CVS Caremark will halt selling cigarettes by Oct. 1
Just as it appears as if it may be springtime for legalized marijuana in the United States, there’s now a sign that it may be wintertime for the cigarette industry. The latest chapter in the decades-long decline in the general acceptability of smoking comes in the form of a p.r. release put out by CVS Caremark and now being picked up by news organizations and websites everywhere: CVS intends to stop selling cigarettes by Oct 1., even though it will by some accounts cost the chain $2 billion a year.
Consider this a major new chapter in the battle against cigarettes (which gave my late father cancer). Why? Because once CVS does it, it creates a new precedent and some other companies may feel the p.r. and contribution to discouraging young Americans to get hooked for life on a habit that’ll kill them is also worth taking the financial hit. Tobacco companies have been diverisfying for years into other industries such as the food industry, but have steadfastly denied it was to get away from making tobacco products.
WOONSOCKET, R.I., Feb. 5, 2014 /PRNewswire/ — CVS Caremark (NYSE: CVS) announced today that it will stop selling cigarettes and other tobacco products at its more than 7,600 CVS/pharmacy stores across the U.S. by October 1, 2014, making CVS/pharmacy the first national pharmacy chain to take this step in support of the health and well-being of its patients and customers.
“Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health,” said Larry J. Merlo, President and CEO, CVS Caremark. “Put simply, the sale of tobacco products is inconsistent with our purpose.”
Merlo continued, “As the delivery of health care evolves with an emphasis on better health outcomes, reducing chronic disease and controlling costs, CVS Caremark is playing an expanded role in providing care through our pharmacists and nurse practitioners. The significant action we’re taking today by removing tobacco products from our retail shelves further distinguishes us in how we are serving our patients, clients and health care providers and better positions us for continued growth in the evolving health care marketplace.”
Smoking is the leading cause of premature disease and death in the United States with more than 480,000 deaths annually. While the prevalence of cigarette smoking has decreased from approximately 42 percent of adults in 1965 to 18 percent today, the rate of reduction in smoking prevalence has stalled in the past decade. More interventions, such as reducing the availability of cigarettes, are needed.
“CVS Caremark is continually looking for ways to promote health and reduce the burden of disease,” said CVS Caremark Chief Medical Officer Troyen A. Brennan, M.D., M.P.H. “Stopping the sale of cigarettes and tobacco will make a significant difference in reducing the chronic illnesses associated with tobacco use.”
In a Journal of the American Medical Association (JAMA) Viewpoint published online this morning, Brennan and co-author Steven A. Schroeder, Director, Smoking Cessation Leadership Center, University of California, San Francisco, wrote, “The paradox of cigarette sales in pharmacies has become even more relevant recently, in large part because of changes in the pharmacy industry…Most pharmacy chains are retooling themselves as an integral part of the health care system. They are offering more counseling by pharmacists, an array of wellness products and outreach to clinicians and health care centers….Perhaps more important, pharmacies are moving into the treatment arena, with the advent of retail health clinics. These retail clinics, originally designed to address common acute infections, are gearing up to work with primary care clinicians to assist in treating hypertension, hyperlipidemia and diabetes – all conditions exacerbated by smoking.”
CVS Caremark’s decision to stop selling tobacco products is consistent with the positions taken by the American Medical Association, American Heart Association, American Cancer Society, American Lung Association and American Pharmacists Association that have all publicly opposed tobacco sales in retail outlets with pharmacies.
“As a leader of the health care community focused on improving health outcomes, we are pledging to help millions of Americans quit smoking,” said Merlo. “In addition to removing cigarettes and tobacco products for sale, we will undertake a robust national smoking cessation program.”
The program, to be launched this Spring, is expected to include information and treatment on smoking cessation at CVS/pharmacy and MinuteClinic along with online resources. The program will be available broadly across all CVS/pharmacy and MinuteClinic locations and will offer additional comprehensive programs for CVS Caremark pharmacy benefit management plan members to help them to quit smoking. Approximately seven in ten smokers say they want to quit and about half attempt to quit each year.
“Every day, all across the country, customers and patients place their trust in our 26,000 pharmacists and nurse practitioners to serve their health care needs,” commented Helena B. Foulkes, President, CVS/pharmacy. “Removing tobacco products from our stores is an important step in helping Americans to quit smoking and get healthy.”
The decision to exit the tobacco category does not affect the company’s 2014 segment operating profit guidance, 2014 EPS guidance, or the company’s five-year financial projections provided at its December 18th Analyst Day. The company estimates that it will lose approximately $2 billion in revenues on an annual basis from the tobacco shopper, equating to approximately 17 cents per share. Given the anticipated timing for implementation of this change, the impact to 2014 earnings per share is expected to be in the range of 6 to 9 cents per share. The company has identified incremental opportunities that are expected to offset the profitability impact. This decision more closely aligns the company with its patients, clients and health care providers to improve health outcomes while controlling costs and positions the company for continued growth.
About CVS Caremark
CVS Caremark is dedicated to helping people on their path to better health as the largest integrated pharmacy company in the United States. Through the company’s more than 7,600 CVS/pharmacy stores; its leading pharmacy benefit manager serving more than 60 million plan members; and its retail health clinic system, the largest in the nation with more than 800 MinuteClinic locations, it is a market leader in mail order, retail and specialty pharmacy, retail clinics, and Medicare Part D Prescription Drug Plans. As a pharmacy innovation company with an unmatched breadth of capabilities, CVS Caremark continually strives to improve health and lower costs by developing new approaches such as its unique Pharmacy Advisor program that helps people with chronic diseases such as diabetes obtain and stay on their medications. Find more information about how CVS Caremark is reinventing pharmacy for better health at info.cvscaremark.com.
