Name: Fortune Live from Brainstorm Tech, July 15th 2015: CVS Pharmacy President Helena Foulkes, McDonald's Chief Digital Officer Atif Rafiq, and Fitbit CEO James Park
Uploaded: 2015-07-15
Duration: 17 min 5 s
Description: This week host Leigh Gallagher is reporting from Fortune’s annual tech conference.

[ MUSIC ] Welcome to Fortune Live at Brainstorm Tech. It's Wednesday, July 15th and I am Leigh Gallagher. Well it's another packed day here in Aspen, Colorado. First up, is the president of CVS Pharmacy, Helena Foulkes. So I wanna talk about CVS Health's decision to stop selling tobacco, which was really one of the boldest, bravest, corporate leadership move, I think we've seen in quite some time. You played a key role in this decision and in fact, it was personal for you. So tell us about that a little bit. Sure, it was A big and hard decision. We had been thinking about it for a very long time. How long? Oh, years, I mean, for a decade at least. We'd been talking about the fact that we saw ourselves as a healthcare company. And it was the only product in our stores that we know kills 480, 000 people every year. And yet it was always hard to figure out how to deal with it financially, and we felt very much conflicted by that. But one of the things that changed is we were becoming more and more of a healthcare company. So in 2007 we bought Caremark and slowly we Started partnering with hospital systems and health plans. And inevitably we'd be in talking to them about all of these great things we do. And someone would raise his or her hand and say well why do you still sell tobacco. And we realized we didn't have a very good reason for that. So there was a business part of this which is really about looking forward to where we wanted to go and who we wanted to be. And so from that sense it felt very right. And there was also, obviously, a part of this decision that was driven by it being the right thing to do. The fact that it kills so many people and And, we know that everyone has a story. I have my own story, too. To your point, I lost my mother to lung cancer six years ago. And, the thing that really struck me after we did make the decision is that everyone has a story, and I think in the case of tobacco, many of those stories bring stigma. And so people don't always share them the way they share stories of other kinds of cancer. So we struggled as a team and we knew that in the long run this is a decision that would position us differently as a health care company. Right. But we also knew in the short term we were giving up $ 2 billion in sales. Right. And we did not have a short- term way to compensate for all that. But we made the decision, and have been very pleased so far. So, this is a long- term move or long- term positioning the company for faster growth, health and wellness, but as you say, it's not so easy to walk away from Two billion dollars and you're front- of- store sales have declined because of this. So, is there a plan, or what is your plan to replace this revenue? And how quickly, I guess. Right, so when we made the decision, we knew that the only stakeholder who could potentially be worried would be Investors and people who cover our stock. Interestingly enough, several days, it was even less than a week after the announcement. And we told them exactly what the impact would be. Our share price was in fact higher because I think suddenly people said, oh you're a healthcare company. Even though we've been telling them we're a healthcare company. But we did show them that over the 12 months From the actual exit on September 3rd through the 12 months following, what the impact would be. Mm- hm. And we've been pretty consistent with that. Mm- hm. A little bit better than we had expected in terms of the lost basket. But we have not made up for that in the short- term. What we've said to the street And others, is that over the long- term, we think we're going to win new business because of this. Mm- hm. We think there'll be health plans, employers, hospital systems. Who will say, I wanna do business with a company that is doing the right thing. Mm- hm. But time will tell. Right. We're here in Aspen at Brainstorm Tech, obviously, so let's talk about technology. In what ways are you using technology different from the way you have before? We fill about a billion prescriptions every year, and the technology base to do that in a safe way, efficient way and cost- effective way is really important. Now whats changing is things that are both good and bad. You know the bad side of things of things that we all worry about is for example security. Now we're all thinking about how do we secure our perimeter and make sure we are as safe as we can be. and on the more exciting side of things, we're also making really good strides from a digital perspective and there I would say it's mostly around integrating tools for the consumer. For example, we have fifty million people who get text messages from us every single day, letting them know their prescription's ready. We've got tools that we can give members of our PBM that allow them to see Where they could save money on their prescriptions. So, a lot of exciting things happening. It's fun for me to be here, in Aspen. Just because, you have this great combination of start up companies, who are thinking about it. And big data companies and cloud companies. And how do we all come together to do things that are really innovative. And at the end of the day, that means something for the consumer in the system. Helena, thank you so much for being here. Great to have you. Thanks, Leigh. Coming up next, I'll sit down with the chief digital officer of McDonald's, Atif Repeat. There's more Fortune Live at