CVS Health dedicates $10M to expand tobacco-free effort

Dive Brief:

CVS Health announced it will dedicate $10 million to launch the second year of its “Be The First” tobacco-free campaign.
The drugstore retailer's five-year, $50 million effort, launched in 2016, aims to help deliver the nation's first tobacco-free generation. CVS is partnering with organizations that work on tobacco use cessation and prevention, including the American Cancer Society and the National Urban League; new collaborations and programs will roll out throughout this year, emphasizing anti-smoking education, tobacco-control advocacy and healthy behavior programming.
"Be the First" is aimed at young people, including elementary school-age kids, because youth tobacco use is rising, with nearly a quarter of high schoolers using tobacco products of some kind, according to the Centers for Disease Control and Prevention. "Tobacco continues to be the leading cause of preventable disease and death in the United States, yet 2,100 youth and young adults still become daily cigarette smokers," Troyen Brennan, M.D., M.P.H., and chief medical officer for CVS Health, said in a statement.

Dive Insight:

CVS is leveraging its decision three years ago to forgo tobacco sales as a major facet of its image as a healthcare provider. The move to dump tobacco products left some $2 billion on the table, but has brought a measure of integrity to the drugstore retailer's medical operations.

CVS's retail operations have suffered, however. Fourth quarter revenue in CVS's retail/long-term care pharmacy increased 4.7% to $20.8 billion, largely driven by the addition of Target pharmacies acquired in December 2015. Q4 pharmacy same-store prescription volumes rose 2.0% on a 30-day equivalent basis, and Q4 same store sales decreased 0.7%, with pharmacy same store rising 0.2%, but front store same-store sales fell 2.9% on softer customer traffic and efforts to rationalize promotional strategies.

“[We] applaud CVS for its strength and innovation on the healthcare side of its business,” GlobalData Retail managing director Neil Saunders said in a note to Retail Dive last month. “However, we see no reason why this progressive attitude cannot be applied to the retail side. This is especially so when retail — where gross margins are 29.6% — is a far more profitable part of the business than pharmacy services, where gross margins languish at around 5.2%. Unfortunately, CVS has entirely the wrong attitude to retail — the role of which, it has stated, is to support the pharmacy division. This is certainly a function, but the company should see retail as a business in its own right. Until it does, it will remain under potential.”

Still, rival Walgreens is feeling some pressure from CVS's tobacco-free stance, and is taking some heat from its own decision to continue with tobacco sales. Indeed, many more shareholders attending a recent investor meeting pressed Walgreens on its cigarette sales than on its long-gestating merger with Rite Aid. One investor noted a study from CVS showing that its decision to halt tobacco sales has led to an overall decrease in smoking among Americans. They noted the incongruity of Walgreens’ position as a healthcare provider (especially one offering products and services to help people quit smoking), and one expressed concern about damaging the Walgreens brand with ongoing tobacco sales.

Co-Chief Operating Officer Alex Gourlay said at the shareholders meeting that Walgreens has reduced the visibility of cigarettes in certain markets and will measure those moves and “keep an eye on CVS.” Executive chairman James Skinner said that he hadn’t yet looked at the CVS study and added that the company spends a lot of time “trying to convince people to stop smoking… but we also respect the choice of our consumers — that’s also part of our decision over time.” But that policy may be changed in the future. “We have appreciated the choice that our consumers have to purchase tobacco and that’s were we have left it for now,” Skinner said. “It’s under review in every meeting that we have… it’s always up for review and a decision down the road."