This press release contains certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company strongly recommends that you become familiar with the specific risks and uncertainties outlined in our Securities and Exchange Commission filings, including those in the Risk Factors section in our Annual Report on Form 10-K for the year ended December 31, 2012 and under the section entitled “Cautionary Statement Concerning Forward-Looking Statements” in our most recently filed Quarterly Report on Form 10-Q.
CVS’s CEO explains the move on CBS:
SOME REACTION FROM THE NEWS MEDIA AND BLOGS:
—Hot Air’s Ed Morrissey:
That’s a big chunk of revenue to refuse, and shareholders may be less than pleased with the initial hit to the bottom line. In the long run, though, this is probably a smart move. Smoking cessation is a growth business, while tobacco use simply isn’t. The $2 billion in revenue wasn’t going to stay at that level for much longer; I’d be surprised if it wasn’t already dissipating over the last several years. If CVS plans to partner up on low-cost clinics, they would have caught up to that lost revenue in a few years based on the downward trend for cigarette use. Don’t be surprised to see other pharmacy chains follow suit.
Still, one can wander through a CVS and see lots of things that doctors don’t recommend for healthy lifestyles. They sell an impressive array of candy, junk food, and even large bottles of cola to which Michael Bloomberg would probably object. Will CVS pare that down, too? And how many pharmacy chains will follow that play?
Smokers who can’t buy their cigarettes from CVS will likely go elsewhere for their fix.
The more serious concern for big tobacco is waning demand in America. U.S. tobacco sales are decreasing as a portion of global sales.
That’s why tobacco companies have long targeted other regions as growth opportunities.
“On a volumetric basis, the global cigarette industry (excluding China and duty free) is increasingly concentrated outside of the U.S., which market accounted for 8.2% of volumes in 2012 (vs. 9.4% in 2008),” wrote Citi economists.
CVS is the first major U.S. pharmacy to ban tobacco, and the move may spur others to do so. As Wonkblog’s Sarah Kliff noted, CVS thinks this will end up being a shrewd business decision for its bottom line. Not to mention it gets positive press (and commendation from President Obama, himself a former smoker) for paving the anti-smoking way.
But with tobacco companies shifting attention to growth areas like Asia (Indonesia, Malaysia and the Phillip pines are particularly profitable), you have to wonder whether they even care about CVS.
Finally ending its quest to be the “cool” pharmacy, CVS announced on Wednesday that its stores will stop selling cigarettes and other tobacco products by October 1. The move will cost the chain an estimated $2 billion per year, though, in the long term, the company stands to make more by banning tobacco sales.
….Health experts and government officials have praised the move. President Obama, a smoker himself, said in a statement that it will have a “profoundly positive impact on the health of our country.” Dr. Michael Fiore of the University of Wisconsin’s Center for Tobacco Research and Intervention told NBC News also applauded the decision. “There’s a disconnect if the mission of a store is to promote health to sell a product that’s going to kill half of the people who use it,” he said.
While the $2 billion a year in lost sales for CVS seems huge, it actually represents just a fraction of the company’s total revenues, which topped $123 billion in 2012. And—surprise, surprise—the decision isn’t entirely altruistic and health-related; it should, in theory, let CVS make even more money.
Walgreens spokesman Jim Cohn said that retail chain also has been “evaluating this product category for some time to balance the choices our customers expect from us with their ongoing health needs.”
He said Walgreens “will continue to evaluate the choice of products our customers want, while also helping to educate them and providing smoking cessation products and alternatives that help to reduce the demand for tobacco products.”
CVS has increasingly moved beyond its traditional role as a pharmacy in recent years, expanding its reach as a health-care provider. Its MinuteClinics services have allowed the company to increasingly enter into contracts with hospitals and health plans, often providing primary care services on the weekends and evenings, when doctors’ offices tend to be closed.
CVS chief medical officer Troyen A. Brennan estimates that the company has between 30 and 40 partnerships with health-care systems across the country and is in talks with a similar number about starting additional arrangements.
He said the decision to halt tobacco sales will make it easier to strike such deals, particularly those that include financial rewards for CVS if they can help patients stop smoking and reduce their medical bills.
….A recent report from the U.S. Surgeon General estimates that the country spends $132 billion annually treating smoking-related disease. Despite steep declines in the smoking rate over the past five decades — and in the 50 years since the Surgeon General’s Office issued its first report warning of tobacco’s health risks — tobacco use still remains the leading preventable cause of premature death in the United States. Eighteen percent of American adults are cigarette smokers, down from 42 percent in 1964.
This is a remarkable move by CVS that deserves applause.
— American Cancer Soc (@AmericanCancer) February 5, 2014
The real reason CVS isn't selling cigs any more: it conflicts with healthcare provider strategy – http://t.co/eP1ckBBfKB
— Steve Davis (@whatifwhynot) February 5, 2014
— Simon Sinek (@simonsinek) February 5, 2014
CVS is dropping cigarettes, but it’s got a long way to go to complete the pivot to healthy stuff: http://t.co/LyV6CKPRE6
— Matt Yglesias (@mattyglesias) February 5, 2014
— CNBC (@CNBC) February 5, 2014
Kudos to @CVS_Extra CEO for pulling out tobacco products; hope other responsible leaders would help keep guns away from some
— Charles Rangel (@cbrangel) February 5, 2014
CVS Pharmacy no longer selling tobacco products. Gutsy call and good for them!
— Neal Boortz (@Talkmaster) February 5, 2014
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