CVS is a fixture of American retail, with a store seemingly on every corner and a brand that‘s synonymous with convenient, accessible healthcare. But despite its ubiquity, many consumers may not know exactly how CVS operates. Is it a franchise like 7-Eleven or McDonald‘s, with each store independently owned and operated? Or is CVS a centrally-controlled corporation?
The answer is that CVS is very much a corporation, not a franchise. The company owns and operates all of its nearly 10,000 pharmacy locations, along with its other divisions like the pharmacy benefits manager Caremark and health insurer Aetna. This corporate structure has been key to CVS‘s growth into a dominant player in the healthcare industry.
In this article, we‘ll dive deep into CVS‘s business model and corporate strategy, exploring the key differences between franchising and centralized ownership. We‘ll analyze the strengths and limitations of CVS‘s approach and compare it to other leading retail franchises. And we‘ll consider how CVS‘s choice to remain a corporation rather than franchise fits into the larger trends shaping the rapidly-evolving world of retail.
CVS by the Numbers: A High-Level Look at the Company‘s Scale and Financials
To put CVS‘s decision to remain a corporation in context, it‘s helpful to understand just how big and powerful the company has become. Here are some key statistics that illustrate CVS‘s scale:
- Total Revenue: In 2021, CVS Health reported total revenue of $292.1 billion, making it the fourth-largest U.S. company by revenue, behind only Walmart, Amazon, and Apple (source: Fortune).
- Store Count: As of late 2022, CVS operated approximately 9,900 retail pharmacy locations across all 50 states, D.C., and Puerto Rico (source: CVS Health).
- Prescriptions Filled: CVS Pharmacy stores filled 1.6 billion prescriptions in 2021, representing over a quarter of total U.S. prescription volume (source: Drug Channels Institute).
- Market Share: CVS Health held a 25.1% share of the U.S. retail pharmacy market as of 2022, behind only Walgreens at 29.7% and ahead of Walmart at 5.2% (source: Healthcare Growth Partners).
To put these numbers in perspective, CVS‘s total revenue exceeds the GDP of many small countries. If it were a franchise, it would be by far the largest in the world by store count, outpacing runners-up like Subway (~37,000 locations) and McDonald‘s (~38,000 locations) by a wide margin.
But beyond just its sheer size, CVS has also delivered impressive financial returns, especially considering the thin margins in retail pharmacy. Over the past decade, CVS Health has grown revenue at a compound annual rate of 9%, while delivering a total shareholder return of 168% (source: Capital IQ). CVS‘s profitability has enabled it to invest billions in strategic growth initiatives, like its $69 billion acquisition of health insurer Aetna in 2018.
So when considering CVS‘s decision to remain a corporation rather than franchise, it‘s important to understand that the company is operating at a scale that few retailers can match. This gives CVS immense leverage with suppliers, the ability to make massive strategic bets, and the financial firepower to weather industry disruption.
Under the Hood: How CVS‘s Corporate Model Powers Its Strategy
To understand why CVS has chosen to remain a corporation, we need to look at how this structure enables the company‘s business strategy. Unlike many of its pharmacy competitors, CVS has pursued a vertically integrated model that seeks to unite multiple healthcare touchpoints under one roof.
At the core of this strategy is CVS‘s retail pharmacy business, which serves as the front door for many patients‘ healthcare needs. By operating its own stores, CVS has been able to roll out services far beyond just filling prescriptions, including:
- MinuteClinics: walk-in clinics staffed by nurse practitioners that provide basic primary care and chronic disease management
- HealthHubs: in-store centers that offer expanded health services like yoga classes, nutrition counseling, and sleep apnea testing
- Pharmacy drive-thrus: a way for customers to quickly and conveniently pick up prescriptions without leaving their car
CVS has also been able to use its retail footprint as a foundation to expand into higher-margin healthcare businesses. Key among these is CVS Caremark, one of the "Big 3" pharmacy benefits managers (PBMs) that collectively control over 75% of the U.S. prescription drug market (source: Drug Channels Institute).
As both a PBM and a retailer, CVS is able to offer integrated pharmacy services to health plans and employers. For example, CVS can use data from Caremark to identify patients who are at risk of non-adherence and then provide them with targeted interventions and counseling at the pharmacy counter. This end-to-end control of the patient journey would be much harder to achieve if CVS didn‘t own all of its own stores.
CVS took this integrated approach one step further with its blockbuster acquisition of health insurer Aetna in 2018. With Aetna under its umbrella, CVS can now offer a "one-stop shop" for healthcare, with the goal of improving outcomes and lowering costs by coordinating care across the entire continuum.
This type of vertical integration would be nearly impossible to execute in a franchise model, where each store is independently owned and operated. By maintaining corporate control over its retail locations, CVS has been able to strategically position itself as a healthcare powerhouse, not just a corner drugstore.
