By MICHAEL FELBERBAUM and TOM MURPHY
AP Business Writers
Caremark’s decision to pull cigarettes and other tobacco products from
its stores could ripple beyond the nation’s second-largest drugstore
The move, which drew praise from President Barack Obama,
doctors and anti-smoking groups when it was announced on Wednesday, puts
pressure on other retailers to stop selling tobacco as well. But first
they have to overcome their addiction to a product that attracts
“They don’t make much money on tobacco, but it does
draw people into the store,” said Craig R. Johnson, president of the
retail consultancy Customer Growth Partners.
CVS Caremark Corp.
said it will phase out tobacco by Oct. 1 in its 7,600 stores nationwide
as it shifts toward being more of a health care provider. CVS and other
drugstore chains have been adding in-store clinics and expanding their
health care offerings. They’ve also been expanding the focus of some
clinics to include helping people manage chronic illnesses like high
blood pressure and diabetes.
CVS CEO Larry Merlo said the company
concluded it could no longer sell cigarettes in a setting where health
care also is being delivered. In fact, as CVS has been working to team
up with hospital groups and doctor practices to help deliver and monitor
patient care, CVS Chief Medical Officer Dr. Troyen A. Brennan said the
presence of tobacco in its stores has made for some awkward
“One of the first questions they ask us is, ‘Well,
if you’re going to be part of the health care system, how can you
continue to sell tobacco products?’” he said. “There’s really no good
answer to that at all.”
CVS, based in Woonsocket, R.I., follows a
precedent set by other drugstores. Most independent pharmacies abstain
from tobacco sales, according to the National Community Pharmacists
Association. Pharmacies in Europe also don’t sell cigarettes, and
neither does major U.S. retailer Target Corp., which operates some
pharmacies in its stores.
But the world’s largest retailer,
Wal-Mart Stores Inc., which also operates pharmacies, does sell tobacco.
So do CVS competitors Walgreen Co. and Rite Aid Corp.
Human Services Secretary Kathleen Sebelius called on others to follow
the CVS example. “We need an all-hands-on-deck effort to take tobacco
products out of the hands of America’s younger generation, and to help
those who are addicted to quit,” she said in a statement.
Walgreen and Rite Aid representatives said Wednesday that they are
always evaluating what they offer customers and whether that meets their
The question of whether to sell tobacco is complex for
retailers because it’s a revenue driver. Dollar stores such as Family
Dollar have started selling it over the last couple years, and they note
that smokers make more frequent stops at retailers in order to buy
tobacco. That’s an important factor because these customers also may
pick up other items when they visit.
fact, CVS said that while it has about $1.5 billion annually in tobacco
sales, it expects to lose about $2 billion in annual revenue by
removing tobacco because smokers also buy other products when they
visit. Overall, the company brought in more than $123 billion in total
revenue in 2012.
But CVS is in a unique position from some of its
peers. While it trails only Walgreen in terms of number of drugstores,
it draws most of its revenue from its pharmacy benefits management, or
PBM, business. PBMs run prescription drug plans for employers, insurers
and other customers.
Having the PBM business made it easier for
CVS to disavow tobacco, according to Morningstar analyst Vishnu Lekraj.
He noted that Walgreen, Rite Aid and other mass retailers depend more on
convenience goods for their sales. Even so, he said he thinks Walgreen
may eventually follow CVS and remove tobacco because it also has
emphasized its role as a health care provider.
analyst Jeff Jonas agrees. “I think once one chain does it, the other
one really has to follow,” he said. Gabelli noted, though, that Rite Aid
may be less likely to do so because it hasn’t made the same in-store
investment in clinics as the other chains.
Either way, the move by
CVS highlights the pressure companies that sell tobacco are facing to
kick that habit. Tobacco is responsible for about 480,000 deaths a year
in the U.S., according to the Food and Drug Administration, which gained
the authority to regulate tobacco products in 2009.
government has renewed efforts to reduce the death and disease caused by
tobacco use on the heels of the 50th anniversary of the landmark 1964
surgeon general’s report that launched the anti-smoking movement. A new
980-page report issued last month by acting Surgeon General Boris
Lushniak also urged new resolve to make the next generation smoke-free.
cities, including San Francisco, Boston and many smaller Massachusetts
communities have considered or passed bans on tobacco sales in stores
with pharmacies. Other places like New York City have sought to curb
retail displays and promotions and raise the legal age at which someone
can buy tobacco products.
The decision by a company such as CVS to
stop selling tobacco products is a move of “great corporate social
responsibility,” said Dr. Richard Hunt, director of the Mayo Clinic’s
Nicotine Dependence Center.
But the decision didn’t seem to faze
Tim Watt, who walked out of a downtown Indianapolis CVS store Wednesday
with a fresh pack of Pall Malls. Watt, 54, collects unemployment and is
on a budget, so he buys most of his cigarettes from CVS, where Pall
Malls are 20 cents to a dollar cheaper than at other places.
“I’ll just find someplace else,” he said.
Murphy reported from Indianapolis. Felberbaum reported from Richmond, Va.
AP Writer Carlo Piovano in London also contributed to this report.