News From Terre Haute, Indiana

News

February 6, 2014

CVS to end all tobacco sales by October

Move to cost $2B but draws praise from President Obama, stop-smoking advocates

TERRE HAUTE — One of the biggest drug store chains in the Wabash Valley, CVS, announced Wednesday it is phasing out sales of cigarettes, cigars and chewing tobacco between now and Oct. 1.

The company, which has five Terre Haute locations and several others in the Wabash Valley, is the nation’s second-largest drug store chain behind Walgreens, which has not announced any plans to halt tobacco sales.

CVS CEO Larry Merlo said Wednesday that tobacco sales are inconsistent with the company’s role as a health care provider.

“Tobacco products have no place in a setting where health care is delivered,” he said. Other company officials echoed the comment, stating CVS offers products and services designed to combat chronic illnesses – such as diabetes and high blood pressure – all of which are made worse by smoking.

The move drew praise from President Obama and stop-smoking advocates but got a lukewarm response from CVS stockholders. CVS Caremark Corp. (NYSE: CVS) shares fell 1 percent amid high volume in Wednesday trading.

“The jury is still out” as to whether this was a plus for investors in CVS, said Daniel Kline, a freelance writer for The Motley Fool, an investment education website. CVS admits the move will cost it $2 billion in annual revenue — about 1.5 percent of the company’s gross revenue.

Mike DeAngelis, director of public relations for CVS, told the Tribune-Star Wednesday in an email that the company is still considering ways to make up for the lost revenue. “We have identified incremental opportunities that are expected to offset the profitability impact but are not disclosing those details at this time,” he stated.

Terre Haute’s JR Pharmacy, which has three locations in the city and one in Rockville, has avoided selling cigarettes throughout nearly its entire 11-year history, said pharmacy owner Ron Vencel. Unlike CVS, JR Pharmacy avoids also selling alcohol in its Wabash Valley stores.

“It’s somewhat a conflict of interest,” Vencel said of selling tobacco products on the one hand and stop-smoking products, such as nicotine patches, on the other, he said. “Are you worried about people’s health or are you worried about making a buck?”

DeAngelis, asked whether CVS might not consider halting alcohol and fatty snack sales for the same reason it is dropping tobacco sales, indicated the company sees a difference in those products.

“Unlike other products which are okay in moderation, no amount of tobacco use is safe,” DeAngelis stated in his email to the Tribune-Star. “Smoking is the leading cause of illness and death in the United States, with more than 480,000 deaths every year.”

Profit margins on tobacco products are fairly slim, according to some market observers. However, CVS expects to lose other sales because many smokers make other purchases while buying tobacco products.

On the public relations side of things, CVS stands to gain in goodwill among customers from this move, the Motley Fool’s Kline said. Whether it hurts the company in the long term will – in part – depend upon whether big competitors, such as Walgreens, follow suit.

Halting tobacco sales could also improve the customer experience at CVS by reducing wait times in line, Kline said. That’s because it takes time for clerks to search for the right pack of cigarettes behind the counter. “I think it’s a lot like the Lotto,” Kline said.

CVS has more than 7,600 stores nationwide. The decision to halt tobacco sales could have a bigger impact in Indiana where a larger share of the population smokes. According to the Centers for Disease Control and Prevention, 26 percent of adult Hoosiers smoke compared with the national average of 18.4 percent.

Reporter Arthur Foulkes can be reached at 812-231-4232 or arthur.foulkes@tribstar.com

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