What Will C-stores Gain From CVS’ Tobacco Exit?


NATIONAL REPORT --- As the various segments of the tobacco category fight for space on the back bar — and for customer dollars — the competitive landscape outside the convenience store industry is seeing its own evolution.

On Feb. 5, CVS Caremark Corp. made headlines with its announcement that it was exiting the tobacco retailing business effective Oct. 1. Convenience industry insiders hailed the decision because, after all, less competition can’t hurt. However, it may not actually be a boon for c-stores.

"I don't think them getting out of tobacco is going to help convenience stores," said John Call, a convenience industry veteran and managing partner at Mentor, Ohio-based CF Capital Assets LLC. "It will help if the convenience store is next to a CVS, but by and large, the typical CVS shopper is female and females typically don't come by our stores to buy cigarettes."

Ray Johnson, operations manager at Speedee Mart Inc., a 20-store chain in the Las Vegas market, echoed those thoughts. "It was exciting news when CVS said it would stop selling cigarettes. Everyone said how wonderful it is going to be, but the majority of the people buying cigarettes at CVS are female or seniors, and they are more likely to go to the grocery store to buy cigarettes than they are to go to a convenience store," he reasoned.

Nevertheless, Johnson does intend to go after CVS' tobacco customers. "Our goal is to capture half of that business," he said. "And I hope other drugstores, like Walgreens, follow suit."

Since CVS' announcement, the attorneys general of 28 states and territories have written to the CEOs of Wal-Mart Stores Inc., Walgreen Co., Rite Aid Corp., Safeway Inc. and The Kroger Co., asking them to remove any and all tobacco products from their shelves. Walgreens also operates Duane Reade stores.

To date, Walgreen Co. has not announced any plans to follow CVS' lead. During a recent earnings call, CEO Gregory Wasson told financial analysts: "What we're focused on is to help encourage our customers to make healthy choices and not only just with cigarettes, but with daily habits. That includes helping people quit."

CVS, the Woonsocket, R.I.-based operator of 7,600 drugstores, has stated its removal of cigarette products will cost it approximately $2 billion per year.

Circle K Stores Inc., a division of Laval, Quebec-based Alimentation Couche-Tard Inc., is also looking to attract the CVS tobacco customer. "We are counting on being able to capture some of those customers," said Lee Maxwell, field marketing manager. "Some, and who knows how many, will migrate to other channels of trade such as grocery and maybe even the Internet."

The extent to which CVS' decision benefits convenience stores will depend largely on the market. For instance, CVS' presence is limited in Nice N Easy Grocery Shoppes' market, Vice President of Category Management Matthew Paduano said, noting that "a bigger win would be if Rite Aid and local drug chains pull tobacco."

Even more important than drugstores, though, c-store operators must keep an eye on dollar stores.

"Dollar stores selling cigarettes may be more of a threat, primarily because c-stores and dollar stores appeal to a similar demographic in terms of income," advised David Bishop, managing partner at Barrington, Ill.-based sales and marketing firm Balvor LLC.

"Dollar stores tend to be more price competitive than drug and they are opening more locations," he continued. "I think they definitely present much more of a threat to the tobacco retail business than the drugstores have, at least from a CVS perspective."

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