CVS says that in deciding to phase out sales of cigarettes and tobacco products by October 1, it will leave $2 billion worth of revenue on the table. “From a purely commercial standpoint, it doesn’t make any sense,” Robin Koval, president of the anti-smoking Legacy Foundation, told the Washington Post’s Wonkblog. But this is not an altruistic decision, and it sure does make business sense in context. CVS is growing as a health-care provider with its in-store MinuteClinics, and the chain hopes the decision to give up tobacco and the customers it brings in will add more value to its health-care business than it reduces in retail sales. “By jettisoning tobacco products, CVS can further define its pharmacies as full-fledged health-care providers and strike more profitable deals with hospitals and health insurers,” Wonkblog’s Sarah Kliff writes.
“We came to the decision that cigarettes and providing health care just don’t go together in the same setting,” CEO Larry J. Merlo told the New York Times. The move certainly earned the chain some high praise from high places. “Today’s CVS/Caremark announcement helps bring our country closer to achieving a tobacco-free generation,” Health and Human Services Secretary Kathleen Sebelius said. “I hope others will follow their lead in this important step to curtail tobacco use.” Tobacco buyers represent a pretty small portion CVS’s annual revenue of $132 billion. It seems the chain decided the publicity and brand management was worth the 1.6 percent hit.
