CVS says not selling cigarettes, tobacco products won’t make financial dent

Credit: Getty Images
CVS has announced it would no longer sell tobacco products by October. Credit: Getty Images

CVS Caremark Corp. said on Wednesday that it would stop selling tobacco products at its 7,600 stores by October, becoming the first national drugstore chain to take cigarettes off the shelf.

Public health experts called the decision by the No. 2 U.S. drugstore chain a precedent-setting step that could pressure other retailers to follow suit.

President Barack Obama, a former smoker, praised the move, saying CVS had set a powerful example.

“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,” Obama said in a statement.

CVS, whose Caremark unit is a major pharmacy benefits manager for corporations and Medicare, said the decision would strengthen its position as a health care provider.

“I think it will put pressure on other retailers who want to be in health care,” said CVS Caremark Chief Medical Officer Dr. Troyen Brennan.

Although some U.S. cities, including Boston and San Francisco, already ban the sale of tobacco products in pharmacies, advocates hope the voluntary move by CVS will have a ripple effect across other drugstore chains.

Walgreen Co., the largest pharmacy chain, said it would still sell cigarettes for now but will continue to evaluate the product category. Third-ranked Rite Aid Corp. did not immediately respond to a request for comment.

Some retailers stopped selling cigarettes years ago: Target Corp. decided to drop them in 1996, while East Coast supermarket chain Wegmans Food Markets did so in 2008.

Dr. Risa Lavizzo-Mourey, chief executive officer of the Robert Wood Johnson Foundation, which focuses on public health, said CVS had made “a bold, precedent-setting move because it acknowledges that pharmacies have become health care settings.”

Small financial impact

However, CVS said the decision would not make a big dent in its financial results.

The company said the cost would be about $2 billion in annual sales and 6 cents to 9 cents in profit per share this year. Analysts expect CVS to report 2014 revenue of $132.9 billion and earnings of $4.47 per share, according to Thomson Reuters.

Declining smoking rates, along with new competition in the last two years from the low-cost Family Dollar Stores Inc. and Dollar General Corp. chains, suggest prospects for tobacco product sales were shrinking at CVS. Dollar stores have far more locations and offer goods at lower prices.

“We believe the move will be viewed as a positive long-term decision by CVS, despite the near-term profit drag, as it paves the way for increased credibility with both health care consumers and payers,” ISI Group analyst Ross Muken wrote in a note.

Matthew Myers, president of the Campaign for Tobacco-Free Kids, said CVS’s announcement could help lead more people to quit smoking.

U.S. cigarette sales fell 31.3 percent between 2003 and 2013, according to Euromonitor International.

Although adult smoking rates have fallen from 43 percent of Americans in 1965 to 18 percent currently, the habit remains the leading cause of preventable death in the United States, killing more than 480,000 people each year.

Last month, the American Lung Association and other advocacy organizations called on political leaders to commit to cutting smoking rates to less than 10 percent of the population in a decade and to protect all Americans from secondhand smoke within five years.

Focus on health care

The decision by CVS comes on the heels of several recent deals bolstering the company’s position in the health care market.

CVS in December said it expected its pharmacy benefit manager revenue to rise between 7.25 percent and 8.5 percent in 2014, easily outpacing growth of 2 percent to 3.25 percent in its retail business.

In December, CVS and pharmaceutical distributor Cardinal Health Inc announced a 10-year agreement to form the largest generic drug sourcing operation in the United States. A month earlier, CVS said it was buying Coram LLC, Apria Healthcare Group Inc’s specialty infusion services business.

CVS executives said the company would replace some of lost cigarette sales through smoking cessation programs at its pharmacies and through Caremark.

The company said the programs would be also be a key selling point as it tries to land more corporate contracts this year.



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