CVS Makes a Big Bet on Becoming a Health Care Provider

On the surface, today?s announcement that drugstore giant CVS will soon stop selling tobacco products is certainly a shocker to many.  For CVS, this product category represents over $2 billion per year in sales and no doubt generates at least twice that amount from other products customers purchase when they enter the store to buy cigarettes, cigars and chewing tobacco.

But as pointed out in this USA Today story, by abandoning tobacco CVS may be attempting to reposition the company as a little less retailer and a little more health care provider.  Of course, CVS and all other drugstores lean toward health care given their emphasis on dispensing prescription drugs.  But many of these retailers want to expand well beyond filling prescriptions and see a growing opportunity in providing basic front-line medical care.  This can be seen in the rapid expansion of in-store medical clinics now offered by many chain drugstores and other retailers that offer pharmacy services (e.g., Walmart, Target).

From a marketing point of view, CVS needs to present an image of actually caring about patients? health.  Certainly if they offer health care services in one part of the store while selling tobacco products in another, the door is wide open for critics to claim the company is hypocritical and only interested in making money.

So by removing tobacco products, CVS has made a crucial strategic decision that is dependent on the growth of their health care business.  However, it remains to be seen whether the general public will bypass medical offices and accept CVS and other retailers as their first stop for general medical care.  And whether sales from medical services can exceed what CVS is losing by not selling tobacco is certainly something investors will be watching closely.