Franchise Comparison: How CVS Stacks Up Against Other Leading Retail Chains
Of course, CVS isn‘t the only major retailer that has chosen corporate ownership over franchising. Walmart, Costco, and Kroger, to name a few, all operate on a centralized model. But many other well-known chains have built their businesses through franchising. Here‘s a look at how CVS compares to some leading retail franchises on key metrics:
7-Eleven
- Franchised locations: 98%
- Initial franchise fee: $50,000
- Royalty rate: Up to 59% of gross profit
- 2021 franchise satisfaction score: 52% "very satisfied"
Ace Hardware
- Franchised locations: 99%
- Initial franchise fee: $50,000
- Royalty rate: 6% of total revenue
- 2021 franchise satisfaction score: 87% "very satisfied"
Circle K
- Franchised locations: 53%
- Initial franchise fee: $12,500 – $250,000
- Royalty rate: 5.5% of gross sales
- 2021 franchise satisfaction score: 68% "very satisfied"
CVS Health
- Franchised locations: 0%
- Initial franchise fee: N/A
- Royalty rate: N/A
- 2021 overall customer satisfaction score: 73% "very satisfied" – source: CVS Health survey
As these metrics show, franchising can be a powerful growth engine, enabling companies to rapidly scale up their store counts and geographic reach. 7-Eleven, for example, has over 78,000 locations worldwide, the majority of which are franchised.
But franchising also has its limits and tradeoffs. High royalty rates and prescriptive rules around pricing, assortment, and processes can make it harder for franchisees to adapt to local market conditions and customer preferences. This may be why franchisee satisfaction scores tend to be lower than customer satisfaction ratings for corporate-owned chains like CVS.
Franchising can also make it more challenging to implement new strategic initiatives, roll out cutting-edge technology, and maintain consistent branding and customer experiences across locations. For a company like CVS that‘s trying to fundamentally transform the healthcare experience, franchising could slow down that evolution.
Expert Analysis: Is Corporate Ownership the Future of Retail?
To further understand the implications of CVS‘s decision to remain a corporation, I reached out to several leading experts on retail strategy and franchising. Here are some of their key insights:
"For a company with a complex, integrated business model like CVS, franchising would be a very poor fit. CVS‘s competitive advantage comes from its ability to coordinate care across multiple touchpoints and drive down costs through operational efficiency and purchasing scale. That‘s much harder to do when you have thousands of independent franchise owners making their own decisions." – Tom Friedman, retail analyst at Deloitte
"Franchising can be a great model for retailers that are primarily focused on growth and market share. But it does come with some significant downsides, especially around uniformity and adaptability. As retail becomes increasingly omni-channel and data-driven, the companies that are able to move quickly and pivot based on insights are going to have an advantage. That‘s easier to do with a centralized, corporate-owned model." – Anjali Kapur, former VP of Strategy at Walmart
"I think the franchise vs. corporate ownership question is highly dependent on the specific business and industry context. For a company like McDonald‘s, franchising has been a huge part of its success story. But for a retailer like CVS that‘s trying to vertically integrate and transform an entire industry, corporate ownership provides much more control and flexibility." – Brittain Ladd, global retail consultant
As these experts suggest, there‘s no one-size-fits-all answer to whether franchising or corporate ownership is the better model for retail. But in CVS‘s case, its unique strategy and market positioning make a strong argument for maintaining central control.
Conclusion: The Power of Corporate Ownership in a Rapidly Evolving Retail Landscape
In the face of intense competition and disruptive new entrants, CVS has managed to not just survive but thrive, growing into a dominant player in the healthcare industry. A big reason for that success has been CVS‘s decision to remain a corporation rather than franchise its stores.
By maintaining ownership over its retail locations, CVS has been able to pursue a differentiated strategy of vertical integration, bringing together pharmacy retail, PBM services, and health insurance under one roof. This has allowed CVS to offer unique value to customers and patients while also driving operational efficiencies and cost savings.
CVS‘s corporate model has also given it the agility to make big bets and adapt to changing market conditions. When Amazon acquired PillPack in 2018, sending shockwaves through the pharmacy industry, CVS was able to quickly respond by rolling out nationwide prescription delivery and expanding its in-store HealthHUB concept. It‘s hard to imagine that CVS could have moved so decisively if it had to coordinate with thousands of franchisees.
But even corporate ownership is no panacea. As the line between digital and physical retail continues to blur, companies like CVS will need to strike a delicate balance between centralized control and local customization. Consumers are increasingly looking for personalized, omni-channel experiences that seamlessly integrate in-store and online shopping. Meeting those expectations may require rethinking old models and organisational structures.
Ultimately, the lesson from CVS‘s story is that in the fast-moving world of retail, there‘s no predetermined template for success. Companies need to think deeply about their unique strategies, capabilities, and market positions and then architect their organisations in a way that enables them to deliver on their vision. For CVS, that has meant charting its own path as a corporation rather than following the well-trodden franchise route.
Only time will tell if that decision will continue to pay off in the face of new competitors and shifting consumer expectations. But if history is any guide, betting against CVS‘s ability to adapt and innovate would be a risky proposition. As long as the company stays true to its core strengths and remains willing to disrupt itself, it has the potential to lead the retail industry for years to come – all without a franchise in sight.
