CVS Will Stop Selling Tobacco Products by October

CVS Will Stop Selling Tobacco Products by October

"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."

I'm guessing that the lost sales will be far more than they have stated. Based on my experience in the convenience store arena, cigarette smokers buy far more than just their cigarettes, and they are quite habitual about retail locations. In other words, CVS will not just lose the cigarette sales, but they will lose the customers - to Walgreens or 7-Eleven or someplace - and thus everything else purchased by those customers.

However ...

Eliminating tobacco products will enable them to strike better deals with health insurers and hospitals. Right now, CVS pharmacies are NOT covered by my Medicare Advantage plan. Essentially, I can get prescription drugs on my plan at every location you can imagine except CVS and Walgreens. That's a real embarrassment for Caremark Corporation because they are in the health care business in so many ways - about 600 CVS stores have MinuteClinics inside them! Needless to say, CVS would like to get themselves off Santa's naughty list, and not just so the prescriptions written at MinuteClinic can be fulfilled at CVS. Thanks to America's aging baby boomers, prescription medicine is a rapidly growing market (it approximately doubled in the last decade) with high profit margins, while tobacco is a dying product category in North America (the FTC estimates about a 30% decline in cigarette consumption in the decade 2001-2010) with modest gross margins and sometimes even deep discounting spurred by fierce, desperate competition for that continually diminishing market. The CVS marketers may spin this as some kind of public service (that's how I would play it), but of course their plan is to make more money for themselves and their shareholders.