CVS plans to expand its HealthHub locations from three to more than 1,500 by the end of 2021 as it leans on its expansive physical footprint to head off growing threats. For context, CVS HealthHub stores eschew traditional retail items — like seasonal merchandise — in favor of medical products and services like blood testing and screening, dietitians, and respiratory specialists.

Here’s what it means: By embedding its stores with more health services, CVS could strengthen existing business segments and broaden its efforts in growing care segments.

  • CVS can carve out a bigger chunk of the swelling US chronic disease market. The concept stores will also focus on managing chronic diseases like diabetes, cardiovascular disease, hypertension, asthma, and behavioral health. And it makes sense for CVS to focus on chronic disease management: 90% of the $3.3 trillion the US healthcare spends on healthcare each year goes toward people with chronic diseases. 
  • Drawing consumers to in-store services should bolster CVS’ prescription volume. Consumers who turn to CVS for medical services may be more likely to make CVS their preferred pharmacy, reversing its stagnating revenue from prescription drugs, which drive the bulk of its sales, per The Wall Street Journal.
  • And a greater breadth of health services can reduce the financial liability of Aetna members, who will move under the CVS Health umbrella following the duo’s $70 billion merger. This means CVS has a financial incentive to reduce medical costs for the insurer’s 39 million members. Building out its stores as one-stop-shops where Aetna members can access preventative care services and prescriptions could boost CVS’ margins via earlier disease detection and reduced hospitalizations.

The bigger picture: Betting on in-store health services elevates CVS’ competitive positioning against pharmacy incumbents and new entrants.

  • CVS’ physical footprint has always been a key advantage over Amazon in pharmacy — and bolstering its stores only strengthens its competitive edge. Amazon’s entry to prescription delivery marked a substantial threat to CVS’ pharmacy segment — and was likely a motivator in CVS’ Aetna acquisition. And while Amazon will likely give CVS a run for its money on prescription delivery time and convenience, Amazon lacks CVS’ retail footprint — a marked disadvantage in the pharmacy business, since about 90% of all prescriptions were still filled at pharmacy counters as of 2017. CVS Health and Aetna Chief Digital Officer Firdaus Bhathena nodded to CVS’ ability to “combine physical and digital assets” as its competitive edge over Amazon in a recent discussion with Business Insider Intelligence.
  • And CVS’ overhauled stores could help woo foot traffic from rival pharmacies. Players like Walgreens, Walmart, and Rite Aid are all emphasizing health services, but we don’t think they’ve pivoted as quickly and publicly as CVS. If CVS successfully rebrands as an outlet for preventative and chronic disease management services, it could leverage its first-mover advantage to poach foot traffic from the competition.