CVS Pharmacy is the second largest pharmacy chain in the United States, and therefore a major player in the drug store business. That is why it was so newsworthy, when in September 2014, the company decided to stop selling cigarettes and other tobacco products in their stores.
It was a move applauded by President Obama as a clear victory for public health. Many people heralded the decision as a bold one, but also questioned whether or not it would hurt the company's bottom line.
Although smoking is declining among people in the U.S., the sell of tobacco continues to be a huge business. When the decision was announced, Business Insider reported that CVS would lose around $2 billion.
However, after a few months of the ban, it turns out these fears were unfounded. Recent financial reports have suggested CVS is doing better than ever, and that its tobacco ban is an important reason. It's worth looking into the reasons for the company's recent success, as a demonstration of how a company can be profitable while at the same time doing what is good for it's customers' health.
CVS' CEO Larry Merlo explained that he wanted to emphasize his company more as a health care provider, and that "cigarettes have no place" in such a setting.
As the Affordable Care act expands the group of people able to receive health care, there is an increased need for people to receive care as well as products good for their health and healing, and CVS is finding ways to step into that gap by expanding Minute Clinic services, that offers basic primary health care to customers right in stores.
Due to effective education campaigns, the bad effects of cigarettes on health are widely known, and so selling cigarettes while also promoting customer's health would be an act of discrediting hypocrisy. Stopping the sell of tobacco is thus an effort at rebranding and refocusing its priorities more clearly on providing services that benefit people's physical health.
The financial report
CVS Health's quarterly financial reports have shown that their seemingly idealistic gamble has paid off. The May 2015 report showed that net revenues have increased dramatically, to $36.3 billion dollars overall. According to the November 2014 report, "front of the store" purchases like candy, magazines, greeting cards decreased by 4.5%, mostly because smokers were forced to shop elsewhere.
However, this loss was more than offset by a 16 percent gain in sales to the pharmacy. By not selling tobacco, CVS sent a message to people truly concerned about their health, and they responded by being more likely to go for health services and prescriptions.
The economic consequences of smoking
According to Kathleen Sebelius, the Secretary of the Department of Health and Human Services, "500,000 Americans die early each year due to smoking, and smoking costs us $289 billion annually."
For those reasons, the U.S. government is pushing hard to discourage smoking both by tobacco products both less available and less socially acceptable. A study by the Journal of the American Medical Society showed that tobacco use in a geographic area increases significantly when there are more stores that sell cigarettes. That is why CVS' decision to break the longstanding practice of carrying cigarettes in drug stores can have huge consequences in the public health of its communities.
Addiction requires its victims to go back again and again for a particular product. For that reason, it's easy to see how supplying an addictive substance can be a very profitable business. Thus, many companies seeking to make a profit might feel torn between doing what's beneficial for its customer's health and well being, and strengthening its the bottom line. CVS Health has shown a way forward out of this dilemma, by showing a way that doing good can end up paying off in unexpected ways.