CVS to walk away from $2 billion in cigarette sales

Discussion
Feb 05, 2014
George Anderson

CVS may not be the first to stop selling tobacco products, but the drugstore chain’s announcement is big for no other reason than the sheer size of the company’s tobacco business. CVS estimates it will lose roughly $2 billion in revenues from tobacco users on an annual basis. The chain anticipates the decision will impact 2014 earnings somewhere between six and nine cents per share.

Ending sales of tobacco, according to Larry Merlo, president and CEO, CVS Caremark, was the right move for the chain. "Put simply, the sale of tobacco products is inconsistent with our purpose," he said in a statement.

CVS received praise from President Obama for its decision. "As one of the largest retailers and pharmacies in America, CVS Caremark sets a powerful example, and today’s decision will help advance my Administration’s efforts to reduce tobacco-related deaths, cancer, and heart disease, as well as bring down health care costs — ultimately saving lives and protecting untold numbers of families from pain and heartbreak for years to come."

In addition to ending the sales of tobacco in its stores, CVS has pledged to step up its smoking cessation program. According to the company, the program, which will be launched in the spring, will include information and treatment on smoking cessation at the chain’s pharmacy and MinuteClinic locations as well as online. Members of the CVS Caremark pharmacy benefit management plan will also have programs in place to help them quit the tobacco habit.

CVS told RetailWire it does not currently sell e-cigarettes. At the time this story was published, there was no response as to whether it would add e-cigarettes as a component of the company’s smoking cessation program going forward.

What is your reaction to the decision by CVS to stop selling tobacco products? What effect will this have on its competitive positioning versus others that continue to sell tobacco?

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46 Comments on "CVS to walk away from $2 billion in cigarette sales"


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W. Frank Dell II
Guest
6 years 9 months ago

CVS not only sold cigarettes, they were one of the lowest priced sellers in the market, even taking sales away from convenience stores. It is likely the total loss in sales will be greater than just the cigarette lost sales. As the low price leader, consumers select CVS for their smoking needs and while in the store purchase other items as well.

Unless Walgreens takes the same position, they will have a sales gain. Consumers are addicted to cigarettes and will purchase them wherever they can, at the lowest price. This will not have any effect on overall cigarette sales.

Al McClain
Guest
Al McClain
6 years 9 months ago

Gutsy move, I’d say. They are positioning themselves as a health and wellness leader, to the detriment of their own finances. They will probably take some flack from shareholders, but it says they stand for something other than just trying to make a profit.

Max Goldberg
Guest
6 years 9 months ago

There is no reason for anyone to smoke. Smoking will hurt or kill every user. I salute CVS for this bold move which will allow it to claim the moral high ground in a very competitive marketplace. That said, I wonder whether this move will cause more consumers to shop at CVS and how much business the chain will lose from smokers taking their business elsewhere.

Richard J. George, Ph.D.
Guest
6 years 9 months ago

Obviously, this was not an easy decision. Tobacco sales generate visits, sales, impulse purchases, margin; not to mention the significant support (Advertising and Promotion dollars) from tobacco companies.

However, if CVS is going to position itself as “your health and wellness provider” then the decision, despite its potential short term negative effects, should eventually provide a significant differential advantage.

Paula Rosenblum
Guest
6 years 9 months ago

Positive or negative for results, it’s the right thing to do. I have never understood how chain drug stores could rationalize the sales of tobacco (and alcohol too, really). I mean, you’d never find either at a vitamin shop. I don’t expect the company to go completely overboard and stop selling sugar, etc….but cigarettes were sort of a no brainer.

So all things considered, it’s a very good move.

Joan Treistman
Guest
6 years 9 months ago

While others talk about the responsible citizenship, potential revenue loss and store image, I’ll focus on the efficiency impact. Without cashiers having to find and grab tobacco products for shoppers at checkout, lines may move more quickly and result in more satisfied customers in general. That could be another competitive advantage for CVS.

Robert DiPietro
Guest
6 years 9 months ago

This is a great position for a company that is focused on health and wellness. Whatever short-term financial impact it has, I think it will help them in the long run and they will be seen as a leader in the space.

It will be interesting to see what the competitive response is the likely winner is the mom and pop shops that will pick up these tobacco sales and footsteps

Dr. Stephen Needel
Guest
6 years 9 months ago

As a former smoker, I can say that there will be a secondary loss of revenue from other products purchased from shoppers who went to buy cigarettes. So it’s more than the tobacco sales loss.

That said, good for them that they’re taking a stand, and I’m selling my CVS stock.

Warren Thayer
Guest
6 years 9 months ago

I’m glad in some ways that they did it, but it will obviously result in sales to smokers lost to competitors. And I don’t see more non-smokers shopping at CVS, versus, say, Walgreens, as a result. Wishful thinking if you believe otherwise.

