by Steven Perlberg of the Business Insider:
This morning, CVS announced it will remove tobacco products from all its stores nationwide by October 1.
That will cost the pharmacy chain an estimated $1.5 billion a year, only a tiny portion of CVS’s $123 billion in 2012 revenue.
It’s an even tinier portion of global retail sales. Excluding duty free and China (the market there is essentially closed to outside tobacco companies), global retail sales topped $554 billion in 2012, according to Citi.
And only 16% of that — $89 billion — came from U.S. sales.
So how upset are tobacco companies about CVS and its $1.5 billion? It’s hard to say.
Smokers who can’t buy their cigarettes from CVS will likely go elsewhere for their fix.
The more serious concern for big tobacco is waning demand in America. U.S. tobacco sales are decreasing as a portion of global sales.
That’s why tobacco companies have long targeted other regions as growth opportunities.
“On a volumetric basis, the global cigarette industry (excluding China and duty free) is increasingly concentrated outside of the U.S., which market accounted for 8.2% of volumes in 2012 (vs. 9.4% in 2008),” wrote Citi economists.
CVS is the first major U.S. pharmacy to ban tobacco, and the move may spur others to do so. As Wonkblog’s Sarah Kliff noted, CVS thinks this will end up being a shrewd business decision for its bottom line. Not to mention it gets positive press (and commendation from President Obama, himself a former smoker) for paving the anti-smoking way.
But with tobacco companies shifting attention to growth areas like Asia (Indonesia, Malaysia and the Phillip pines are particularly profitable), you have to wonder whether they even care about CVS.
