A couple weeks ago, CVS, the largest pharmacy chain in United States made headlines when they announced that, effective October 2014, they would no longer be selling tobacco products in order to better position themselves as a health-care provider. Not surprisingly, this made headline news, with many lauding this move. A close friend and I began emailing about it, and quickly learned we had different reactions to this decision, and what it might mean for CVS, its customers, and its stakeholders going forward.
We’ll let you eavesdrop on our conversation. Below are my comments in blue, and my friend’s in red. We would love to hear your reactions, and how you would’ve chimed in, had you been in the original thread!
Me: My first reaction was to be impressed that CVS was willing to sacrifice profits for a strongly held value.
However, my second reaction was to note a certain irony. Will they apply their new logic for determining what to sell and not sell to other products, too? For example, are they going to stop selling candy products? After all diabetes and obesity are two of the major health issues facing the nation, maybe even more than tobacco related diseases?
I think what struck me as a bit off-putting was how CVS publicly explained their position, sort of cloaking themselves in a halo of self-righteousness and how self-evident it was that they should drop the sale of tobacco.
I’d have found it more compelling and authentic if they acknowledged it took them hours of intensive internal debate before coming to this decision, balancing their own vision for the kind of company they want to become with various stakeholder interests. After all, they are stopping the sale of a completely legal product, which raises some valid moral arguments. What will the owners have to say about lopping off $2 billion of sales?
Part of me wants to applaud the guts it took to make this decision, but I have to make a couple observations. The hard work is now really starting, as the rationale they applied to not selling cigarettes logically will need to be applied to other non-healthy products they sell. How are they going to handle that? Secondly, their PR people may have done them a disservice, setting them up for later ridicule as they try to explain why selling junk food, is actually aligned with their strategy of being in the health business. As today’s applause by health and other social activists fades, I suspect it won’t take long before they have to deal with the charge of hypocrisy be a new collection of social activists and health advocates. As the saying goes, no good deed goes unpunished…
Friend: I agree that, sadly, obesity related deaths will continue to grow and will likely surpass ones that are tobacco related deaths in the future. But, we have to acknowledge that while diet and obesity are often closely related but not the same thing. Obviously we should eat healthy foods, but if no one in America changed their diet but everyone started exercising vigorously for 30-40 minutes a day (or more realistically several times a week) obesity related deaths would plummet. I realize there are reasons why people aren’t able to this, some are valid reasons but, in my opinion, many are not. In the end, it comes down to personal responsibility not the responsibility of CVS. According to a recent Harvard study almost half of the obesity deaths have to do with lack of exercise. One could even go so far as to argue that sugar, fat and sodium at least have a place in our diet, just not to excess. I don’t know of any health/medical uses for tobacco.
While CVS is cutting $2 billion a year in tobacco related sales, from my reading, tobacco is a pretty low margin product. So, tobacco sales actually are a very small percentage of their net profit. It is estimated that there will be 6 to 9 cent impact on share price in the short-term. CVS will likely replace tobacco with higher margin health and beauty products. Target, also publicly traded, stopped selling cigarettes back in 1996 citing costs. I don’t think shareholders believe tobacco sales are essential to the success of the company.
More importantly, after some more reading, it seems that the real reason may be that CVS is betting that dropping tobacco products will “help them strike more profitable deals with hospitals and health insurers — and appeal to growing ranks of customers newly insured under the Affordable Care Act. In recent years they have continued to develop their MinuteClincs. CVS is positioning itself to be the first Nurse Practitioner or Physician Assistant resident clinical care alternative (on every corner) to the traditional MD’s office or urgent care centers. The removal of tobacco products is a requirement for eligibility to participate as a health care facility under ACA[i].” So, for a stakeholder, especially a longer-term stakeholder, I can see how the announcement could be viewed as positive news for the company.
I don’t agree that CVS needs to apply the same logic to other products they sell. Sure, it may seem more consistent but I don’t think it is necessary. For example, just because an auto company says they are building an electric car to help reduce carbon emissions they don’t logically need to stop making large internal combustion engines.
This may be a situation where doing the “right thing” in terms of the tobacco sales also happens to be very profitable, especially if their goal is to continue to develop their MinuteClinics and become eligible to receive patients insured under the Affordable Care Act, as well as work with other health care networks. Instead of just saying they are dropping cigarettes because it’s not very profitable (like Target did) and that tobacco precludes them from serving ACA participants, the approach their PR team took allows them seize an opportunity to take a stand against an already universally recognized “evil”. Additionally, I suspect their PR approach will do more to strengthen their “health” brand than it will to draw charges of hypocrisy. There will be some people who point out the inconsistencies, but I don’t see CVS backtracking to appease those people by pulling all junk food off the shelves.
What do you think? Please share below.