The Herald Bulletin

February 7, 2014

'Big Joe Clark:' The impact of the decision by CVS to stop selling cigarettes


The Herald Bulletin

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Remember the Winston Cup racing series? How about the Marlboro Man? The marketing landscape has changed over the years, creating disruptions and distortions for advertising firms and the companies whose products they market.

Few game changers have been as self-dealt as this week’s decision by CVS, the second-largest drugstore in the nation, to pull all tobacco products from their stores.

The unprecedented move is estimated to cost over $2 billion a year in profits. It could be even more as tertiary sales of candy, soft drinks, etc., are entered into the equation. The announcement has been met with emotion and comparison. The positive PR might be worth more than the lost earnings, and the comparisons to Chick-fil-A not being open on Sundays are just beginning.

William VanNess II, M.D., the Indiana State Health Commissioner noted, “This is a strong public health intervention that will reduce the availability of cigarettes and other tobacco products and sends a message to all Hoosiers, especially children, that tobacco use is uniquely harmful.”

There are skeptics too. One non-supporter pointed out that he can buy junk food with zero nutritional value but cannot buy smokes: “Who gets to decide what I get to use to kill myself?”

The thing for investors to figure out is what is next? Will Walgreens respond in-kind? They clearly won’t get the PR for saying “us too!” Some believe the move was required by CVS if they were to remain legitimate players in the future of health care.

Gary Brazel, M.D., chief medical officer at St. Vincent Anderson Regional Hospital said, “CVS’s decision to stop selling cigarettes is a great move for better health. Cigarette smoking causes about one of every five deaths in the United States each year. This is why St. Vincent Anderson Regional is a no-smoking campus. There are likely many reason CVS made this decision at this time, but one thing is certain...this is a bold move in the right direction for the health of our communities.”

The timing of the announcement is interesting. The historic surgeon general’s report that indicted cigarette smoking for causing lung cancer just celebrated its 50th anniversary. The 2014 Surgeon General's report calls for a renewed focus on the nation’s number one cause of preventable death and disease.

Ultimately changes in tobacco consumption in the United States remain debatable but this move does draw attention to the costly issues that surrounds cigarette smoking. The politicians and health-affiliated industries have to be publicly supportive. There will be altered ad campaigns, new products in stores with prime space, unhappy customers in some instances of course, new customers who embrace the move and so much more. As an investor, your job is to look at disruptions and distortions in the business cycle and profit from them. The chain of events that will emerge from this move will clearly alter the earnings landscape in more than just one business.

Joseph “Big Joe” Clark, whose column is published Saturdays, is a certified financial planner. He can be reached at bigjoe@yourlifeafterwork.com or 640-1524.