TOPICS: Business Ethics, cigarette, CVS, Health
SUMMARY: CVS, the nation's second-largest pharmacy chain, said Wednesday that it would stop selling all cigarettes and tobacco products nationwide by October, saying they have no place in a drugstore company that is trying to become more of a health-care provider. The move is a bold and expensive one for CVS, a unit of Woonsocket, R.I.-based CVS Caremark Corp. It reflects a major push by retail pharmacies away from simply dispensing drugs toward a more integrated role of providing basic health services to Americans-including millions of newly insured-amid an expected shortage of primary care doctors. The news is another blow to the $100 billion tobacco industry that is wrestling with slumping sales, rising taxes, widening smoking bans and a resurgence of public information campaigns highlighting the perils of smoking. For CVS, the move will be costly. The drugstore chain estimates it will lose $2 billion in annual revenue from tobacco and other sundries as a result, which amounts to about six to nine cents a share this year and about 17 cents annually from next year on. CVS, with annual revenue of more than $123 billion, projects its 2014 earnings will be $4.36 to $4.50 a share. But it is banking the strategy will give it a competitive edge over rival pharmacies in forging partnerships with hospitals, insurers and physician groups. These types of alliances are critical to drugstores like CVS and Walgreen Co. as they redefine themselves in what has been a historic downturn in prescription drug sales. CVS sees its future in making its in-store clinics a convenient health-care alternative to long waits at the doctor's office, along with CVS pharmacists counseling patients. That strategy was increasingly at odds with racks of cigarettes, cigars and chewing-tobacco residing behind the cashier's counter, said Larry Merlo, chief executive, in an interview. "Cigarettes have no place in an environment where health care is being delivered," said Mr. Merlo, a 58-year-old former pharmacist who became CEO of CVS Caremark in 2011. "This is the right decision at the right time as we evolve from a drugstore into a health-care company."
CLASSROOM APPLICATION: The nation's second largest pharmacy will stop selling cigarettes, putting pressure on rivals Walgreens, Rite Aid Corporation, and even Walmart stores to adopt similar measures. CVS is counting on consumers wanting to do business with a pharmacy focused on improving health and providing products associated with that of a healthcare provider. The company will not only dispense drugs to make people well but wants to use the shelf space to provide other healthcare products. The move will cost the drug store about $2 billion in revenue, but it is banking on stakeholder support from hospitals, insurers, and position groups. CVS's stock dropped about 3 percent in the first few days after the announcement, but the company is not worried because it feels that it is gaining a competitive advantage in positioning.
TASKS:
Problem 1. Will CVS's competitors stop selling cigarettes, or will they take advantage of a market opportunity since many of their stores are located very close to CVS stores?
Problem 2. Do you believe that a firm should sell a product that causes major health risks in a store that is positioned to help people manage and improve their health?