Can someone give the cynical spin on this? I know a lot of these companies purport to care about stopping smoking, but is there also a profit motive?
I've heard scattered accounts that when a convenience store stops carrying cigarettes they also draw fewer problem customers, but haven't validated it.
The profit motive is that it's rarely smart to fight a battle that you know you're going to lose. When lions fight, they stop as soon as they know who's going to win -- the losing lion would rather walk away with his life than force the winner to kill him.
CVS has basically decided that smoking is on its way out the door, and they've decided to forgo the remaining profits in selling a smaller number of cigarettes each year for the next few years. They've decided that they'll be better off getting ahead of this trend, shifting to more health-oriented branding, and opposing smoking publicly and vocally.
I'm the cofounder of a health tech startup. This is my opinion.
The cynical spin was healthcare pre-2008. Today, our healthcare industry is finally making meaningful changes to its model, moving from fee-for-service toward value-based care and risk sharing. [1]
This means payers, providers, and everyone in between is now incentivized to get IN FRONT of problems (like smoking) before it creates an even bigger, high-cost/high-risk patient population (heart disease, cancer, etc). Those who don't will get phased out / merged.
The reality is ~75% of the $2.2 trillion we spend on healthcare per year goes toward fighting said chronic conditions. From a distribution perspective, 20% of the population is responsible for ~80% of costs... 5% of population, ~50% of costs. Moving the needle a small amount matters a lot.
[1] This is one example of a brand changing due to industry consolidation. Prices are being commoditized across the board for care, for drugs, etc. As others have said, CVS & Walgreens are no longer just pharmacies selling drugs. They are diversifying and growing into providers just like payers.
I can understand that much, but CVS doesn't (privately) reap the returns from healthier customers. That dynamic would apply to a health insurer or provider, not a glorified convenience store.
> I can understand that much, but CVS doesn't (privately) reap the returns from healthier customers.
Assuming that customer retention is cheaper than acquisition, it directly reaps the returns from not killing its customers.
> That dynamic would apply to a health insurer or provider, not a glorified convenience store.
CVS is, among other things, an insurer (or, rather, a pharmacy benefit management company serving insurers, but the incentives are pretty similar with regard to not killing the insurers customers), and also operates the nations largest walk-in clinic brand in its in-store clinics (so, its also a provider, and not just in the sense that every pharmacy is.)
>Assuming that customer retention is cheaper than acquisition, it directly reaps the returns from not killing its customers.
Public goods problem -- you have to subtract off all the customers you lose to other companies that have extra money due to not cutting off the cigarette revenue stream.
> If people smoke and are unhealthy they in theory would need a larger amount of prescription drugs which CVS sells and profits from.
If people smoke and die sooner, they will in theory (and practice) need no more of the prescription drugs which CVS sells and profits from. Heck, statistics showing that smoking reduces total health care costs (and, less relevantly to the immediate discussion, pension costs) by killing people younger have been used by cigarette smoking companies as part of campaigns against government anti-smoking campaigns around the world.
Aside from the moral aspects of that argument, the financial aspects work exactly the opposite for people selling health care services -- which CVS does, both as a pharmacy and a clinic operator -- as they would on people funding health care costs.
As a PBM, they might actually be making some money back by not supporting tobacco products as well. If the anti-tobacco stance gets an extra health plan or insurer to sign with Caremark, the increased revenue from scripts, and potential added trips from customers, can make up for losses in tobacco-related revenue.
Might also help them position themselves to shift more and more towards being a credible health care service provider.
By making it harder to maintain bad habits, CVS is looking at long-term goals. Getting a customer to stop smoking means a good probability that they're going to buy more things from CVS in the extra years they live.
They said they would take a $2bn hit to annual revenue [1] when they originally announced this. But I imagine long-term the issue is that having acquired a pharmacy benefits management company, they maybe determined that a plan member who doesn't smoke is a plan member who is more profitable?
CVS's PBM subsidiary last year was also proposing charging an additional fee to members who filled their prescriptions at pharmacies that also sold tobacco.[2] Not sure if this ever happened or not; that seems anti-competitive. I don't see why filling my prescription at Walgreens instead of CVS should cost me more, only because you can buy a pack of smokes at Walgreens.
Customers dying younger because they are buying an addicting, health-damaging product may produce some money if you are selling them the product, but if you are selling other products -- especially other expensive, long-term regular-purchase products that they will reliably come back to you for -- it can be a net loss. Perhaps CVS has decided that there's more return on customer acquisition dollars if it gets out of the cigarette business (both selling and promoting indirectly via USCC) and stops actively killing off its own reliable customer basis (and, incidentally, other people).
I don't know that that's really all that "cynical" of a spin, but its a self-interest profit motive rather than an altruistic one.
> I've heard scattered accounts that when a convenience store stops carrying cigarettes they also draw fewer problem customers, but haven't validated it.
That's quite possibly a factor, but CVS isn't just a "convenience store"; they are drugstores (that is, a key feature of their stores is the pharmacy) and they also have and are expanding in-store clinics (so they are also health-care providers.)
