CVS’ Tobacco Exit Draws Reaction, Applause

WOONSOCKET, R.I. -- CVS Caremark Corp.’s decision to pull tobacco products from store shelves as of Oct. 1 has drawn reaction from all corners, from the Oval Office to its chief drugstore competitor.

"I applaud this morning's news that CVS Caremark has decided to stop selling cigarettes and other tobacco products in its stores, and begin a national campaign to help millions of Americans quit smoking instead," President Barack Obama said shortly after the announcement Wednesday morning. "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."

Electronic cigarette companies also weighed in on the news, although it is unclear what effect, if any, the decision will have on e-cigarettes. In its announcement, CVS CEO and President Larry J. Merlo said "ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company." Absent from Merlo's statement was the Woonsocket-based company's position on e-cigarettes.

CVS did not respond to a CSNews Online inquiry regarding where e-cigarettes stand in relation to the October move. However, according to Time, CVS does not currently sell e-cigarettes.

For their part, electronic cigarette manufacturers welcomed CVS' decision. "As a partner in the fight against tobacco-related death and disease, NJOY applauds CVS Caremark for its courageous decision to go tobacco free by removing all tobacco products from its shelves this year. Nearly half a million Americans die every year due to smoking and we believe electronic cigarettes can help end this epidemic. We welcome the opportunity to work with leaders and stakeholders from around the world who share our mission to obsolete tobacco cigarettes," Scottsdale, Ariz.-based NJOY said in a statement issued Wednesday.

Andries Verleur, co-founder and CEO of VMR Products, called the move "bold and thoughtful." VMR is the maker of V2 Cigs. "We applaud CVS for its bold and thoughtful decision to no longer sell traditional tobacco products, like combustible cigarettes," Verleur said. "Decades of research have confirmed the harmful and deadly effects of inhaling burning tobacco and we believe in the mission to create a tobacco-free generation. With this in mind, we are also pleased that CVS will continue to emphasize the importance of alternatives to tobacco and hope that they will ultimately recognize the impact of electronic cigarettes, which do not contain tobacco, in this category."

CVS Caremark estimates that it will lose approximately $2 billion in revenue on an annual basis from the tobacco shopper, when taking into account in-store sales made in addition to tobacco products.

According to Barrington, Ill.-based sales and marketing firm Balvor LLC, tobacco may represent only around 1.5 percent of CVS' companywide revenue, but it is still a sizable piece of business. The retail pharmacy segment (which is essentially the physical store) drives around 60 percent of the companywide revenue, with the pharmacy accounting for approximately 69 percent of the retail pharmacy segment revenue.

So, if Wall Street expects CVS to come in with around $132.9 billion in companywide sales, this means front-end sales (the retail pharmacy segment minus pharmacy) should be somewhere in the neighborhood of $24.7 billion, according to Balvor's estimates.

"Looking at the impact of the decision at the store-level reveals the potential impact to its stores," said David Bishop, managing partner of Balvor. "Our analysis indicates that CVS' decision to stop selling tobacco could translate into a loss of over $260,000 annually per store, which potentially represents nearly 10 percent of the front-end or 2.5 percent of store sales."

Taking tobacco products off CVS shelves could be a win for other retailers, Bishop said, noting that the move could put more than 700 packs of cigarettes a week per store up for grabs in the marketplace.

"Retailers know that winning the adult tobacco consumer generates incremental sales from ancillary purchases during the same visit," he added.

The announcement is particularly good news for convenience stores, according to Bishop, in light of the increased competition now faced from dollar stores selling tobacco products.

CVS Caremark's decision to exit the tobacco category comes as the retailer prepares to launch a smoking cessation program this spring. The program is expected to include information and treatment on smoking cessation at CVS/pharmacy and MinuteClinic, along with online resources.

CVS is not alone in its smoking cessation efforts. Direct competitor Walgreen Co. is partnering with GlaxoSmithKline Consumer Healthcare to launch a free, Internet-based smoking cessation program called Sponsorship to Quit. The Deerfield, Ill.-based drugstore chain currently sells tobacco products.

"The company has been evaluating its tobacco line for some time and will continue to evaluate the choice of products our customers want, while also helping to educate them and providing smoking cessation products and alternatives that help reduce the demand for tobacco products," said Michael Polzin, Walgreens spokesperson.