CVS Stores Stop Selling All Tobacco Products

RACHEL ABRAMS
SEPT. 3, 2014
The New York Times

Antismoking signs are posted where cigarettes once were displayed at a CVS in Manhattan that no longer sells tobacco products. CreditAndrew Renneisen/The New York Times
At a CVS store near Times Square, the shelves are notable for what they no longer display: cigarettes. Now the only smoking products to be found are those that could help customers quit.
As of midnight on Tuesday, all 7,700 CVS locations nationwide will no longer sell tobacco products, fulfilling a pledge the company made in February, as it seeks to reposition itself as a health care destination.
The rebranding even comes with a new name: CVS Health.
The decision to stop selling cigarettes is a strategic move as pharmacies across the country jockey for a piece of the growing health care industry. Rebranding itself as a company focused on health could prove lucrative for the drugstore as it seeks to appeal to medical partners that can help it bridge the gap between customers and their doctors.
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“CVS is really trying very hard to position themselves as the winner in that marketplace,” said Skip Snow, a health care analyst at Forrester Research. “If they can be perceived as a place to go to receive health care, and buy health care products, as opposed to the place to go to buy a bottle of whiskey or get your film developed, then they can capture more of the retail medicine dollars.”
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CVS already operates 900 walk-in medical clinics, or “minute clinics,” where customers can get relatively simple services like blood pressure tests and fluvaccines. By dedicating space for these services, CVS and other major retailers like Walmart are diving into the pool of competitive health care dollars available for helping manage customers’ illnesses.
“We’re at the forefront of what we all see as a changing health care landscape,” Larry J. Merlo, the chief executive of CVS Health, said in an interview.
As the medical industry braces for the flood of new patients with insurance through the Affordable Care Act, drugstores see an opportunity to provide basic care to consumers who may not want to wait to see a doctor, if one is available in their area at all. And major chains like Walmart, the country’s largest retailer, can offer such services for prices that may appeal to patients on the fringes of the health care system.
“Health care is going to retail, especially for people without privilege,” Mr. Snow said.
Drugstores want to use their clinics to help drive foot traffic to their stores, and to their pharmacies, where customers can fill prescriptions.
CVS has entered partnerships with more than 40 health systems, including local hospitals, to help run its clinics. The company opened 32 clinics last quarter and is on track to open at least 150 more this year, Carolyn Castel, a CVS spokeswoman, said. Revenues at the clinics are up 24 percent in the second quarter, compared with a year earlier, and the company plans to operate 1,500 clinics by 2017, CVS said.
As CVS seeks new health partners, its decision to end cigarette sales may make it more appealing than its tobacco-selling rivals.
“Think of it this way: Would you find cigarette machines or retail stores in the gift shops in a hospital selling cigarettes? Of course not,” said Nancy Copperman, the corporate director of public health initiatives for the North Shore-Long Island Jewish Health System, a minute clinic partner. “I think it does give them a leg up.”
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In February, CVS Health, formerly known as CVS Caremark, announced that it would stop selling cigarettes and other tobacco products by October. At the time, the company estimated that the decision would cut its overall sales by $2 billion.
Robert C. Garrett, the chief executive officer of Hackensack University Health Network, which operates seven minute clinics with CVS in New Jersey and is opening its eighth in November, agreed that the move made CVS a more attractive health partner. Mr. Garrett said that Hackensack was in discussions with CVS about ways to expand its services.
“When you stop selling cigarettes as a retailer, it sends a very big signal to the rest of the health care community that you are in the health care business,” said Tom Charland, the chief executive of Merchant Medicine, a health care research and consulting firm. “I do think that it’s going to open up many possibilities in all of the partnerships that they’re trying to create across the country.”
Of course, other retail chains that operate health clinics, like Walmart and Walgreens, have attracted health care partners even though they seem to have no plans to stop selling cigarettes.
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A spokeswoman for Walmart, Danit Marquardt, declined to comment. A spokeswoman for Rite Aid, Ashley Flower, said the company would “continue to evaluate” its products and services.
But some of CVS’s competitors have made bolder moves in other ways. CVS has not dedicated the floor space to its clinics the way that Walmart has, for example, and is still experimenting with how to streamline the clinic with the rest of the store. “As far as I can tell, they haven’t really figured out how do you cut up the floor space of a retail traditional pharmacy,” Mr. Snow said.
Mr. Merlo said that some of CVS’s newer clinics have done a “better job” of integrating the pharmacy, the clinic and the over-the-counter products.
“I think that’s something that we’re continuing to work on to make it a better customer experience,” he said.
A big opportunity for CVS as it pushes into health care, however, has nothing to do with what happens in the pharmacy itself. The company also wants to become a larger pharmacy benefit manager, which manages prescription drug plans for employers and insurers.
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CVS expects its pharmacy benefit management business, CVS/Caremark, to grow to nearly $90 billion this year, up $30 billion over the last three years, Ms. Castel said. The company’s push into other areas of health care could help CVS expand that business further.
“If I’m an employer with 2,000 employees, it makes CVS more appealing to me as a pharmacy benefits management company as well because I have this integration with health systems,” Mr. Charland said. “That’s important to employers who are trying to reduce their health care costs.”
“For me, the story is not around how CVS can directly benefit from what they’ve done,” Mr. Snow said. “Rather, the story is around how CVS is engineering their public image in order to be perceived as the place to go to become healthy.”