Well, CVS obviously doesn't want to compete against companies that can profit from selling cigarettes as they will be at a disadvantage. CVS is also looking to burnish their brand by showing they truly look out for public health. That's as cynical as I can get. On the whole, they are doing a pretty good job at burnishing their brand in my eyes...
They still have whole aisle's dedicated to beer and junk food, so it's about more than just eliminating unhealthful offerings from their stores.
Tobacco is on the way out in the US, in 10 or 20 years you'll have to buy tobacco in specialty stores. I think CVS just saw the writing on the wall and seized a convenient opportunity to jettison the business.
I'm not too into the "beer and junk food" line. I see a fairly large difference between offering choices that can be unhealthy if a person overdoes them, and helping to lobby governments to keep markets open for an addictive, harmful drug.
Depends on how you spin it. I know many people who would characterize ethanol as an "addictive, harmful drug". Large food companies spend lots of money trying to make their products more appealing, and by some evidence addicting.
The difference is that people can get drunk and blow out their liver or get fat and blow out their pancreas (usually) without direct effects to those around them. Since 90% of tobacco users have to use it in a way that blows every bystander's lungs out while they are blowing their own out, it gets much more vitriol.
>Since 90% of tobacco users have to use it in a way that blows every bystander's lungs out while they are blowing their own out, it gets much more vitriol.
What's funny about this is that it's not necessarily true. The whole "secondhand smoke" thing appears to be one of those convenient lies aimed at a greater good. It certainly isn't blowing out anyone's lungs. Still, the falloff in smoking is something I'm totally into, just because it stinks.
There is no science at all supporting the notion that the harm from ethanol approaches that of tobacco, so I'm not too worried about the people you know. In particular, the addiction rates are vastly different.
Basically, your opening sentence says it all: your point relies on spin to be sharp.
Many second-hand smoke studies are performed on spouses of smokers, over long periods of time (living w/ a smoker for decades, basically). Second-hand smoke in say, a park (where smoking is frequently banned) is not a factor. It's a convenient lie to discourage smoking.
I think it could be argued that people that drink heavily harm more people around them then people that smoke. I don't have any studies to say which one is worse, but there is no way you can say people that get drunk don't have a direct effect on those around them.
What makes you think they won't address that in the future? They do need to balance the economics of their business. There's no point in removing every negative aisle at the same time if it will destroy (or make them lose control of) their business.
This may not apply to the US: In my corner of the world, word on the street is that sellers of tobacco products make nearly no profit at all on it. Reason is that between sky-high taxes raising prices and anti-smoking propaganda lowering demand, sellers are squeezed out of a profit.
However, there still are a lot of smokers who would be less likely to visit your place of business if you stopped to stock tobacco products. So you continue to deal in it even though it makes you little money.
If a large player leaves a market like this, they drop a low-profit use of shelf space, but also lose smokers to competitors. In that position, the most desirable endpoint would be more bans on smoking, because less smokers mean less of an advantage for competitors.
Where I live when they passed an indoor smoking ban in the county, certain businesses near the county line were up in arms because smokers will drive an extra 5 minutes to go to a bar/restaurant where they can have a cigarette too.
There were bars that were in danger of going out of business because they couldn't get a waiver and enough of their customers were going elsewhere.
I'm not convinced that's enough to make a significant dent in business, especially if you balance it out with those who will be attracted by the idea that their clothes will not smell like smoke.
You have not considered another factor. The non-smokers who will stop going to an establishment when their smoking friends go somewhere else. Drinking is often a social activity.
Non-smokers who drink already have established places where they go. Those places will have done nothing to alienate them and cause them to change their habits. They'll keep going where they have been going because for them, nothing will have changed.
Bars and restaurants don't always operate with huge margins. If 15% of their customers decided to go elsewhere overnight, I have no doubt that it would cause serious problems.
Also I'm skeptical that these numbers account for the drinking smoker. If you're a bar goer you should be well acquainted with the archetype - the person who "doesn't smoke" but the moment they're inebriated they start hitting others up for a cigarette or four.
> You have not considered another factor. The non-smokers who will stop going to an establishment when their smoking friends go somewhere else. Drinking is often a social activity.
Yes. Selecting a place to go is like the old days of renting a movie with a group of friends: it's the most insistently intransigent who get to make the choice, and the nicotine addicts will falt out to refuse to accommodate the non-addicts.
The most likely cynical spin I can think of isn't that cynical; just trying to anticipate cultural trends they can use to their advantage in marketing and public opinion. Investing in sometimes-slightly painful positions earlier than their competitors.
Tobacco takes up valuable real-estate in your retail area (right at counter--right at checkout). Tobacco sales continue to fall so your gross sales are falling. Tobacco prices tend to be regulated heavily (minimum price that you can't sell under), so profit is probably fixed. Underage tobacco purchases are heavily penalized--so your cost due some store selling to a minor is minimized.
CVS took a bit of hit, but I suspect that they have numbers on the profit they gain by repurposing that space. I'm sure somebody crunched the numbers.
What if they are planning to arrange their business profit motives around what they care about? If they are, you might be able to find something to be cynical about, but actually they might have structured their business in concert with their values.
I've heard scattered accounts that when a convenience store stops carrying cigarettes they also draw fewer problem customers, but haven't validated it.