Pushing Smokers Out

Just as the white paper shrinks on a lit cigarette, the smoking phase is turning to ash.  In the Northwest; Washington, Oregon and California have statewide laws prohibiting the use of tobacco in restaurants, bars and hospitals. Even at the University of Oregon, as of Sept 1, 2012, smoking is no longer allowed on campus. The culture of smoking is being pushed aside. I am of the generation where I never saw someone smoking indoors nor did I ever see advertizements for tobacco. This is the result of decades of laws restricting smoking. These laws are designed to promote health and decrease the number of people who smoke. The results are stunning, cigarette smoking has decreased from 42 percent of adults in 1965 to 18 percent today.

The loss of tobacco sales is effecting everyone. On February 5, 2013 CVS, a national pharmacy chain, announced that stores will stop selling tobacco products by October 2014.  CVS disclosed that they are giving up about 2 billion in annual sales, or about 1.6 percent of the company’s 2012 revenues. Additionally CVS has “identified incremental opportunities that are expected to offset the profitability impact,” but did not specify what they are. I would like to take a guess.

I believe CVS has identified “specialty drugs” as the next big moneymaker. In November 2013, CVS released a prediction that specialty drug spending will more than quadruple by 2020, crossing $400 billion a year. Refocusing sales in specialty drugs that treat multiple sclerosis, sickle cell anemia, rheumatoid arthritis and Parkinson’s disease will allow CVS to cash in on the aging population. This makes sense from a business standpoint, provide the products that your customers want the most.

In my opinion CVS didn’t announce it will stop selling cigarettes because they wanted to take part in CSR. More likely CVS was loosing money on tobacco sales. My claim is backed up by the fact that less then 5 percent of tobacco sales came from pharmacies (according to a study done by Center for Global Tobacco Control in 2009), and that only 1.6 percent of revenue for CVS was coming for tobacco in 2012. If I am right then CVS is discontinuing the sale of tobacco for profits and not because they believe cigarettes are bad.