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The benefits of not selling cigarettes

Thursday, Feb 6, 2014

* Joe Cahill has an interesting insight into the decision by CVS to stop selling cigarettes at its pharmacies. He calls it a “smart strategic play.” Here’s why

CVS Caremark, which is based in Woonsocket, R.I., and Walgreen are working to position themselves as go-to partners for health care providers. But there’s a problem. Partnerships with drugstores require hospitals to get over their reservations about joining forces with purveyors of a chief cause of sickness and death. Cigarettes have been a drugstore staple for generations.

That just changed. Hospitals looking for a partner now can choose between a leading national chain that sells cigarettes and one that doesn’t. All other things being equal, I think hospitals will take the chain that doesn’t sell cigarettes.

CVS Caremark’s chief medical officer emphasized the strategic rationale in an interview yesterday with the Wall Street Journal. Troyen Brennan said cigarette sales often come up in discussions with potential hospital partners, adding, “They’re a little bit suspicious of us because we sell cigarettes.” Dropping smokes, he said, “gives us a competitive advantage because it shows our commitment to health care.” […]

President Barack Obama, U.S. Health and Human Services Secretary Kathleen Sebelius, the American Medical Association and the American Cancer Society all praised CVS yesterday, underscoring Walgreen’s growing isolation from the broader health care community on the issue. […]

Walgreen is in a tough spot. While it doesn’t break out sales numbers, cigarettes almost certainly mean more to the bottom line at Walgreen than they do at CVS Caremark, which also operates a large pharmacy benefit management business in addition to 7,600 drugstores.

Thoughts?

- Posted by Rich Miller        


37 Comments
  1. - Been There - Thursday, Feb 6, 14 @ 10:12 am:

    ===Walgreen is in a tough spot. While it doesn’t break out sales numbers, cigarettes almost certainly mean more to the bottom line at Walgreen than they do at CVS Caremark===
    I don’t think they are too worried about being in a tough spot. A large number of smokers who shopped at CVS are not going to take their business to Walgreens. Not just for the smoke but all their business. Not much difference between the two places so why make two stops.


  2. - wordslinger - Thursday, Feb 6, 14 @ 10:13 am:

    Smart move by CVS. They got a jump on Walgreens.

    I know for a fact that there have been ongoing discussions at Walgreens about getting rid of smokes. They stopped selling them at their in-house store at corporate hq in Deerfield more than a year ago.

    Cigarettes, like gasoline, make people stop in, but they are not high-margin products. You’re mostly a tax collector. You hope people buy other junk when they stop.


  3. - Been There - Thursday, Feb 6, 14 @ 10:13 am:

    Sorry, I meant to say the smokers who shopped at CVS ARE going to take their business to Walgreens.


  4. - Stones - Thursday, Feb 6, 14 @ 10:14 am:

    I found it to be similar to Walgreen’s decision years ago to stop selling alcohol in their stores. A couple of years ago, Walgreen’s quietly began selling not only beer but package liquor. I suspect if it hurts the bottom line CVS will regret their decision.


  5. - Anonymous - Thursday, Feb 6, 14 @ 10:18 am:

    However, they will continue to sell alcohol and sugar-sweetened beverages.

    http://tbo.com/news/business/cvs-to-stop-selling-tobacco-products-20140205/

    And cigarettes are low-margin.
    http://www.chicagobusiness.com/article/20140206/NEWS07/140209883/why-it-makes-sense-for-cvs-to-quit-smokers

    But - still a good thing.


  6. - PoolGuy - Thursday, Feb 6, 14 @ 10:19 am:

    I’m sure sales at CVS will drop some and the Wall Street guys will complain. but honestly if Walgreens sales pick up because of cigarettes, let them have it. when you go to a store to buy cigs and pick up your heart medicine or blood pressure pills, that’s just odd.


  7. - Huh? - Thursday, Feb 6, 14 @ 10:21 am:

    The NPR news reports about this story are saying that it will cost CVS $2 billion, but they weasel it by saying that it is a small part of the overall CVS income. The stories also say that CVS will stop selling the cigarettes by October.


  8. - Healthy One - Thursday, Feb 6, 14 @ 10:23 am:

    Pool guy, how much different is that than picking up your diabetes strips right next to the candy aisle? Or perhaps your liver disease medicine next to the liquor.

    I’ve never quite understood how cigarettes have been singled out amongst our public health problems. Other than they stink awful.


  9. - FormerParatrooper - Thursday, Feb 6, 14 @ 10:25 am:

    It’s just a business decision. I don’t see anything nefarious in the decision. If it helps the bottom line, go for it.


  10. - PoolGuy - Thursday, Feb 6, 14 @ 10:27 am:

    HO, to me candy and alcohol can be enjoyed in moderation. can cigarettes?
    but you do have a point.


