CVS shocked the public and markets when it announced yesterday that it will stop selling tobacco before the end of the year. As a result, the pharmacy chain will lose two billion dollars in annual revenue. While this seems like a stupid move, it is actually clever and calculated.
First and foremost, this was not a moral decision, but a business one. The time for social consciousness was 50 years ago when evidence about the health damage of cigarettes was accepted as unequivocal.
Second, CVS has an annual revenue of $125 billion, so the revenue hit is less than two percent. The goodwill and PR generated by CVS’s announcement will likely increase the chain’s non-tobacco sales to compensate. That’s why it’s clear that Walgreen’s and other competitors must follow through and end tobacco sales as well.
Strategically, there is a pot of gold in providing health services. CVS-Caremark, the corporate parent of the CVS pharmacy chain, is trying to get in on this business with in-store mini clinics. To be effective in messaging this, it has to remove harmful products from its mix.
Which brings us to candy – both in its solid form and as liquid (sweetened beverages). There is no place for junk foods and beverages in a pharmacy. We don’t have numbers for the revenue that these products generate, but based on entire aisles dedicated to them, it’s probably north of 10 billion annually.
Giving up these sales will be much harder, but it’s the right thing to do. How can you open a diabetes care center adjacent to aisle 7, where a six-pack of Coke is on sale for $1.99?