CVS to stop selling Tobacco

[dcm1602]

http://www.forbes.com/sites/matthewherper/2014/02/05/cvs-to-stop-selling-tobacco-sacrificing-2-billion-in-sales-for-public-health-and-future-growth/

CVS, the largest pharmacy chain in the United States, will stop selling cigarettes and other tobacco products in all of its 7,600 stores by October 1, its parent company CVS Caremark CVS +0.49% announced this morning. It is the first time any retailer has ever dropped this deadly cash cow, and it is part of a major shift in direction for the drugstore giant.

But the public-health-mindedness will cost CVS billions – literally. The company sales $2 billion in sales will be shaved off its $125 billion top line.

Pretty crazy that this is the first time ever that a chain has stopped selling cigarettes. Obviously they're doing this because they think it will lead to future financial gain, but it could certainly start a trend. I wouldnt be shocked to see other major retailers following in their footsteps down the road. (notably other stores that want a bigger role in healthcare like Walmart and other pharmacies)

Could lead to drastically higher tobacco prices in just a few years

[Coach K]

I had quit for 3 years and caved in after aton of drama in my life.

Before I had quit I was at a pack a day.

Since taking it back up its only about 2 or 3 a day and I'll go a few days without one.

I'm prolly just going to switch to the electronic excrement soon anyways

[Johnny English]

After smoking for over 20 years I finally quit for good almost three years ago, I'm really happy that I managed it but I still have moments where I want a cigarette badly and when I've had a skinful, it isn't unheard of for me to have one (or more accurately, to light one, take three drags, realise I'm about to hurl and put it out again).

Knowing how hard I found it to quit I'm all for anything that makes it a little easier for others to, or that makes it a little harder for someone else to take it up, but I'm not sure I understand why CVS are moving away from selling them. It's clearly profitable, it undoubtedly has knock-on sales effects (e.g. someone coming in for a pack of smokes is also a prime candidate for the shiny display full of aids to quit smoking), and I can't believe that anyone's going to be more likely to go into CVS because they don't sell cigarettes - in fact quite the reverse.

[Tommy]

CVS mostly uses those self service checkout counters. They have to keep employees behind a little kiosk just for cigarette sales, so this way they can continue automating, and increase their profit margin.

[Johnny English]

They're still going to need to have staff, and I'd be surprised if the profit from cigarette sales in a day didn't more than cover the cost of a minimum wage employee. Factor in the loss of incidental sales of other products to people who come in for cigarettes but also end up picking up one or two other things and I don't buy that argument.

I've no doubt there is sound commercial reasoning behind it, I just can't figure out what it is.

[dcm1602]

They're still going to need to have staff, and I'd be surprised if the profit from cigarette sales in a day didn't more than cover the cost of a minimum wage employee. Factor in the loss of incidental sales of other products to people who come in for cigarettes but also end up picking up one or two other things and I don't buy that argument.

I've no doubt there is sound commercial reasoning behind it, I just can't figure out what it is.

The article mentions

Merlo says that continuing to sell cigarettes, which the Surgeon General blames for 480,000 deaths every year from heart disease, lung cancer, and stroke, was anathema to CVS’ long-term plan to become a central player in the U.S. health care system that interacts ever more closely with patients, giving flu shots, reminding them when they are not filling prescriptions, and, through its 800 Minute Clinic in-store nurse practitioner stations, prescribing medicines. “I see my role as insuring that the company is positioned for growth,” says Merlo. “And that is what this decision is about.

CVS, like rivals Walgreen WAG +0.68% and Rite-Aid Corporation, is seeing a dramatic change to its business as it focuses less on taking marginal revenue out of drug sales and more on larger agreements with hospitals and insurance companies. In fact, CVS is in the midst of an even bigger shift than its competitors. Because of its 2007 merger with Caremark, the company is not only a drug store chain but also a pharmacy benefit manager, meaning it works with insurance companies and employers to control drug costs. The assumption is that by being a rival to both Rite-Aid and benefits manager Express Scripts ESRX -1.05%, CVS can extract better savings and offer better care to patients, saving employers money both by cutting costs and by making people healthier.

And CVS says it can make up those costs, maintaining its guidance, although that earnings coverage has to come from somewhere. The company is making a bold bet on rebranding itself as being not just a store, but a healthcare company

Pretty much CVS wants to become a major player in the healthcare industry, and is willing to lose 2 billion a year to get a bigger piece of the 2.6 trillion a year we spend on healthcare

[Fenwyr]

This won't do much to effect the cost of cigarettes.  Even if every store with a pharmacy stopped selling them, there would still be plenty of competition with all the gas stations and convenient stores out there.

[dcm1602]

This won't do much to effect the cost of cigarettes.  Even if every store with a pharmacy stopped selling them, there would still be plenty of competition with all the gas stations and convenient stores out there.

If every walmart, cvs, walgreens stopped selling them ?

Thats over 10 billion dollars a year in cigarette sales

Gas stations and convenience stores are already overpriced with almost everything they sell.

[Fenwyr]

If every walmart, cvs, walgreens stopped selling them ?

Thats over 10 billion dollars a year in cigarette sales

Gas stations and convenience stores are already overpriced with almost everything they sell.

Their cigarette prices are almost identical out here.  7-11 even gives you $2 off if you buy 2 packs of any premium brand.  If anything there would be even more competition to get a piece of that additional $10 billion in sales.

[Miamipuck]

Their cigarette prices are almost identical out here.  7-11 even gives you $2 off if you buy 2 packs of any premium brand.  If anything there would be even more competition to get a piece of that additional $10 billion in sales.

If smokers had a brain in their head they would buy from Indian reservations, much less tax. I would venture a guess that tax makes up a good 70% of costs.

[Badger]

If smokers had a brain in their head they would buy from Indian reservations, much less tax.

When I did regional sales out of Binghamton, if I was working with a smoker we were either going North for the Onondaga reservation, or South to PA (cheaper than NY).

[dcm1602]

Their cigarette prices are almost identical out here.  7-11 even gives you $2 off if you buy 2 packs of any premium brand.  If anything there would be even more competition to get a piece of that additional $10 billion in sales.

There would be more competition, by getting rid of your biggest competitors ?

Maybe in the short term they could drop their prices a little to pick up market share, but by significantly cutting back on the amount of retailers selling a product the prices would go up in the long haul

[klaximilian]

CVS mostly uses those self service checkout counters. They have to keep employees behind a little kiosk just for cigarette sales, so this way they can continue automating, and increase their profit margin.

I've never once seen a self checkout at any CVS.

[Badger]

I've never once seen a self checkout at any CVS.

They're common here. My local CVS is set up in a way that encourages you to only use the self-checkout. There's only one guy behind the counter, compared to 4 self-checkout stations.

[Johnny English]

They're common here. My local CVS is set up in a way that encourages you to only use the self-checkout. There's only one guy behind the counter, compared to 4 self-checkout stations.

Bear in mind that where Klax lives, unemployed comp-sci grads and programmers are cheaper than machines.