Wednesday, August 19, 2015

The numbers are in and CVS takes a hit, but dropping cigarettes doesn't kill profits


Wow . . . CVS has stopped selling cigarettes, a move that will cost the company over $2 billion a year in sales. Bravo. I smoked pretty much all my life, but clearly there's no good that comes from it. It contributed by my health issues a couple of years ago, probably cost one of my best friends his life, and is responsible for thousands of deaths every year (realizing that people make the decision to smoke or not).

According to ABC, “CVS Health runs 7,870 drugstores. The front-end figure from those stores would have been flat if CVS hadn’t pulled tobacco products from its shelves nearly a year ago. The drugstore chain actually helped profitability by dumping thin-margin tobacco products, but its executives knew they would take a sales hit because smokers often grab other products when they stop in for their next pack.”

That was my experience in my liquor store. We contemplated dropping cigarettes (my father never liked the idea that we sold them), but not only did they generate revenue on their own, but only rarely did people come into the store just to buy cigarettes. They almost always bought wine or liquor, or at least a 6-pack. So in a store with sales of about $1.5 million, cigarettes generated maybe $50,000 to $75,000, but the overriding issues always was, “If we drop cigarettes, how many customers do we lose and how much do we lose in sales of other items when they come in?”

So CVS customer are probably tracking the same spending habits. But there's no doubt that cigarettes probably don't belong in a store of a company trying the steer its image into that of a health care company. Not only that, smoking's expensive. Even here in New Hampshire, cigarettes are $5-plus a pack, so a pack a day's going to cost you $40 a week, $140 a month and at least $1,700 a year. While one can reasonably argue that the CVS move was a business decision made in the face of increased competition and lower national cigarette sales, the move was still bold. They should be commended for it.

No comments:

Post a Comment