It certainly opened my eyes Wednesday morning to see the news that CVS was going to stop selling tobacco products later this year. How bold. A retailer ditching one of the staples of the local drug store. It was certainly revolutionary to have an entire category dumped altogether, not just trimmed or reorganized.
Why do it? How does it benefit CVS? And how could CVS have come to the decision that this was the right thing to do?
Before I write further, a full disclosure that Ignite 360 has not done any work for CVS on this initiative so this is all speculation on my part. We have done work inside CVS locations on behalf of other clients but it has not been in relation to this initiative. Still, it's intriguing to think about the inputs that would have gone into the decision.
First - the why? Did CVS have a sudden crisis of conscience about the products they are selling vs. the mission they have set for themselves? Probably not. At least not significantly. Otherwise why give cigs the boot but keep the booze? I'm sure it was clear that these "vice" products are in contradiction to their mission to be a health care company, but they still represent billions of dollars in sales each year and they risk angering existing consumers. And I'd venture to guess that more people buy alcohol at CVS than purchase tobacco products.
As you start to peel the decision back however, it begins to make sense. CVS now has first mover advantage in declaring its positioning as a health care company offering everything you need to live a healthy life. It certainly had me thinking that, given the choice, I'd visit CVS over Walgreens. CVS benefits by being more purely aligned to their mission.
Additionally, they may have found that they weren't making as much money off cigarettes in that valuable front of store space. Reports indicate tobacco sales are less than 2% of total sales at CVS. Not nearly as much of a risk as if they got rid of a category that represented a higher percentage of their sales.
The fact that this sales number was as small as it is indicates that people aren't going to the drug stores for cigarettes as much as they visit other retail channels such as the gas station. Spend a few minutes in the convenience store or a gas station and it's clear where the cigarette sales are.
So if you are giving valuable real estate to a product that isn't a primary driver to the store for a large group of customers, could it be more valuable if used for something else?
Imagine what it felt like for that individual (or group) that dared heresy and suggested getting rid of cigarettes altogether. That takes courage in today's typical corporate environment where decision by committee and risk aversion rules lest Wall Street get upset. CVS may be proving they aren't your typical corporation.
So you've got a suggestion that's rather daring, you need to prove to management that your recommendation won't sink the ship and will actually improve shareholder value. What do you do? What are the big questions to get answered in order to take it to the C-level (presuming the idea didn't start there).
I'd venture a guess that the questions included: How much risk do we face from losing visits from shoppers who buy cigarettes? How does it change consumers perception of the CVS brand? What do we put in its place?
For risk - I'd venture that their quant and qual studies showed that yes, they'd obviously lose visits from shoppers who came in to buy tobacco, but that the number of other reasons people visit CVS means they wouldn't leave altogether. Inertia is difficult to generate to drive a complete change in retailer preference and two strong factors would limit someone's migration: the first is physical location, the second is prescriptions.
We are creatures of habit. We shop driving a routine pattern and rarely want to go out of our way. That's why there are coffee shops across the street from each other. You aren't about to take a left and cross traffic to visit one coffee shop if the rest of your routine is on the right hand side of the road. The same is true for your drug store. If all the remaining chains are carrying the same products, including the latest venture into fresh foods and expanded grocery items, then why bother to cross the road? You don't, you keep on your path to save time and energy.
As for prescriptions - if you've ever tried to move them from one pharmacy to another, it's just enough of a hassle that you don't really want to bother. Once CVS, Walgreens or Target has you in their system, its tough to get people to switch. So the tobacco user might not visit CVS as much, but they won't stop altogether. These factors will mitigate the flight of the customer altogether and keeps the size of the damage relatively small and contained.
Next big question: How will the brand be perceived? Depending on who you ask and how you ask the question (always the thing to be careful of with research if you want reliable results), the non-smoking population is probably going to indicate that yes, they'd love to shop at a store that doesn't sell those products. The consumer thinking usually goes "I don't buy that, so I don't need my store to stock it. I'm happy to part with it." And since it's a 'vice' product, you feel just a little bit superior (in that Church Lady sort of way) by turning your nose up on smoking.
And doesnt 't just feel like the right answer to indicate that you'd feel better about a retailer that doesn't sell tobacco. (but what about alcohol???) So that certainly would tell CVS that this is a good move.
The real question is - what will go in the place of the cigarettes? That's valuable real estate. There are many options CVS could consider, here are two that come immediately to mind...
1 - re-imagine the whole front section with new self-checkout registers with more relevant impulse items that are easy to access.
2 - create an ultimate snack solution center with many forms of "healthy" food and beverage available (like one of my recent favorites, aloe juice)
So CVS executives were probably faced with a decision that, when laid out, isn't as risky as it might have seemed. Product that wasn't a top seller, limited risk of losing customers completely, opportunity to re-imagine the front of the store, improved perception among a larger segment of customers and truly align to the mission of being a health care company which is where they want to head.
When looked at from this perspective, it feels like a no-brainer.
So the question remains - what will CVS put in that space? What would you do? I'd love to hear your thoughts.