National pharmacy chain CVS announced Wednesday that it would stop selling tobacco products at its 7,600 stores nationwide in October. Though the company says it expects to lose $2 billion in revenue from tobacco sales because of the move, its CEO framed the decision as a moral choice that happened outside the boundaries of balance sheets.
“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 to help people on their path to better health," Larry J. Merlo, president and CEO of CVS Caremark, said in a statement.
Coincidentally, the decision to help Americans boost their health comes immediately after a widely reported study showed that excessive sugar consumption greatly boosts Americans’ chances of dying from heart disease. The connection between excessive sugar intake and health problems is well- documented, meaning it could make sense for CVS to cut out its sales of sugary foods and beverages. But don’t expect that to happen anytime soon.
“Unlike those other products, which are OK in moderation, no amount of tobacco is safe. Smoking is the leading cause of illness and death in the United States which is why we chose to eliminate them from our stores,” CVS spokeswoman Danielle Marcus writes in an email to U.S. News, adding that the store also will be promoting a national smoking cessation program to its shoppers starting in the spring.
To clarify Marcus' point, smoking is what the Centers for Disease Control and Prevention calls the "leading preventable cause of death," though the agency also says heart disease is the overall leading cause of death in the U.S. While smoking does cause some heart disease, many of those cases, theoretically, are also “preventable” if a person chooses not to have as many Cokes and Funyuns. Indeed, the CDC lists "poor nutrition" alongside tobacco use among its four major "modifiable" behaviors that cause chronic disease.
But CVS did not just decide to forgo $2 billion of its $123 billion in annual revenue purely because it was the right thing to do, one marketing expert says.
“The brand is an asset just like anything else. It has to be managed, it has to be monitored, all of those things,” says Americus Reed II, a professor of marketing at The Wharton School of the University of Pennsylvania. “They're not making the decision of whether or not they can recoup that $2 billion in some other way as a business decision. They are making the decision, I believe, that it's worth it not to have those revenues in order to protect the value of what they want the brand to stand for.”In other words, CVS has calculated that it’s worth a lot of money to make sure that when people see its logo on the street, they associate it more strongly with the concept of healthy living. (Reed is quick to add that he thinks the move “morally was absolutely the right thing to do.”)
The question is whether cutting out candy bars and soda would boost the brand value enough to justify a potential hit to the company's bottom line.
CVS tells U.S. News it does not provide information on revenues for specific product areas like soda and other types of food. However, cutting out those revenues might bring about substantially less good will than cutting out cigarettes would, because food – even high fructose corn syrup mixed with caramel color and carbonated water – sustains life. Meanwhile, there is no recommended daily allowance of nicotine or tar. Therefore, cutting out cigarettes means a higher return on investment, brand-wise.“It's the one product that if you follow the directions perfectly on how to use the product, you're going to die,” Reed says.
Not only that, but smoking is on the decline. While 42.4 percent of all adults smoked in 1965, only 19 percent did as of 2011, according to the CDC. From a cynical, bottom-line point of view, it makes a certain amount of sense to cut out a class of products with a shrinking user base, particularly if you’re providing them with an alternative like a smoking cessation program.
That's not to say every business will suddenly choose to follow suit and stop selling cigarettes. All those smokers out there still will have to go somewhere for a tobacco fix.
One of those retailers that might benefit is Dollar General, which last year started selling tobacco, as Forbes points out. On a December earnings call, the CEO of Dollar General said doing so was a smart move for the company.
“When we started the tobacco journey, one-third of our cigarette sales were by themselves, one-third were what we would call ‘a smoke and a Coke,’ where they would grab a cigarette and maybe a soda or a chip,” Dollar General CEO Richard Dreiling said in a recent earnings call, as reported by Forbes. “And then one-third is where the cigarettes were actually going into a basket that was beginning to grow.”
In other words, CVS could see fewer junk food sales than before as a result of this decision … which means the move could end up being even more healthy for consumers than the company realizes.