The largest pharmacy chain in the nation CVS just announced that they are going to stop selling all tobacco products. This will cut nearly two billion dollars from there annual sales. Annually CVS pulls in roughly 120 billion in sales but losing two billion is a huge cut. They are saying they are taking a step into the future and being more creditable as a pharmacy chain. CVS is trying to say they are taking healthcare more seriously and if your not all in your not in at all. To make up on there lose they are offering small perks in there stores. One of the new products is being able to sign up for expensive cancer drugs and helping the customer find a way to make payments through the store. There new products are helping the company work closer with doctors and hospitals which CVS hopes this lifts them in the future as a competitive edge with and advantages in things such as Obamacare. Overall CVS thinks by making this decision that customers will trust the chain more and bring more people through the doors. Will more pharmacy chains follow suit in dropping tobacco products and how will this effect their stocks if they lose so much in sales?
http://www.forbes.com/sites/matthewherper/2014/02/05/cvs-to-stop-selling-tobacco-sacrificing-2-billion-in-sales-for-public-health-and-future-growth/
Clearly this is a rather controversial and extremely bold move, but I personally believe it will pay off in the long run. The tobacco industry is huge and $2 billion is an incredible cut as you said, but I think that it shows that CVS is entirely confident with the loyalty of their current customers and in believing that new customers will flock away from Rite Aid, Walgreens, and other mainstream drug stores. Of course, this move could backfire completely on their revenue, but they wouldn't make such an executive decision had they not been completely confident. Here's to hoping this doesn't kill the company.
ReplyDeleteTo me, this is a big statement. When a company gives up $2B in sales, they would have to be committed to a cause. It appears that they have chosen to improve the well-being of a nation over a nice revenue stream (with a very inelastic demand)
ReplyDeleteConsumers will have preferences regardless of whats "right" to the general population. This controversial move brings about many questions that will be answered in the near future. Will other pharmacies better from this move? Will CVS gain more from representing a moral victory? In 2012, CVS gained $123.1 billion in revenues, a 15% increase from 2011 revenues of $107.1. A $2 Billion dollar loss isn't the best for the back pocket of the company, but hoping anti-smoking programs and campaigns add up to recover the loss.
ReplyDeleteMy personal opinion is that this is less of a calculated business decision and more a moral statement. Tobacco is widely considered to be a demerit good, and while the industry is booming, negative externalities associated with it become more and more apparent every day. By taking this move, CVS appears to be trying to change its image. After all, it's a little bit silly for a pharmacy to be selling products that cause so many illnesses. But only time will tell whether this move was a smart one.
ReplyDeleteThough they are taking large hit, I agree with Lucas that in the long run this will pay off. By offering more services such as payment plans for expensive medications, they are developing an identity within the market. It will be interesting to see if Walgreen's or Rite Aid will follow this trend.
ReplyDeleteThis is a bold move, but one they can perhaps afford more so than other smaller pharmacies, especially if they are finding ways to supplement their revenue. It is nice to see because they are potentially influential enough to set an example for other stores, especially if they are successful.
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