2-2 CVS CAREMARK DISCONTINUES THE SALE OF TOBACCO PRODUCTS

According to the American Cancer Society, smoking has resulted in $96 million in health care costs from 2000 to 2014. A well-established link exists between tobacco use and cancer. Public awareness of the dangers of smoking has led to shifting cultural norms, such that smoking is increasingly viewed as negative. Cigarette smoking in the United States has been on the decline since the 1950s. However, about one out of five Americans continues to smoke cigarettes. Cigarette smoking and cancer have been strongly linked particularly for lung, oral, and throat cancer where, for both men and women, smoking has been found to account for half or more of the cancer cases in these regions of the body.

Overall cancer rates (not specific to smoking) across gender and ethnicity in the United States are also shown in the following table.

Lung and Bronchus Cancer Incidence by Sex and Ethnicity, United States, 20062010
	Non-Hispanic White	African American	Asian American or Pacific Islander	American Indian or Alaska Native	Hispanic/Latino
Male	82.9	94.7	48.8	70.2	45.9
Female	59.9	50.4	28.0	52.1	26.6
Total	138.6	220.0	75.0	104.1	124.2

*Rates are per 100,000 population.

Source: American Cancer Society, Surveillance Research, 2014.

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One pharmacy company is taking a stand against smoking and its negative health effects. In 2007, CVS merged with Caremark to become CVS Caremark and undertook a repositioning campaign. Beyond being a chain of drug stores, CVS Caremark is a pharmacy benefit manager that works with insurance companies and employers to control drug costs. The CVS Caremark website refers to the company as a pharmacy innovation company helping people on their pathway to better health. In mid-September, ahead of its October 1, 2014, deadline, CVS Caremark discontinued the sale of tobacco products in an effort to better serve their customers and society. According to the CVS Caremark CEO and president, Larry Merlo:

Ending the sale of cigarettes and tobacco products at CVS/pharmacy is simply the right thing to do for the good of our customers and our company. The sale of tobacco products is inconsistent with our purposehelping people on their path to better health. As the delivery of health care evolves with an emphasis on better health outcomes, reducing chronic disease and controlling costs, CVS Caremark is playing an expanded role through our 26,000 pharmacists and nurse practitioners. By removing tobacco products from our retail shelves, we will better serve our patients, clients and health care providers while positioning CVS Caremark for future growth as a health care company. Cigarettes and tobacco products have no place in a setting where health care is delivered. This is the right thing to do.

An essential part of this repositioning is the introduction of a variety of basic health care services within the retail locations, from flu shots to strep throat tests. The shortage of primary care doctors and provisions in the Affordable Care Act has created an opportunity for pharmacies to play a larger role in the nation's health care. The stage is set for retail clinics to grow at a rate of 25 to 30 percent over the next few years, reaching to 2,800 in 2015, up from 1,400 in 2012. CVS Caremark already has 800 MinuteClinics and plans to grow that number to 1,500 by 2017. According to Larry Merlo:

We have about 26,000 pharmacists and nurse practitioners helping patients manage chronic problems like high cholesterol, high blood pressure and heart disease, all of which are linked to smoking. We came to the decision that cigarettes and providing health care just don't go together in the same setting.

There is much speculation over how this change will affect CVS Caremark, both financially and in the public perception. In order to make this change, CVS Caremark will lose $2 billion in annual revenue from tobacco products. This amount translates into 17 cents less earnings annually per share of stock. The company is planning ways to offset the impact on profits such as a smoking cessation program with the goal of helping half of a million Americans quit smoking.

Aside from the financial impact, CVS Caremark is reaping benefits. In the public eye, this move is largely seen favorably. Results of a Gallup Poll of 5,550 Americans over the age of 18 show that the discontinuance of tobacco sales has enhanced the image of CVS Caremark in the perceptions of many consumers. The following tables provide a sample of the Gallup Poll results. The first displays general reactions to CVS Caremark's decision, while the second breaks the respondents into groups based on their level of engagement with CVS Caremark. According to Larry Merlo, The feedback has been overwhelmingly positive.

Reaction to CVS's Decision to Stop Selling Tobacco Products in Its Stores
	Strongly Disagree (1)	(2)	(3)	(4)	Strongly Agree (5)	Don't Know/Refused
This decision helps me better understand CVS's mission and purpose.	7%	8%	19%	31%	27%	8%
This decision helps me better understand what makes CVS different from its competitors.	8%	8%	23%	29%	24%	9%

Note: Percentages may not add to 100 percent due to rounding.

Source: Gallup Poll 2014.

Perceptions of Consumers by Level of Engagement with CVS
	Fully Engaged	Indifferent	Actively Disengaged
Are you aware of CVS's recent decision to discontinue the sale of tobacco products (for example, cigarettes)? (% Yes)	96%	82%	80%
The decision helps me better understand CVS's mission and purpose. (% Strongly Agree)	64%	24%	16%
This decision helps me better understand what makes CVS different from its competitors. (% Strongly Agree)	61%	26%	15%
Based on CVS's decision to discontinue the sale of tobacco products, are you more or less likely to shop at CVS? (% More Likely to Shop at CVS)	47%	27%	23%

Note: Percentages may not add to 100 percent due to rounding.

Source: Gallup Poll 2014.

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Discussion Questions

7.	Which groups have the highest incidence of lung/bronchus cancer (in terms of ethnicity and sex)? Would this group be a good target market for CVS Caremark?
8.	What effect has CVS Caremark's decision had on public perceptions of the retailer?
9.	Do you feel that the consumers who are fully engaged, indifferent, or actively disengaged represent the best target market for CVS Caremark? Why?