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VOL. 129 | NO. 25 | Thursday, February 06, 2014

CVS Caremark Plans to Stop Tobacco Products Sales

MICHAEL FELBERBAUM & TOM MURPHY | AP Business Writers

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CVS, the nation's second-largest drugstore chain, is kicking the habit of selling tobacco products as it continues to shift its focus toward being more of a health care provider.

The company said Wednesday that it will phase out cigarettes, cigars and chewing tobacco by Oct. 1 in its 7,600 stores nationwide, in a move that will help grow its business that works with doctors, hospitals and others to improve customers' health.

The move is the latest evidence of a big push in the drugstore industry that has been taking place over several years. Major drugstore chains have been adding in-store clinics and expanding their health care offerings. Their pharmacists deliver flu shots and other immunizations, and their clinics now manage chronic illnesses like high blood pressure and diabetes and treat relatively minor problems like sinus infections.

Among other things, they're preparing for increased health care demand. That's in part due to an aging U.S. population that will need more care in future years. It's also the result of the millions of people expected to gain health insurance under the health care overhaul.

As CVS has been working to team up with hospital groups and doctor practices to help deliver and monitor patient care, Chief Medical Officer Dr. Troyen A. Brennan said the presence of tobacco in its stores has made for some awkward conversations.

"One of the first questions they ask us is, 'Well, if you're going to be part of the health care system, how can you continue to sell tobacco products?'" he said. "There's really no good answer to that at all."

CVS Caremark Corp., which has 7,600 stores nationwide, said it will lose about $2 billion in annual revenue by phasing out tobacco, but the move will not affect its 2014 earnings forecast. CVS notches about $1.5 billion annually in tobacco sales, but it expects a bigger hit because smokers often buy other products when they visit their stores. The company brought in more than $123 billion in total revenue in 2012.

The company declined to say what will take tobacco's prominent shelf place behind cash registers at the front of its stores. CVS will test some items and may expand smoking cessation products that are sometimes sold near cigarettes.

Its drugstores do not sell electronic cigarettes, devices that heat a liquid nicotine solution and create a water vapor that users inhale. CVS also plans to expand its smoking cessation efforts. That includes training pharmacists to counsel people on how to quit.

"We've come to the conclusion that cigarettes have no place in a setting where health care is being delivered," said CVS CEO Larry Merlo, who noted that many of the chronic conditions their clinics treat are made worse by smoking.

The company's tobacco plan drew praise from President Barack Obama, who said the decision will help his administration's efforts to reduce tobacco-related deaths, cancer, and heart disease, as well as lower health care costs.

Tobacco is responsible for about 480,000 deaths a year in the U.S., according to the Food and Drug Administration, which gained the authority to regulate tobacco products in 2009.

The federal government has renewed efforts to reduce the death and disease caused by tobacco use on the heels of the 50th anniversary of the landmark 1964 surgeon general's report that launched the anti-smoking movement. A new 980-page report issued last month by acting Surgeon General Boris Lushniak also urged new resolve to make the next generation smoke-free.

CVS competitors Walgreen Co. and Rite Aid Corp. both sell tobacco and smoking cessation products, as does the world's largest retailer, Wal-Mart Stores Inc., which also operates pharmacies in its stores. But Target Corp., another major retailer with pharmacies, does not tobacco.

Both Walgreen and Rite Aid representatives said Wednesday that they are always evaluating what they offer customers and whether that meets their needs.

The nation's biggest cigarette maker, Philip Morris USA, said in a statement Wednesday that it is up to retailers to decide if they're going to sell tobacco products. Philip Morris is owned by Richmond, Va.-based Altria Group Inc.

On its own, the CVS move won't hurt cigarette companies much. Drugstores overall account for only 4 percent of cigarettes sold. That pales compared to gas stations, which generate nearly half of those sales. But it's another in a long line of changes that have led cigarette sales to fall because of health concerns, higher prices and taxes, and social stigma.

Several cities, including San Francisco, Boston and many smaller Massachusetts communities have considered or passed bans on tobacco sales in stores with pharmacies. Other places like New York City have sought to curb retail displays and promotions and raise the legal age at which someone can buy tobacco products.

U.S. retail sales of tobacco, which is comprised largely of cigarettes, were about $107.7 billion in 2012, according to market researcher Euromonitor International.

The share of Americans who smoke has fallen dramatically since 1970, from nearly 40 percent to about 18 percent. But the rate has stalled since about 2004, with about 44 million adults in the U.S. smoking cigarettes. It's unclear why it hasn't budged, but some market watchers have cited tobacco company discount coupons on cigarettes and a lack of funding for programs to discourage smoking or to help smokers quit.

Tim Watt walked out of a downtown Indianapolis CVS store Wednesday with a fresh pack of Pall Malls. The 54-year-old Indianapolis resident said he buys most of his cigarettes from CVS because the Pall Malls are 20 cents to a dollar cheaper there than at other locations. Watt collects unemployment and is on a tight budget.

Even so, he said he wasn't worried about his supply drying up when CVS stops selling tobacco.

"I'll just find someplace else or I'll just start going to the really cheap (cigarettes) at the tobacco outlets," he said.

Murphy reported from Indianapolis, and Felberbaum reported from Richmond, Va. AP Writer Carlo Piovano in London also contributed to this report.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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