Most effective thing would be to double the tax on cigarettes and put the revenue into healthcare. Smokers are responsible for a disproportionate percentage of healthcare costs, so I’d be in favor of making them pay for it. Net-net, CVS will get some warm fuzzies out of this, and some nice PR points, but it will be a financial loser.

Ken Lonyai
Guest
6 years 9 months ago

Kudos to Larry Merlo and CVS! It’s a great move and a gutsy one.

My thought is that it will hurt them measurably beyond the $2B for some time to come. Lots of people pick up secondary items along with their smokes or get their cigs while picking up prescriptions. Those people will likely leave for competitors and it will take a while for replacement sales to catch – possibly years.

Maybe Walgreens will drop foods containing sugar in a counter move?

Gene Detroyer
Guest
6 years 9 months ago

It has always struck me as strange that a pharmacy would be selling cigarettes.

I am sure CVS considered all the pros and cons quite seriously. The fact is cigarettes generate very little margin. The real value is the traffic and additional sales that traffic may generate.

I would not give them credit for making the “right” decision as far a health goes. They sell processed foods, sugared soda, candy, et. al. But, I will give them the benefit of the doubt that this is the right business decision. We will find out in a year or two. If it doesn’t help the bottom line, somebody will be fired.

Tom Redd
Guest
6 years 9 months ago

CVS is making a good long-term decision. With the way the world is changing and the way many people are focused on this “health” thing, more and more large retailers will stop selling smokes. Down the road we will have a weed store and a tobacco store and a sugar store….since yesterday we noted that the binge on sugar is not healthy!

Change like this becomes an opportunity for CVS.

Jeff Hall
Guest
6 years 9 months ago

I applaud the courage CVS has shown with this decision. As a provider of wellness products and services, this move will better align the company’s mission and purpose to how it operates as a retailer. Our firm refers to this as brand authenticity, and I’ll bet CVS customers will react favorably to this announcement.

Phil Rubin
Guest
6 years 9 months ago

As drug stores add more and more features like Minute Clinics, it’s refreshing to see one to step out and make a decision like this. Interestingly, the first comment I saw on the topic was questioning whether they would likewise stop selling alcohol….

Mohamed Amer
Guest
Mohamed Amer
6 years 9 months ago
Bravo to CVS! As Al already mentioned it is a “gutsy move” indeed. Any time you purposely take away a steady revenue stream representing nearly 2% of revenues, you are making a bold statement (or others might call you crazy). While in the short term it will have a detrimental effect on their revenue (they claim it won’t impact 2014 earnings), over the long term it will enhance their competitive position overall. CVS is in tune with what it takes to be a winning brand in today’s world: clear, authentic and responsible vision driving consistent and transparent business (and product) strategies and execution in the store and engagement with partners, employees, and customers. According to their investor relations material, CVS touts itself as “a pharmacy innovation company” that is “reinventing pharmacy to offer innovative solutions that help people on their path to better health” and “improving health outcomes.” In that context, the decision was maybe easier to make than expected. They are making their assortment decisions in line with their aspirational vision and branding. It… Read more »
Mel Kleiman
Guest
6 years 9 months ago

Great for image if you support not smoking. Poor for image if you have made the decision that you want to smoke.

CVS has made a decision about who they want to serve. It is now up to those people who CHOOSE to smoke to make the choice of where they want to spend their money.

Is it right or wrong? That depends on what side of the fence you are on.

Vahe Katros
Guest
Vahe Katros
6 years 9 months ago
Good for them! And now they can focus on the healthy lifestyle business. Cancer survivorship and prevention relies on smoking cession, a healthy diet and an appropriate body mass index, exercise, stress management (that includes figuring out the new reality, the hit on finances, work, family and self image), sleep hygiene, early detection, social support, and some more. Each has its own set of solutions – and there is probably an omnichannel model that can make these products available (even on a subscription basis). There is much to learn and so much to do – a very tough job for someone in that moment – yet we have cancer and other chronic diseases where we basically tell the patient – good luck figuring it out. America is so great at acute care but stumbles on chronic care. CVS hopefully will follow-up with solutions in these areas. Why is it that cancer patients need to visit stores to pick up anything or figure out what to buy? CVS can have a Amazon/Google express equivalent. Do they… Read more »
Liz Crawford
Guest
6 years 9 months ago

This is good news for the health of many, not to mention CVS’s image. However, I think that there may be unintended consequences – namely, that this will help fuel the black market in untaxed cigarettes.

Jack Kurek
Guest
Jack Kurek
6 years 9 months ago