CVS Health Prepares Its Business for the Cultural Demographic Shift05/28/2015 12:00AM
by Glenn Llopis
Lou Mercado has more than 20 years of experience in turnaround, startup and fast-paced environments, where he has driven organizational improvements and implemented best practices in a diverse number of areas: supply chain, retail, logistics, inventory management and operations. Today, as the vice president of Inventory Management at CVS Health, the scope of his role and his organization impacts the company’s entire retail business – 7,800 CVS/pharmacy stores and 18 distribution centers in the U.S. – making them responsible for tens of billions of dollars. When you think about purchasing of that magnitude, the importance of making the right decisions cannot be underestimated.
With the number of Americans who are Hispanic growing each and every day, Lou has taken on a leadership role in preparing the company for the cultural demographic shift and looking into what it means to the future of CVS Health. I recently spoke with Lou about what CVS Health is doing to prepare for the shift, why it’s so critical from a business perspective, and what is keeping some leaders from seeing the opportunity to grow and compete.
Glenn Llopis: First of all, why is it so important for leaders to prepare for the cultural demographic shift? What does it mean to organizations that one in six Americans is now Hispanic, and that by 2050, that number is expected to grow to more than one in four?
Lou Mercado: With a shift like that occurring – and with it a purchasing power estimated at 1.7 trillion dollars by 2019 – you’re not going to be able to reach that market unless you take the time to understand the community and start building a relationship with them and communicating with them “in-culture” – which is very important to most groups and Hispanics in particular.
Glenn: How do you prepare yourself and your teams for the cultural demographic shift? For those corporate leaders who are reading this article and realizing how important the cultural demographic shift is, where do you start?
Lou: It doesn’t matter what part of the organization you’re in, everyone must have an understanding of the cultural demographic shift and its impact across all disciplines. The more people that are educated about how the markets we serve are changing, the better prepared you’ll be for it. And not just to address today’s needs, but for what’s going to happen in the next 5 and 10 years and beyond.
Glenn: Can you give a specific example of educating teams about the cultural shift and the impact that a particular functional discipline can have?
Lou: I usually talk about coffee as an example. If you’re in the retail sector and you run out of coffee on the shelves, it’s not as big a deal as it is for the Hispanic consumer. Being out of stock of an item like coffee – that represents such an important part of their lifestyle – impacts their ability to stay loyal as a customer. And this impacts your market basket, because they’ll walk away – and they may walk away for good. So you’re not just losing the sale of that one item, you’re potentially losing a loyal customer. Not to mention the generations to come who would also have stayed loyal to the same company.
Glenn: I often say that one of the characteristics of the 21st century leader is that they can see beyond the obvious. Why did you take it upon yourself to start preparing and training the inventory management team for the shift, instead of a more obvious choice like marketing or merchandising?
Lou: It’s critically important for the team to understand the cultural shift and that we must do things a lot differently if we want to capture this share of the marketplace. As we start working with our merchandisers and other people in the organization, I want to have a team in alignment that can help me share information about the cultural demographic shift with the rest of the company. It’s based not on what we think they should do, but on the unique needs of the customer, and recognizing that those needs represent a huge opportunity for us.
Glenn: Given all that we know about the cultural demographic shift, how do you view the need for companies to change?
Lou: The population is changing, so it’s not just the right thing to do, but from a financial and business perspective, you have to engage the growing multicultural communities if you want to be successful in the long run.
By positioning yourself to address their needs, you’re also positioning yourself to grow as this sector of the population grows – in particular the Hispanic population whose purchasing power represents the 16th largest economy in the world.
Glenn: What do you say to people who are on board with the cultural demographic shift but are having trouble getting the buy-in of senior leaders?
Lou: You have to convince others that this cultural shift represents a tremendous opportunity for their organization. If you can show results, senior leaders are going to see this is a real growth opportunity.
Glenn: How has the recent Miami-based Navarro Pharmacy acquisition changed attitudes about the cultural demographic shift or the way decisions are being made at CVS Health? Can you give two or three examples?
Lou: We recognize that Navarro is an expert in serving Hispanic consumers, and we want to learn what makes them successful. The Navarro team has done a fantastic job in serving the Hispanic community. Our colleagues understand that we don’t want to change Navarro. We want to maintain the look and feel of the stores and continue to engage consumers authentically, the same way they’ve historically done it. For example, twice a day they serve “cafecito” (traditional Cuban coffee) to the customers in their stores, and that service is one of the ways people identify with the Navarro brand and one of the reasons they keep coming back.
As American enterprise prepares themselves for the cultural demographic shift, the vast majority of organizations are still slow to act instead of moving quickly to gain traction with the new multicultural communities that will heavily influence existing and new business models.
As another change management effort, it will require the ability of 21st century leaders to be courageousness enough to seize the opportunity previously unseen to prepare for the cultural demographic shift – before circumstances force their hand.
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