US: CVS''s Tobacco Decision May Benefit It in Long Run

Source from:  Greensboro (NC) News & Record  02/11/2014

CVS Caremark may lose money, face stiffer competition and even see some retaliation from customers angry over its decision to remove tobacco products from its shelves.

But the country's second-largest drugstore chain is likely to weather any potential storms, local business experts say.
 
Yes, even here in North Carolina where tobacco is king.

"I think that in the long run, they are going to come up ahead," said Daniel Hall, an assistant professor of economics at High Point University.

CVS announced on Wednesday that it would phase out cigarettes and other tobacco products at its 7,600 drugstores by Oct. 1.

Larry J. Merlo, the president and chief executive officer of CVS, said selling tobacco products is inconsistent with the drugstore chain's purpose of helping its customers improve their health.

Hall said while CVS will lose revenue in the short term — Merlo said the chain stands to lose $2 billion in annual revenue — dropping tobacco was the right decision to make in the long term.

Hall said that with the expansion of health care through the Affordable Care Act, there will be an increased demand for the type of medical clinics that CVS operates. If CVS is marketing itself as a health care provider, he said, then it won't want to sell a product deemed hypocritical to that mission.

Sheri Bridges, an associate professor of marketing with Wake Forest University's School of Business, said other

retailers are likely to follow CVS' lead, especially those that say they have a similar mission of improving the health of their customers.

They will be asking themselves one question, Bridges said: "Can you continue to advertise wellness clinics at a time when you are selling products that are not consistent with wellness?"

She said other retailers that sell tobacco products are already discussing the issue.

When an industry giant like CVS takes such a big leap, it's going to reverberate throughout the entire industry, Bridges said.

And some retailers will try to use it to their advantage.

Drugstores that continue to sell tobacco products will use that as a lure to get customers to switch all their business to their stores from CVS, Bridges said.

But they will also be waiting to see how consumers react to the CVS decision. Will they applaud it or be upset about it? Should they follow suit?

There will be people who will put pressure on retailers to follow the lead of CVS, Bridges said.

"There will also be groups that object and who are going to be ticked off that CVS is doing this, and so they will also put pressure on other retailers ... not to do it," she said.

Hall said it would be difficult for any such protests to make a significant impact on a company with 7,600 pharmacies nationwide, but its North Carolina stores might see some reduction in sales.

Tobacco companies are obviously not happy about losing an outlet to sell their products, he said, and some CVS customers — even those who don't smoke — may stop patronizing the store out of protest because tobacco is such a major employer in the state.

Bridges said it's "not only possible but probable" that CVS stores in North Carolina will feel more pain than stores in some other states. The Triad is home to two big-name cigarette-makers: Lorillard and R.J. Reynolds.

"I think any state that has an economy that is based on or supported considerably by tobacco products is going to feel a greater pinch than those states that don't enjoy that same benefit from tobacco," she said.

But the CVS decision isn't one that will put any tobacco companies out of business, she said. Those companies still have convenience stores to sell their products, which she said is their "bread and butter."

Retailers aren't the only ones closely following CVS' decision.

Michael McKinney, senior community engagement representative for the American Cancer Society's Triad market, said he hopes that CVS will set the trend for other large retailers.

McKinney said that more than 43 million people in America still smoke and that tobacco will cause more than 480,000 deaths this year.

"We're glad that CVS Caremark made such a bold statement to take this stand, and we certainly congratulate them and support them," he said. Enditem