CVS Exits Tobacco Ahead of Schedule

Also rebrands itself as CVS Health

WOONSOCKET, R.I. -- As of Sept. 3, 2014, CVS Caremark Corp. has a new name to go with its early exit from the tobacco market. The corporation will now go by CVS Health and has ceased tobacco sales at all of its approximately 7,700 locations. CVS

In February, the national drug chain announced plans to get out of the tobacco game--but it has ended tobacco sales nearly a full month ahead of its original deadline of Oct. 1.

“Today, as CVS Health, we are tobacco-free, reinventing pharmacy and taking our place among leaders in the health care community,” president and CEO Larry J. Merlo said in a company-issued press release. “By eliminating cigarettes and tobacco products from sale in our stores, we can make a difference in the health of all Americans.”

“The sale of tobacco in a retail pharmacy conflicts with the purpose of the health-care services delivered there,” added Troyen A. Brennan, the company’s chief medical officer.

Skip Snow, a health-care analyst at Forrester Research, suspects both the name change and decision to stop selling cigarettes is part of a strategic move aimed at grabbing a piece of the expanding health-care business.

“CVS is really trying very hard to position themselves as the winner in that marketplace,” Snow told The New York Times. “If they can be perceived as a place to go to receive health care, and buy health-care products, as opposed to the place to go to buy a bottle of whiskey or get your film developed, then they can capture more of the retail medicine dollars.”

Gaining that health-care business may be crucial for the company’s bottom line. The company’s second-quarter earnings report in early August showed front-of-store sales had dropped by 0.4%, with Bloomberg BusinessWeek estimating going completely tobacco-free would cost CVS roughly $2 billion annually.

According to Don Burke, senior vice president of Management Science Associates, this could be good news for the c-store channel – especially retailers located within a mile of a CVS.

“On average, CVS stores sell about 55 cartons per week,” Burke said during last month’s CSP-hosted Tobacco Category Review Meeting in Chicago. “The convenience channel has the highest potential gain.”

Looking at MSA distributor data, of all channels selling tobacco within a mile of an existing CVS, convenience sells the most cartons per week, with a 68% share of that market. Based on that share, Burke predicts the 42,863 c-stores within a mile of a CVS location could see a sales increase of 37 cartons per week.

Only time will tell how accurate Burke’s predictions are – but retailers in CVS-heavy markets certainly have plenty to be optimistic about.

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