  11. - Pot calling kettle - Thursday, Feb 6, 14 @ 10:27 am:

    ==Partnerships with drugstores require hospitals to get over their reservations about joining forces with purveyors of a chief cause of sickness and death.==

    Will the candy aisle be the next to go?


  12. - Hatless - Thursday, Feb 6, 14 @ 10:28 am:

    I am seriously considering switching all of my family’s prescriptions to CVS from Walgreens. I appreciate what they are doing.


  13. - PoolGuy - Thursday, Feb 6, 14 @ 10:30 am:

    candy, potato chips, alcohol may eventually go if they are going to stick with that path.


  14. - A guy... - Thursday, Feb 6, 14 @ 10:30 am:

    Someone already got the jump on this; today it’s cigarettes, tomorrow it’s potato chips, and the next day it’s soda pop. I predict Walgreens will hold it’s ground on this area and has the girth to be more price competitive than anyone else. Ultimately, that’s who will win the lion’s share of the biz. Stores stock stuff people buy, period. CVS is taking a risk that I don’t think is worth it to a majority of the market. Non-smokers and health nuts buy their granola bars and energy drinks in the same places others buy their Marlboros and Newports. I’ve never seen a fight over it. I don’t think many care.


  15. - Liandro - Thursday, Feb 6, 14 @ 10:33 am:

    So, over the years, CVS will strengthen its brand reputation as a health-focused drug store, and Walgreens may get pushed towards a more drug-store-plus-7/11 reputation?

    There’s money to be made in either direction, but I think the long term maneuver by CVS is good. They are clearly making a strong, positive contrast with their competitors in a way that directly applies to their industry focus. Walgreens must be thinking hard.


  16. - wordslinger - Thursday, Feb 6, 14 @ 10:37 am:

    –candy, potato chips, alcohol may eventually go if they are going to stick with that path.–

    Those are all high-margin products. And I think most health-care providers recognize that they can be consumed safely in moderation.

    Walgreens will dump cigarettes. They are currently remaking themselves as a higher-end store. Think Target, not WalMart.

    Check out the new store at State and Randolph, that’s the future.


  17. - Liandro - Thursday, Feb 6, 14 @ 10:39 am:

    PoolGuy - Thursday, Feb 6, 14 @ 10:30 am:

    “candy, potato chips, alcohol may eventually go if they are going to stick with that path.”

    Possibly; I would hope they’ve gameplayed such scenarios. But if only tobacco was a problem with their negotiations with health care partners then I don’t think that’s right. Alcohol, maybe…but even that doesn’t have the stigma in the medical field that tobacco has.

    The risk here for others, if they don’t mimic the move, is that CVS may start getting a corner on lucrative long-term relationships with various health care partners. I would assume they’ve already set a plan in action to do just that. I guess the question is: how much are those long-term relationships worth vs. “junk” sales?


  18. - A guy... - Thursday, Feb 6, 14 @ 10:43 am:

    Slinger, think of all of the locations they have where they’re not only the drug store, but the grocery store and general dry goods and tool shop in deserts that they’ve committed to serve. Cigarettes will stay until there’s no value of having them as a convenience leader, or the margin is too thin. Don’t kid yourself about the margin on Cigs at Walgreens vs. the smoke shops, gas stations, and 7-11’s. Walgreens is higher. Cause they can. BTW, I’m a non-smoker.


  19. - Newsclown - Thursday, Feb 6, 14 @ 10:46 am:

    Most smokers get their coffin nails at a gas station. That 2 billion dollar figure might include the taxes and not the actual profit margin. CVS sees something they can sell more of, with a higher margin.


  20. - Small Town Liberal - Thursday, Feb 6, 14 @ 10:47 am:

    - Walgreens is higher. -

    Not in my experience, and I am a smoker.


  21. - Jaded - Thursday, Feb 6, 14 @ 10:50 am:

    E cigarettes are the future. In fact, I just smoked one online last night.


  22. - wordslinger - Thursday, Feb 6, 14 @ 10:51 am:

    Sorry, A Guy, I’m quite certain the wheels are already in motion on smokes. I’m sure some high-level execs are honked that CVS stole a march on them.

    As I said, Walgreens pulled smokes out of their in-house store at corporate hq. On the corporate level, they are very active in anti-cancer efforts.

    They are now at the “corner of happy and healthy.” Smokes don’t fit the brand image anymore.

    They are changing. You’ll see. The future is fewer products, higher margins, less clutter. They don’t want to be 7-11.


  23. - 47th Ward - Thursday, Feb 6, 14 @ 10:56 am:

    ===Partnerships with drugstores require hospitals to get over their reservations about joining forces with purveyors of a chief cause of sickness and death.===

    It’s nice that CVS took this stand, but I think it’s bad for business. Let’s face facts: smokers need more healthcare services than non-smokers. Everything from CT scans to chemo to radiation to prescriptions, smokers represent a growth market for hospitals and pharmacies. Who is going to fill all of those beds if everyone adopts a healthy lifestyle?

