CVS, the nation's second largest pharmacy chain, said Wednesday
that it would stop selling all cigarettes and tobacco products
nationwide by October, saying they have no place in a drugstore
company that is trying to become more of a health-care
provider.
The move is a bold and expensive one for CVS, a unit of
Woonsocket, R.I.-based CVS Caremark Corp. It reflects a major push
by retail pharmacies away from simply dispensing drugs toward a
more integrated role of providing basic health services to
Americans--including millions of newly-insured--amid an expected
shortage of primary care doctors.
The news is another blow to the $100 billion tobacco industry
that is wrestling with slumping sales, rising taxes, widening
smoking bans and a resurgence of public information campaigns
highlighting the perils of smoking.
For CVS, the move will be costly. The drugstore chain estimates
it will lose $2 billion in annual revenue from tobacco and other
sundries as a result, which amounts to about six to nine cents a
share this year and about 17 cents annually from next year on. CVS,
with annual revenue of more than $123 billion, projects its 2014
earnings will be $4.36 to $4.50 a share.
But it is banking the strategy will give it a competitive edge
over rival pharmacies in forging partnerships with hospitals,
insurers and physician groups. These types of alliances are
critical to drugstores like CVS and Walgreen Co. as they redefine
themselves in what has been a historic downturn in prescription
drug sales.
CVS sees its future in making its in-store clinics a convenient
health-care alternative to long waits at the doctor's office, along
with CVS pharmacists counseling patients. That strategy was
increasingly at odds with racks of cigarettes, cigars and
chewing-tobacco residing behind the cashier's counter, said Larry
Merlo, chief executive, in an interview.
"Cigarettes have no place in an environment where health care is
being delivered," said Mr. Merlo, a 58-year-old former pharmacist
who became CEO of CVS Caremark in 2011. "This is the right decision
at the right time as we evolve from a drugstore into a health-care
company."
CVS's move is expected to put pressure on its main
rivals--Walgreen, Rite Aid Corp. and even Wal-Mart Stores Inc. to
adopt similar measures. Each of those competitors, like CVS, is
wooing sick patients with the promise they could help them better
manage their health--and make sure they stay on their prescription
medications.
"It just doesn't make sense, if you exist to promote health and
you sell one of the major causes of death in the U.S.," said Otis
Brawley, chief medical officer at the American Cancer Society.
That's bad timing for big tobacco. U.S. cigarette industry
volumes are already in a yearslong tailspin and slipped an
estimated 4% in 2013. The adult smoking rate in 2012 stood at 18.1%
in 2012, down from 42% in 1965, according to the government.
But tobacco remains the No. 1 preventable cause of disease and
death. New evidence suggests it is an even bigger killer than
previously thought: A U.S. Surgeon General report last month linked
smoking to 480,000 deaths annually, up from a previous estimate of
443,000 deaths. It attributed at least $289 billion in annual costs
from smoking, including $150 billion for lost productivity and $130
billion in medical care.
Federal, state and local regulators are stepping up anti-tobacco
efforts. The Food and Drug Administration is launching a
$115-million, yearlong media blitz including television
advertisements next week targeting teenage smokers. The FDA is also
mulling curbs on menthol-flavored cigarettes and the White House
last year proposed roughly doubling the federal excise tax on
cigarettes.
Lawmakers in several states including Colorado and Vermont want
to raise the legal smoking age to 21 years from 18 years, following
in the footsteps of New York City. Some states including Kentucky
and Alabama are weighing tax increases. A pack of cigarettes in
Chicago already has $6.16 in state and local taxes, up from, $3.66
less than two years ago.
Pharmacies aren't the first place consumers go to buy a pack of
smokes. Of the nearly 290 billion cigarettes sticks sold in the
U.S. in 2012, 47.5% were purchased at gas stations, 21.1% in
specialty tobacco stores and 15.9% in convenience stores, according
to Euromonitor International. Pharmacies handled only 3.6% of
volume.
Still, dropping tobacco products is a rare move by a big
retailer. Target Corp. stopped selling cigarettes in 1996 because
they weren't profitable and were too costly to stock. In 2008,
Wegmans Food Markets Inc., a northeast supermarket chain, dropped
tobacco products too, as a way to promote healthy lifestyles for
consumers.
But CVS, with 7,600 stores across the nation, is the largest
company to make such a move and the first national player to do so
for explicitly public health reasons.
Some municipalities have balked at the incongruous combination
of pharmacies and cigarettes. Since 2008, San Francisco and Boston
and more than a dozen towns in Massachusetts have banned retail
pharmacies from selling tobacco products.
Yet as recently as last year, a Walgreen spokesman told the
Chicago Tribune the company didn't have similar plans. The
spokesman said the company sold tobacco products to "stay
competitive in the marketplace and offer the products and services
our customers want and expect us to carry, even when we wish they
were making healthier choices."
Like Walgreen, CVS has expanded its number of in-store clinics,
staffed by nurse practitioners, where sick patients can get treated
for a range of common conditions. CVS pharmacists are also
encouraged to counsel patients on their health.
CVS has more than two dozen relationships with health systems
across the U.S., including Cleveland Clinic and Emory Healthcare in
Atlanta. But in the initial discussions, doctors immediately ask
how CVS can still sell tobacco products, said Troyen A. Brennan,
CVS Caremark's chief medical officer. "They're a little bit
suspicious of us because we sell cigarettes," Dr. Brennan said.
"This move gives us a competitive advantage because it shows our
commitment to health care."
CVS is launching this spring smoking cessation programs at their
pharmacies and in-store clinics--in effect, trading smokers for
those people wanting to quit. About 7 of 10 smokers indicate they
want to quit, with about half attempting to stop every year, and
opportunities exist, especially with health insurers, for
partnerships, Dr. Brennan said.
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