Could CVS Smokeout Impact Grocery?

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Could CVS Smokeout Impact Grocery?

By Jim Dudlicek, EnsembleIQ - 02/05/2014

The announcement by CVS that it will stop selling tobacco products this fall begs the question: What new taxes are local governments going to come up with now?

Certainly, the decision to end the sale of cigarettes, cigars and related products seems like a no-brainer for a drug store chain. Larry Merlo, president and CEO of CVS Caremark, calls it "the right thing for us to do for our customers and our company to help people on their path to better health," noting that selling tobacco is "inconsistent with our purpose."

This will naturally put pressure on Walgreens and other drug retailers to follow suit -- as well as grocers with in-store pharmacies, many of whom are pushing an overall wellness message, complete with retail dietitians and other related health expertise. Logically, the move against cigarettes makes perfect sense for any retailer in the health and wellness business.

Yeah, So?

But the move by CVS raises an interesting quandary -- possibly on its own, definitely if the movement snowballs -- for local governments that use higher cigarette taxes as the foundation for shoring up their perpetual financial woes. It's not inconceivable to think that, with fewer places to buy cigarettes making them less convenient to obtain, the downward spiral of smokers -- and thus total tobacco tax receipts -- will pick up speed. These same governments that publicly laud a reduction in smoking as a boon to health will be cursing the absence of revenue. (I could go on all day about the two-faced insanity of trying to raise revenue by taxing a product off the market, but no one should be surprised by a two-faced politician).

It's also going to send lawmakers looking for something else to tax. Hmm ... what else does a grocer sell that we could demonize? The groundwork has already been laid for higher taxes on sugared soft drinks, fatty snacks and other foods deemed unhealthy. In CVS' announcement, Merlo further notes: "As the delivery of health care evolves with an emphasis on better health outcomes, reducing chronic disease and controlling costs, CVS Caremark is playing an expanded role in providing care ..."  As I see it, any foods that can in some way be blamed for bad health and promoting chronic disease will be back in the taxman's crosshairs.

(Meanwhile, with drug stores out of the game, convenience stores may recapture some of the cigarette sales they've been losing as the number of smokers have dwindled, and replacing those sales with new fresh food initiatives that have given grocers more competition.)

So as retailers start to jump aboard the no-tobacco bandwagon, watch for governments to ramp up their focus on so-called junk foods, and be ready for them to look beyond as well.