boomer generation who may neglect strict pharmaceutical regimens.

CVS/PHARMACY BRAND2010 - Service Based Communications

2010 campaign to promote introduction of more advanced medical care in drug stores. This is aimed at women on the go as CVS attempts to position themselves as a one-stop-shop.

2010 campaign to promote in-store coupon centers. This is aimed at price-conscious baby boomers.

CVS/PHARMACY BRAND

PROMOTIONAL

CVS/PHARMACY BRAND

EXTRACARE LOYALTY PROGRAM

The ExtraCare loyalty program, which rolled out in 2001, is today the most popular among all retailers.

More than 64 million active cardholders take advantageof sales in the store and at CVS.com, and they received$1.9 billion in ExtraCare savings and Extra Bucks rewardsthroughout 2009. ExtraCare represents a significant competitive advantage for CVS, and CVS Caremark has a huge head start over any drug retailer contemplating its own loyalty program.

Earning Bucks: Earn 2% back with every purchase in-store and online at CVS/pharmacy. Earn 1 Extra Buck for every 2 prescriptions purchased in-store and online at CVS/pharmacy.

Earning Additional Bucks:Get instant savings on items featured in weekly store circular ads.Earn even more Extra Bucks on select brands advertised in weekly ads. Extra Bucks will print on your receipt immediately following your qualifying purchase(s).

CVS/PHARMACY BRAND

Company Facts

• 1 in 5 prescriptions are filled at CVS.

• ExtraCare loyalty program has more than 64 million active card holders.

• There are 4,300 CVS brand and proprietary branded products.

• CVS Caremark is the first retail pharmacy business to merge with a Pharmacy Benefits

Manager (PBM).

• CVS Caremark has doubled in size in the last 8 years in both revenue and store count.

• CVS/pharmacy is the nation’s largest provider of prescriptions, filling or managing

more than one billion prescriptions annually.

• 75% of the US population lives within 3 miles of a CVS/pharmacy store.

CVS/PHARMACY CHALLENGES

THE PROBLEM

With strong competition and an aggressive growth strategy, drug stores have become ubiquitous. While preaching ease and convenience, they occupy the same mind space as Walgreens. CVS needs to develop a strong emotional connection and preference with customers so that they will seek out a CVS/pharmacy instead of just choosing the closest and most convenient drug store.

It should be considered that pharmaceutical sales make up almost 70% of all revenue for CVS/pharmacy. Overall growth in this segment is directly tied to acquiring and retaining pharmaceutical customers.

CVS/pharmacy has also recently moved from a regional drug store to a national health care player. The momentum and projected growth demand a more powerful and integrated media and creative strategy.

MOVING FOWARD

AREAS OF EXPLORATION

1.Stand out as the progressive industry leader for pharmacy care service.

2.Own flu season.

3.Clearly differentiate pharmacy from other products and services. Become the “go-to” source for prescription and health information.

4. Encourage customers who use the pharmacy to purchase more while in the CVS store.