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The last day of February was the last day of Tom Ryan’s incredible run as chief executive officer at CVS Caremark Corp.
In a tenure that spanned 17 years, beginning in January 1994 — when, at age 42, he became only the third CEO in the history of a retailer that began business as a rack jobber in 1963 — Ryan reshaped chain drug retailing in America.
When, at age 59, he relinquished that post last month to Larry Merlo, he could claim to have led a major public company longer than any CEO in the modern history of American business.
To mark the occasion and share some of Ryan’s memories and adventures at CVS, NACDS senior executives Jim Whitman and Terry Arth journeyed to the Breakers Hotel in Palm Beach, Fla. — where, in 1997 Ryan presided over the NACDS Annual Meeting as the organization’s chairman — on February 28, there to meet with the outgoing CEO. For an evening and half of the following day, they reminisced about Ryan’s career, his accomplishments, his vision and his approach to leadership, one that succeeded in transforming CVS from the $3.95 billion, 1,284-store retailer he took control of in 1994 to the nearly $100 billion, 7,200-store company he exited last month.
Ryan’s CVS career began innocuously enough. While at pharmacy school in Providence, R.I., in 1974 he signed on as an intern for that most pedestrian and compelling of reasons — he needed the money. By his own admission he had no idea what CVS was. But he quickly discovered one thing: “I liked CVS from the beginning — the culture, the customer focus, the way the company treated its employees, the way it was led and managed.”
Ryan’s early career at CVS is best characterized as a steady progression to ever-more challenging assignments — from pharmacist (where he worked for Cheryl Mahoney, now CVS’ vice president of merchandising for beauty and personal care) to pharmacy supervisor, director of real estate and head of operations. “I was always happy with the job I had,” he told Whitman and Arth, “probably because I was always comfortable in my own skin.”
During Ryan’s early years at CVS, the company slowly evolved from rack jobber and H&BA retailer to a drug store chain built around pharmacy as its core category. “We found that adding pharmacies quadrupled our health and beauty sales,” he recalls. “So we decided to build our company and our strategy around pharmacy. Today that’s what we’re all about, pharmacy. It’s our compelling proposition. It’s what motivates our people.”
In 1994 Ryan was named president and CEO of CVS, ushering in a dazzling era of growth, accomplishment, success, initiatives and dramatic new directions never before seen in chain drug retailing. In an industry largely built on acquisitions, he gave the term a new dimension and a new meaning. The initial acquisition came even before Ryan was named to lead the company, but it set the tone and laid the groundwork for all that was to follow. In 1990 CVS, then an 800-store drug chain with a store base concentrated in the Northeast, acquired the 500-store, Washington, D.C.-based Peoples Drug chain.
“Peoples was critical in that it taught us about acquisitions,” says Ryan. “We learned the importance of clarity — the need to know what we want to do with a company we’ve acquired — and we learned that speed in assimilating the acquisition and, in a cultural sense, transforming it into our model, is important.
“That’s a lesson we temporarily forgot when we acquired Arbor Drug in Michigan in 1998. We were so impressed with Arbor’s way of going to market that we initially decided to leave it alone, confusing ourselves and the Arbor employees. But we soon corrected that mistake — and never again made it. But the Peoples acquisition was important because it enabled us to formulate and articulate the strategy that has served us so well: We buy companies that can grow; we don’t buy companies in order to grow.”
Following Peoples came the acquisitions of Arbor, Revco, Eckerd, Osco/Sav-on and Longs Drug Stores — a series of dramatic but strategically sound business decisions that collectively transformed CVS into a national drug chain.
Ryan remembers each acquisition vividly. “Revco gave us a presence in the Midwest and Southeast. Eckerd brought us overnight to Florida and Texas, in addition to giving us a strong mail-order business. Osco/Sav-on was our entry in force into Southern California, where we had previously operated a small group of drug stores that we wound up selling, while Longs gave us immediate dominance in Northern California, dominance it would have taken us 10 years to build from scratch. These were home runs for us.”
