Costco has been quietly reducing tobacco SKUs in its clubs over the last several years. In fact, according to retail analyst Brian Sozzi, the retailer has cut the number of locations selling tobacco to 189 (Costco operates 488 clubs).
During Costco's second quarter earnings call earlier this month, CFO Richard Galanti said tobacco sales were "negative in low-double digits as we continue to eliminate tobacco SKUs from various locations."
Costco, according to Mr. Sozzi's report, has intentionally low-keyed the elimination of tobacco in its clubs. Costco's decision to cut back is supported by its financial analysis, which has found the category to be a low margin business with high levels of shrink. In the end, Costco management believes it can use the same space to generate greater revenues and profits.
Costco's reduction of the tobacco category is a stark contrast to the CVS experience. The drugstore, which pulled all tobacco products from its stores in Sept. 2014, positioned the decision as being based on its brand proposition. Simply put, selling tobacco was inconsistent with CVS Health's role as a health provider.
One year after eliminating tobacco sales, CVS published a study that found a drop in cigarette sales in states where it operates stores and has a market share of 15 percent or greater in pharmacy. According to the research by the CVS Health Research Institute, the average smoker in those states purchased five fewer cigarette packs. In all, 95 million fewer packs of cigarettes were sold in the states studied.
Last week, CVS announced it will donate $50 million over the next five years to anti-smoking groups.
- Costco Is Quietly Removing Tobacco From Most of its Stores - TheStreet
- Costco Wholesale Q2 2016 Results (Earnings Transcript) - Seeking Alpha
- CVS: Cigarette ban reduced smoking - RetailWire
- Should CVS' competitors also say bye to tobacco? - RetailWire
- CVS Kicks In Another $50 Million For Anti-Tobacco Push - Forbes