Brainstorm Tech right after this. [ MUSIC ] Everything we do has To be a platform for someone else to build on. [ MUSIC ] We never enter markets where we can't be number one or number two. [ MUSIC ] Particularly in technology, the law is not clear. We don't operate in a black and white world. You can say, they added a camera to a cell phone. What happened was, we added networking to cameras. We just want to grow the overall industry. We're here to because we want to impact culture, even if it's in a small way. [ MUSIC ] Welcome back to Fortune Live. My next guest is the Chief Digital Officer of McDonald's. We're very lucky to be joined by Atif Rafiq. Atif, thank you so much for being here. You're most welcome. So, I'd like to ask you, you've worked at Yahoo !, AOL, Amazon, why join McDonald's? McDonald's is a really, really unique company. Obviously, it's very iconic. I'm mainly here because I think that what's gonna happen in the offline world, especially in the retail space is gonna really mirror what we've see in online over the last 10 or 15 years. And if there is a company that's gonna lead that sort of revolution, what I'm calling the Uberfication of retail. I think McDonald's can lead how that experience works for consumer. And that's really, really exciting stuff. So- Give us an example of something you're working on or have already implemented. Well, I think if you look at the McDonald's experience, it is very convenient today, but technology can drive a step change around that level of convenience. So with a phone in your hand and some beacons in restaurants, there's all kinds of possibilities. For example, when you walk in, you may skip the line. You may not go to a waiting zone, you may go directly to your table and have your food brought to you. All of that is very possible. Doesn't that go against the very essence of McDonald's? I mean, it's fast food. Well, I think fast is a function of a what, is a decision consumers should make. Mm hm. So if they want to add another minute or two, to get the conveniences that, you know, based on what I Sort of the customer experience that I just talked about, that's a choice that we'll give them. So it's not like it's something we would push or enforce, but giving people that additional way to use McDonald's is really, really interesting to find out if that going to work. And we could do the same thing in drive thru, for example, through skipping steps, or even the idea of driving into McDonald's, picking any spot. As opposed to having to queue through the drive- through lane. You know, all of those things are possibilities. They're very, very big things to accomplish at a global company like McDonald's so we have different aspects of those experiences that we're currently testing. So, it's no secret that McDonald's has been hurting of late. Does tech play a big role in the turn around plan? Well, I think The answer to that is yes. And the reason is because, one of the main reasons why people choose McDonald's is convenience. And if you can define what convenience is about in the future, and we all know that today when you grab a ride in New York City, you don't stand out on the sidewalk and hail a cab for five or six minutes. Use some other ways, there's a much better ways of meeting that need and when you think about an every day food need like getting lunch or getting your coffee in the morning and making that much, much easier for people fuel by technology that is actually something that really drives people and motivates them to choose one place versus the other. So if we can own this definition and really spearhead what this new level of convenience is gonna be about in the future. We definitely believe that that's a driver of the business. You started actually under the former CEO, Don Thompson, and now Steve Easterbrook has taken over. Does he have a different approach to tech or does he have the same priorities? A bold gentleman, big believers in it. Steve in his prior role actually hired me, so we have that benefit. While he's new in the role, he's now new to the company, and he is probably our number one advocate, in terms of using digital and technology to redefine how McDonald's works as an [ UNKNOWN ] customer experience. So. Probably more difficult to make it a progressive burger chain are the words that he's used. Correct. Yeah I mean the companies' mission is a moderate progressive burger company. Right. There's many elements to that. There's the menu and the food, but there's also the retail experience and that's the piece where myself and a lot of other people that we work with at the company have been in. Well, I'm gonna be looking for drone delivery next. So you can just know that we'll be waiting for that. [ LAUGH ] Absolutely. I mean, you know, with our volume and scale, you know? If there are companies that are working on interesting ways of getting things to people. Transporting people or goods. Then, you know? McDonald's is a good company to team up with, and beta test some of that. Because we've got volumes. And you know, I think it's probably not as far away as we might think. All right well we'll stay tuned. Thanks so much for being with us. Appreciate it. You're very welcome. Thanks for the opportunity. Next we'll catch up with the CEO of Fitbit James Park there's more Fortune Live right after this. [ MUSIC ] Check back later for more news and today's must see video. [ MUSIC ] One of the few tech IPOs this year was Fitbit. Here with me now is CEO James Park. [ MUSIC ] Thanks so much for being here. Glad to be here. So you had this pretty successful IPO, just recently. Were you surprised at the enthusiasm for the stock? You know, I think we knew investors and customers were