Ryan is especially pleased with the way CVS approached the Longs acquisition, because the company had to act quickly and decisively in the face of a variety of obstacles that might have discouraged other retailers. “We had to ‘thread the needle’ ” is the phrase he uses frequently to describe the company’s ability to quickly conclude the Longs acquisition.
“You need a density of stores,” Ryan told his NACDS hosts in explaining the strategy behind this incredible string of timely, game-changing acquisitions, and, in a broader sense, describing the company’s approach to its various markets. Some markets simply don’t justify the investment of capital.”
Then there were the new directions, initiatives never before seen or conceived of in chain drug retailing — the ExtraCare loyalty program Ryan claims to have been initially opposed to (“Our marketing people talked me into it, and they were right — it was a home run. We now have the ability to identify and target our programs to our best customers.”), the initial involvement in and ultimate acquisition of the MinuteClinic immediate care medical business, and of course the Caremark acquisition, which Ryan rightly describes as a transformative experience for CVS. “We were close to the end-user of our products,” he says. “The Caremark merger brought us close to the payer.”
The MinuteClinic and Caremark acquisitions have been particularly important, according to Ryan, because each has made health care simpler, more accessible and less expensive for the patient. The company, he says, as much in response to lingering questions about the financial viability of the concept as to any doubts about its validity as a health care model, will break even with its MinuteClinic business in 2011. With that solid foundation in place, MinuteClinic will expand into chronic care, he adds, and open locations at the rate of about 100 a year, ultimately reaching the 1,000 mark.
About Caremark, the man who conceived this game-changing merger and, almost alone, made it happen, is more circumspect. “Caremark has been a learning experience for us,” he says, “but we’re pleased with the progress we’ve made. We’ve put new management in place. And we’ve learned some valuable lessons. We’ve had to learn that the lead time, the sale time, is longer for a PBM than what we’d been used to.
“But it’s been our experience that if a customer reaches out for something we offer, it’s a good sign. And that’s what’s we’ve seen happening at Caremark. Our performance is much better — and will continue to improve as we become more comfortable and confident with the business.”
Through it all, the acquisitions, the groundbreaking programs, the record-setting performance, the dramatic new directions — CVS’ market cap, $4 billion in 1996, is $45 billion today — Tom Ryan has been the driving force, the leader with a vision of what is possible in chain drug retailing and what could be possible with outside-the-box thinking. And he has truly loved every minute of the trip, though he does acknowledge that he once briefly flirted with the idea of running for governor of Rhode Island.
He’s seen the chain drug industry grow, change, become less personal and more competitive. He’s seen the disappearance of the strong regional drug chains that once characterized the industry and, with them, the entrepreneurs who guided it through its formative years and who, Ryan believes, “each brought something to the party.”
He also believes in the pharmacist. “Our first caregivers are pharmacists.” As well, however, Ryan believes the profession is changing. “We’ll be more focused on information than on products. Pharmacists will become medical concierges, monitoring prescription drug therapy, for example, as patients become more involved in their health care — which they certainly will.”
Now he leaves the job he held so capably for so long — longer than any nonfounder in the annals of chain drug retailing. It is an industry Ryan has irrevocably changed, more dramatically than any single individual in its history. As he departs to begin the next, yet-to-be-determined phase of his business life, — and, as all retirees insist, to spend more time with his family and, particularly, with his first grandson, due this spring — he believes the industry he leaves is stronger than it’s ever been.
“As I said, patients will be more involved in their health care going forward than ever before. That being the case, this period is one of great opportunity and growth potential for our industry. Make no mistake: We do work in a growth industry. How many businesses can accurately say that?”
It’s also an industry that Ryan truly loves. “There’s not a business I’d rather be a part of — for the simple reason that we help people. People tell me about their pharmacy experiences all the time. I get hundreds of letters a week from customers praising the help they received from a particular CVS pharmacist. I wonder if I’d get the same level of response if I ran an apparel chain?”
So transformative has been Tom Ryan’s tenure, for both CVS and the industry it both leads and represents, that Chain Drug Review will devote the better part of its May 23 issue to “CVS: The Ryan Years.”
