NEW YORK --Just because CVS has gotten out of the tobacco business, don't expect its biggest competitors to follow suit: representatives from both Walgreen Co. and Rite Aid Corp. recently told Bloomberg that their pharmacies will continue to focus on helping tobacco consumers quit, rather than making it more difficult for consumers to satisfy nicotine cravings by halting all tobacco sales at their pharmacies.
Financial analysts, however, suggest that both Walgreen and Rite Aid are currently too dependent on tobacco sales to eliminate the category from their retail stores.
"They're just not performing as well, so they kind of need those sales," Jeff Jonas, a portfolio manager at Gabelli Funds, told the news agency. "Rite Aid needs it because of all the debt they have to service. Walgreen has some turmoil around the Alliance Boots acquisition."
CVS has been able to offset the estimated loss of $2 billion in annual tobacco sales thanks to robust growth in its pharmacy sales, which were up 16% in the third quarter of 2014. In fact, the company's drug benefit Caremark unit accounts for 54% of CVS's revenue. Walgreen and Rite Aid do not currently offer this kind of robust benefit management units.
"Rite Aid and Walgreen want to be retail stores," Ross Muken, an analyst with Evercore ISI, told Bloomberg. "CVS wants to be an innovative health-care delivery organization."
Although elected officials and anti-smoking groups have called for Walgreen, Rite Aid and other pharmacies to follow CVS's lead, neither company has public plans to quit selling tobacco.
"We believe that if the goal is to truly reduce tobacco use in America, then the most effective thing retail pharmacies can do is address the root causes and help smokers quit," Walgreen said in an e-mail to Bloomberg.
Rite Aid spokesperson Ashley Flower told the news agency that the company is always evaluating what it should be selling, though did not directly address the issue of cigarette sales.
Both companies pointed to programs established to aid customers in smoking cessation: Walgreen plans to offer an online smoking cessation program, while Rite Aid's pharmacists coach consumers on reducing nicotine use.
Jonas noted that, although neither company has stated plans to cut tobacco sales, that could eventually change if the drugstore chains boost their bottom lines.
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