In February, the nation’s second-largest pharmacy chain announced that it would stop selling cigarette and tobacco products in all CVS stores by October 2014. The move was prompted by CVS’s goal of becoming more of a health-care provider that offers an integrative experience for customers.
The move is a costly gamble for CVS; the company estimates that it will forgo $2 billion in revenue from tobacco and tobacco related products. This revenue decrease will likely decrease CVS’s operating earnings by six to nine cents a share.
But CVS is committed to this initiative and believes that it is the right move to give it a competitive advantage over rival pharmacies. CVS also hopes that the move will help the firm strengthen relationships with hospitals, insurers, and physician groups as CVS transitions to a more comprehensive health-care alternative. According to executives at CVS, cigarettes have no place in an environment where health care is being delivered. CVS, like many pharmacies, is beginning to offer basic health care services like flu-shots and treatment for minor ailments.
The White House and government officials are applauding CVS’s efforts. The bold move by CVS will put pressure on competitors like Walgreens and Rite-Aid to adopt similar measures as each company is trying to be a bigger part of the customer’s health-care needs.
The tobacco industry is worth $100 billion and is grappling with a decline in sales, rising taxes, and new information campaigns that educate customers on the dangers of smoking.
Tobacco is the number one cause of preventable disease in the United States. According to the U.S. Surgeon General, tobacco is linked to 480,000 deaths annually and contributes $289 billion in medical care costs. Tobacco can still be purchased in gas stations, convenience stores, and specialty tobacco shops.
1. How is the macro environment of the pharmacy business changing?
2. How will other chains like Walgreens react?
Source: Timothy Martin and Mike Esterl, Wall Street Journal, February 6, 2014
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