CVS is my new favorite pharmacy. Actually, small pharmacist-owned drug stores, a Main Street fixture, are my favorite. But the conglomerate CVS has found my favor. In a surprise move CVS announced that effective Oct. 1, 2014, they will no longer sell tobacco or tobacco-related products. A hollow gesture? CVS stands to lose $2 billion in annual sales.
CVS and tobacco products, what do you know? T or F?
1. Tobacco sales account for 10 percent of total revenue.
2. CVS has investments in tobacco companies.
3. Walgreens, Target and Wal-Mart sell cigarettes.
CVS is the second-largest drugstore chain in the U.S. behind Walgreens. The company had $123 billion in sales in 2012 and owns 7,600 retail pharmacies and a mail order line. CVS has $1.5 billion in direct tobacco sales and $500 million in related sales annually. This $2 billion accounts for about 3 percent of overall sales for CVS. There are about 300 billion cigarettes sold in the U.S. every year. About 4 percent are sold through retail pharmacies.
The move is not a complete divestiture of ties to the tobacco industry. CVS is still invested in big tobacco to a tune of about $17 million through mutual funds and other investment products primarily through third party fiduciaries. But this is a paltry amount compared with the $6 billion that CVS invests through its employee 401k and other retirement programs for its 200,000 employees.
So why did they do it? Why would CVS walk away from $2 billion dollars? CVS is looking to expand its clinic services and as Larry Merlo, CVS president and CEO, explained: “Cigarettes and tobacco products have no place in a setting where health care is delivered. This is the right thing to do.”
CVS will no doubt make up the short-term fall in revenue through other products, but still, it is $2 billion.
Of historical note, CVS is not really a trend-setter. Target stopped selling tobacco-related products in 1996. Walgreens and Walmart sell tobacco and related products but most industry analysts expect other pharmacies will follow Target and CVS. Look for Walgreens to be next. I wouldn't hold my breath waiting for Wal-Mart.
The combination of fewer purchasing sites (CVS has 73 locations in Missouri) and higher per pack price may be key to decreasing smoking rates in Missouri over the next decade. Target and CVS are doing their part to limit access. To be sure, cigarette smokers who now purchase at CVS will find another outlet. Dollar General, for example, is expecting a boost in cigarette sales. But, inconvenience and high per-pack cost may help discourage teens from lighting up. More than 90 percent of adults who smoke started before age 20.
According to the Centers for Disease Control, the single most effective strategy to reduce rates of smoking is to increase the price of cigarettes. Missouri has the lowest per-pack tax in the entire country: 17 cents. A 10-percent raise in the price of a pack of cigarettes is estimated to reduce overall cigarette consumption by about 3 to 5 percent.
About one in four adult Missourians smoke. The financial cost to the state for treating smoking and related illnesses is more than $2 billion annually. In the future, the 75 percent of Missouri taxpayers who don't smoke may decide that a $2 billion tab from smokers who pay a 17-cent per-pack tax just doesn't add up to good policy.
Answers: 1. F; 2. T; 3. F.
Dr. Lori Boyajian-O’Neill can be contacted at email@example.com.