    So let’s all applaud CVS for taking a principled stand, but if the hospitals/physician networks are smart, they’re going to hope this doesn’t become a trend. Walgreens should continue to operate its business with lead-pipe cruelty, and think strategically about growth: cancer = customers.


  24. - Jake From Elwood - Thursday, Feb 6, 14 @ 11:13 am:

    This is all about the optics.
    CVS did get the good press and should not suffer too badly financially.
    Plus they are rid of the financial hassle of collecting and tendering all those taxes to states and local governments.


  25. - Cincinnatus - Thursday, Feb 6, 14 @ 11:22 am:

    The stockholders and bottom line will determine the smartness of this move. That’s how the market works.


  26. - Judgment Day (Road Trip) - Thursday, Feb 6, 14 @ 11:48 am:

    Most tobacco products are sold at (a) gas stations, and (b) convenience stores. Some stats place the percentage as high as 75%.

    So CVS frees up inventory /shelf space by not carrying tobacco, they get to eliminate all the paperwork required for a highly taxed product which is always being audited, and they get to avoid additional regulatory responsibility.

    CVS not selling tobacco could actually help their bottom line, because all the sudden, there’s a noticeable reduction in all the ongoing administrative and regulatory costs for handling tobacco..

    Focus on where your business is - and it’s not tobacco.


  27. - wordslinger - Thursday, Feb 6, 14 @ 11:52 am:

    JD gets it.


  28. - BIG R. Ph. - Thursday, Feb 6, 14 @ 11:59 am:

    Gee big chains. Get into the 21st century. We stopped selling cigs probably 25 years ago.


  29. - Kathryn - Thursday, Feb 6, 14 @ 12:17 pm:

    No one ever died from breathing air from second hand potato chips or candy, that can’t be said of second hand smoke from cigarettes, and then there is the damage to the smoker. It is ridiculous to compare them. Bravo to CVS they will be getting all my business instead of Walgreens.


  30. - VanillaMan - Thursday, Feb 6, 14 @ 12:53 pm:

    It is a little creepy that we’ve decided to applaud the discrimination of a legal product made by a chain store because we don’t like it. CVS sells a boatload of crap a lot of people don’t like, but chose this particular item.

    Frankly, as long as they sell as much booze as they do, CVS shouldn’t be claiming their anti-tobacco decision was based on their concerns about health.

    Hey - its their store and I don’t buy smokes there, so its no skin off my nose. But I’m not going to bat my eyes and act all goofy about their decision to snub out smokes like its a new era in personal health or something. I’m not that gullible.


  31. - Sunshine - Thursday, Feb 6, 14 @ 12:56 pm:

    I’m here to pick up my heart medication and a pack of Marlboros please.

    Never could understand the logic of putting cigarettes right in front of the store and prescription drugs way in the back?

    Now, I do think Snickers have a place in front, replacing smokes. I’m here to pick up my cholesterol drugs and diabetic pills…..and a couple of those large snickers please!


  32. - Cook County Commoner - Thursday, Feb 6, 14 @ 1:15 pm:

    In my end of the world, most smokers buy at dedicated shops which beat major retailer prices by $2.00 a pack. Next most economical purchase point is some gas stations that trim tobacco prices and also carry snacks. And the bootleggers are starting to show.
    I’m curious what the net revenue is on a pack at a major retailer, considering the extra cost with behind-the-counter display and handling by the register operator and tax accounting.
    CVS may be getting out of a diminishing business that will trend to smaller stores and bootleg vendors with untaxed smokes or those brought in from low tax areas.
    CVS seems to be doing smokers a financial favor by forcing them towards a cheaper source.


  33. - Devastated Young Man - Thursday, Feb 6, 14 @ 5:13 pm:

    In the past I worked at Walgreens, and as others pointed out, cigarettes are low profit margin. However, stores sell so much of them, oftentimes they have more gross product than any other department in the store, including the pharmacy.


  34. - Anon - Thursday, Feb 6, 14 @ 5:58 pm:

    If the chief criterion is harm done to other people by isers, then alcohol beats cigarettes hands down. No one commits a crime because he’s under the influence of tobacco.


  35. - Just The Way It Is One - Thursday, Feb 6, 14 @ 7:13 pm:

    One small step for Health (although a good step which could even ultimately reDUCE medical care costs for those whose condition gets UGLY due to lightin’ up), but one GIANT LEAP toward reducing Illinois $IN TAX REVENUE from all those $mokes that won’t be sold as a result…Ouch!!


  36. - Devastated Young Man - Thursday, Feb 6, 14 @ 8:38 pm:

    product should say profit… sorry bout the typo


  37. - Arthur Andersen - Thursday, Feb 6, 14 @ 10:26 pm:

    The pharmacy is in the back so you have to walk by all the other crap, er, merchandise, to get there. That layout has cost AA many a Milky Way or Lemonheads. #DriveThru


Sorry, comments for this post are now closed.


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