excited about the company and the IPO. So, in some ways, you know, no. But it was a pretty exciting experience, and. And it's pretty fun. What's going on, I know you're spending a lot of money into R and D. So where are those efforts going, what's in the works? We've doubled R and D spend, year over year this year we're tripling R and D spend. And right now over two thirds of that is actually going to go into the software experience And the other thing too is with the proceeds of the IPO, a lot of our focus will also be on MNA. Can we expect any different kind of product categories? No, I think the focus of the company is still going to be very squarely on digital health. The mission of the company is pretty broad. It's about how do we use technology to help people because more health and more active. And that can be a pretty broad mission. You've had a huge run. You can just see it anecdotally, you're just capturing a much greater share of the market. But the obvious question here, this year, is what are you gonna do about the Apple Watch? Is that going to pose a challenge? I mean, of course it does, but how do you see that playing out? I think overall, it's an incredibly huge market. Consumers spend well over 200 billion dollars a year on health and fitness products and services. So there's definitely going to be room for more than one company to be really successful in this category. And the other challenge is not really competition, but it's more about consumer awareness. Even in the US, penetration rates of digital health devices are still pretty low. And I think both we and Apple are gonna be investing significant sums of money. In sales and marketing to raise overall consumer awareness. You already did. You did that big ad campaign with the great song. We did, yeah. Starting Q four of last year we started spending significant amounts of money Money and traditional sales marketing like TV, print and cinema and that's been pretty successful. That happens everywhere. You have a contentious relationship with one of your competitors, Jawbone. There's a lot of litigation going on. What can you tell me about that relationship and what's going on there. Yeah, there's not much I can do on commenting about our legal issues with Jawbone, but. Over all, we're the clear and current market leader with 85 % market share. We believe in innovation over litigation, and we'll just have to see what happens. It does show that it's a fiercely competitive category. I think the world knows that there is a lot of profit to be captured, here. This is a hot area. It's a pretty hot area. There's a lot of opportunity, and I'm just excited that we're at the forefront of. Of it all. Some studies show that consumers of these kinds of devices stop using them after six months. What's your take on that? Look, I think it has to be put in context. If you compare Fitbits against, let's say your typical gym membership, the usage and retention of Fitbits is really incredible, and that's what we're excited about. I think what we've seen is that The social layer of people inviting friends and family. Competing against them across a variety of metrics, really helps retention and engagement. So that's gonna be a lot of the focus of the company going forward. You are also making a push into the fashion area of this You have a line of products for Tori Birch. Is this gonna be a big growth area in terms of, you know, fitness tracking devices that hit the fashion note as well? Yeah, yeah I think so. You know what we saw was the partnership with Tori Birch was incredibly successful. When we announced the accessories, they sold out in well under three hours. People have been searching for the [ UNKNOWN ] accessories far and wide. So I think you'll see a lot more of the fusion of fashion and technology wearables in the future. That's great. Well, I wish you the best of luck. Thank you again for being here. Great. Thank you. Our thanks to [ UNKNOWN ] [ UNKNOWN ]. Before we let you go, remember Taylor Swifts love letter to Apple? Of course you do. Well, we got the back story and it happened right here at Brainstorm Tech. The conversation started with myself and the executives of Apple, just as a label group conversation of I can't support this. You need to pay us from the first stream. And, those conversations were leading up to the weekend where Taylor posted the blog, and she and I hadn't spoken that week. And so she literally texted me, she said, don't be mad with a link. [ LAUGH ] And so I clicked through and read it and I responded back, she was in Europe. I said you don't have any idea how good your timing is right now. Here's the conversations I'm having with Jimmy and Ian at Apple and I was set to have a big conference call the next day, on Monday. This was Sunday. Father's Day. And through me sending the blog to Jimmy and Eddie, and them getting immediate feedback. My conversations with Jimmy and Eddie that day were, here's the good news. You haven't launched yet. You can do the right thing. And if you do the right thing, the artist community, globally, Are going to look at you as the good guys. It's a rare opportunity when you could do something for the greater good. So throughout the day, several conversations, and by 9 o'clock that night they agreed to literally pay from the first [ UNKNOWN ]. That's it for Fortune Live Brainstorm Tech. Make sure to tune in to Fortune Live on Friday at 3 PM back in New York City. We'll see you soon. [ MUSIC ]

This week host Leigh Gallagher is reporting from Fortune’s annual tech conference.

Fortune Live from Brainstorm Tech, July 15th 2015: CVS Pharmacy President Helena Foulkes, McDonald's Chief Digital Officer Atif Rafiq, and Fitbit CEO James Park