CVS to Woo Health Clients Without Smelling of Smoke

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CVS to Stop Selling Cigarettes


CVS, the nation's second-largest pharmacy chain, said Wednesday it would stop selling all cigarettes and tobacco products nationwide by October, saying they have no place in a drugstore company that is trying to become more of a health-care provider.

The move is a bold and expensive one for CVS, a unit of CVS Caremark Corp. It reflects a major push by retail pharmacies away from simply dispensing drugs toward a more integrated role of providing basic health services to Americans--including millions of newly insured--amid an expected shortage of primary care doctors.

The news is another blow to the $100 billion tobacco industry that is wrestling with slumping sales, rising taxes, widening smoking bans and a resurgence of public-information campaigns on the perils of smoking.

For CVS, the move will be costly. The drugstore chain estimates it will forgo $2 billion in annual revenue from tobacco and other sundries as a result.

That hit on revenue will shave about six to nine cents a share off of operating earnings this year and about 17 cents annually from next year's earnings.

CVS had expected earnings of $4.36 to $4.50 a share this year, with analysts projecting revenue of around $133 billion.

But CVS is counting on the strategy to give it a competitive edge over rival pharmacies in forging partnerships with hospitals, insurers and physician groups. These types of alliances are critical to drugstores like CVS and Walgreen Co. as they redefine themselves amid a downturn in prescription-drug sales.

CVS sees its future in making its in-store clinics a convenient health-care alternative to long waits at the doctor's office, along with CVS pharmacists counseling patients. That goal was increasingly at odds with racks of cigarettes, cigars and chewing-tobacco residing behind the cashier's counter, said Larry Merlo, chief executive, in an interview.

"Cigarettes have no place in an environment where health care is being delivered," said Mr. Merlo, a 58-year-old former pharmacist who became CEO of CVS Caremark in 2011. "This is the right decision at the right time as we evolve from a drugstore into a health-care company."

CVS has more than two dozen relationships with health systems across the U.S., including Cleveland Clinic and Emory Healthcare in Atlanta. But in the initial discussions, doctors immediately ask how CVS can still sell tobacco products, said Troyen A. Brennan, CVS Caremark's chief medical officer. "They're a little bit suspicious of us because we sell cigarettes," Dr. Brennan said. "This move gives us a competitive advantage because it shows our commitment to health care."

CVS's move is expected to put pressure on its main rivals--Walgreen, Rite Aid Corp. and even Wal-Mart Stores Inc. to adopt similar measures. Each of those competitors, like CVS, is wooing sick patients with the promise they could help them better manage their health--and make sure they stay on their prescription medications.

"It just doesn't make sense, if you exist to promote health and you sell one of the major causes of death in the U.S.," said Otis Brawley, chief medical officer at the American Cancer Society.

Michael Polzin, a Walgreen spokesman, said the company would continue to evaluate its sales of tobacco products. "We have been evaluating this product category for some time to balance the choices our customers expect from us, with their ongoing health needs," Mr. Polzin said.

U.S. cigarette industry volumes are already in a yearslong tailspin and slipped an estimated 4% in 2013. The adult smoking rate in 2012 stood at 18.1% in 2012, down from 42% in 1965, according to the government.

Tobacco still remains the No. 1 cause of preventable disease and death. New evidence suggests it is an even bigger killer than previously thought: A U.S. Surgeon General report last month linked smoking to 480,000 deaths annually, up from a previous estimate of 443,000 deaths. It attributed at least $289 billion in annual costs from smoking, including $150 billion for lost productivity and $130 billion in medical care.

"It is up to retailers to decide if they are going to sell tobacco products," said William Phelps, a spokesman at Altria Group Inc., which makes Marlboro cigarettes and boasts a roughly 50% share of the U.S. tobacco market.

"We value the long-term relationship we had with CVS and respect their commercial decision. We will work with them as they transition out of the tobacco category in the coming months," said David Howard, a spokesman at Camel cigarette maker Reynolds American Inc., the second-largest U.S. tobacco company.

Lorillard Inc., maker of Newport cigarettes and the No. 3 player, declined to comment.

Shares of the three tobacco companies fell between 0.8% and 2.3% in trading Wednesday.

The CVS move drew praise from the White House and other government officials. Health and Human Services Secretary Kathleen Sebelius called the CVS move "an unprecedented step in the retail industry."

Federal, state and local regulators are stepping up anti-tobacco efforts. The Food and Drug Administration is launching a $115 million, yearlong media blitz including television advertisements next week targeting teenage smokers. The FDA is also considering curbs on menthol-flavored cigarettes and the White House last year proposed roughly doubling the federal excise tax on cigarettes.

Some municipalities have balked at the incongruous combination of pharmacies and cigarettes. Since 2008, San Francisco and Boston and more than a dozen towns in Massachusetts have banned retail pharmacies from selling tobacco products.

Lawmakers in several states including Colorado and Vermont want to raise the legal smoking age to 21 years from 18 years, following in the footsteps of New York City. Some states including Kentucky and Alabama are weighing tax increases. A pack of cigarettes in Chicago already has $6.16 in state and local taxes, up from, $3.66 less than two years ago.

Pharmacies aren't the first place consumers go to buy a pack of smokes. Of the nearly 290 billion cigarette sticks sold in the U.S. in 2012, 47.5% were purchased at gas stations, 21.1% in specialty tobacco stores and 15.9% in convenience stores, according to Euromonitor International. Pharmacies handled only 3.6% of volume.

Still, dropping tobacco products is a rare move by a big retailer. Target Corp. stopped selling cigarettes in 1996, saying they weren't profitable and were too costly to stock. In 2008, Wegmans Food Markets Inc., a northeast supermarket chain, dropped tobacco products too, as a way to promote healthy lifestyles for consumers.

But CVS, with 7,600 stores across the nation, is the largest company to make such a move and the first national player to do so for explicitly public health reasons.

CVS is launching this spring smoking cessation programs at its pharmacies and in-store clinics--in effect, trading smokers for those people wanting to quit. About 7 of 10 smokers indicate they want to quit, with about half attempting to stop every year, and opportunities exist, especially with health insurers, for partnerships, Dr. Brennan said.

Write to Timothy W. Martin at timothy.martin@wsj.com and Mike Esterl at mike.esterl@wsj.com

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