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Ending tobacco sales: Is CVS blowing smoke or becoming a smarter business?

CVS Caremark, the nation’s largest drugstore chain, announced Wednesday that it will clear its shelves of cigars, cigarettes, and other tobacco products this year, giving up almost $2 billion in sales in order to brand itself as a health care company rather than a convenience store.

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CVS Caremark, the nation’s largest drugstore chain, announced Wednesday that it will clear its shelves of cigars, cigarettes, and other tobacco products this year, giving up almost $2 billion in sales in order to brand itself as a health care company rather than a convenience store.

It's a bold marketing move, and maybe much more than that.

The 13th-largest U.S. business on the Fortune 500, CVS Caremark, said Wednesday that it will halt all cigarette and tobacco product sales nationwide by October.

To its credit, CVS finally acknowledged a blatant conflict: selling prescription drugs to control diabetes or high blood pressure while profiting from cigarettes that aggravate those diseases and a host of others.

"Tobacco products have no place in a setting where health care is delivered," said CVS CEO Larry Merlo, who oversees 7,600 drugstores nationwide, 716 in Florida.

Even President Barack Obama chimed in, congratulating CVS and Merlo for the decision. CVS is setting a powerful example, said Obama — a former smoker — and helping his administration's efforts to reduce tobacco-related deaths and disease and shrink health care costs.

CVS just upped the public pressure on everybody, from Walgreens and Walmart to Publix and 7-Eleven, to rethink tobacco sales. Will others follow CVS's lead? My guess is yes, but it will happen over years. The tobacco industry is remarkably resilient.

Clever CVS seized the spotlight and the high road first. That leaves Walgreens, the state's other pharmacy-drugstore giant, limply saying that it continues to evaluate tobacco sales, trying to balance consumer demand and health issues.

CVS management recognizes that the sale of highly taxed tobacco products is a long-term loser. The rate of Americans who smoke has dropped from more than 42 percent in 1964 to 18 percent today. Instead, CVS wants to rebrand itself from an old-school seller of cigarettes, soda and potato chips to a key player in the broadening health care industry.

Selling prescription drugs already makes up 70 percent of the sales by CVS's retail operation. CVS employs an army of 26,000 pharmacists and nurse practitioners. And the company happens to own the health care chain known as Minute Clinic that operates more than 700 locations in 27 states (and in Washington, D.C.), including Florida. It has 12 locations across Tampa Bay alone.

All of that means CVS is poised to benefit as health care reforms hit in 2014, including the surge in more insured patients in a world with too few doctors.

Ending sales of coffin sticks can only burnish that image.

Troyen Brennan, CVS chief medical officer, said Wednesday that it was awkward for his company to try to team up with hospital groups and doctor practices. "One of the first questions they ask us is, 'Well, if you're going to be part of the health care system, how can you continue to sell tobacco products?' " Brennan said. "There's really no good answer to that at all."

The long battle to end tobacco addiction is far from over. Each day, according to the federal government, nearly 3,200 children under 18 try a cigarette for the first time, and 700 go on to become daily smokers. Annually, tobacco-related deaths in this country far exceed the entire population of St. Petersburg.

Are you old enough to remember this remark?

In view of the continuing and mounting evidence from many sources, it is the judgment of the Committee that cigarette smoking contributes substantially to mortality from certain specific diseases and to the overall death rate.

That's from the 1964 surgeon general's report that marked the start of America's battle against smoking.

Near term, shareholders may regret CVS's ending sales of high-margin tobacco products. But those investors ultimately may reap the rewards of a drugstore chain refocusing more on health care services.

That shift does not come without a cost. Of the $130 billion in goods CVS expects to sell this year, about $2 billion will be tobacco products. On Wednesday, investors knocked down CVS shares by 1 percent, while rewarding Walgreens, which saw its stock rise 3.4 percent.

Let's see how CVS fares later this year, after the initial smoke clears.

Robert Trigaux can be reached at rtrigaux@tampabay.com.

Ending tobacco sales: Is CVS blowing smoke or becoming a smarter business? 02/05/14 [Last modified: Wednesday, February 5, 2014 11:27pm]

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