part-time paternalist

Why CVS will never actually be a health care marketplace

February 11, 2014
February 11, 2014

CVS is set to quit smoking, but don’t expect the drugstore to get all-around healthy. CVS Caremark announced last week that its retail stores would cut out all tobacco by Oct. 2014, citing a commitment to customer health. “Put simply,” president and CEO Larry J. Merlo said, “the sale of tobacco products is inconsistent with our purpose.”

That reasoning has raised a few eyebrows in light of other products sold in CVS stores—candy, junk food, and alcohol, for example. If cutting out tobacco is part of becoming a “health care marketplace,” then shouldn’t unhealthy foods and beverages come next? Apparently not.

“Let’s be clear,” Merlo told investors on CVS Caremark’s Q4 earning call on Feb. 11, “You can’t compare a bar of chocolate or a bag of chips to a pack of cigarettes.” CVS will continue to profit from products that he says are fine for you in moderation—but tobacco is definitely not one of these. The move, he said, will differentiate the store from its competitors, showing the chain’s commitment to treating chronic health problems and contributing to the overall good health of its customers.

In reality, the decision to cut cigarettes and not junk food probably has as much to do with revenue as health. CVS only expects to lose about $2 billion in sales this year—$1.5 billion from tobacco products themselves, and another $500 million from “the rest of the basket” for a smoker’s shopping trip. Cutting cigarettes, it seems, only makes a small dent in retail sales. In return, the company is bound to get a major image boost. Eliminating all unhealthy products would presumably make a bigger dent, while the boost to its reputation wouldn’t be as certain.

Being the first mover among drug stores to ditch cigarettes is also a savvy play. “Simply put,” Merlo told investors, “this was the right decision at the right time.” And the company was able to make it, he said, “from a position of strength.” Now the chain’s competitors must either quickly follow suit or risk being the last drugstore left selling cancer sticks.

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