CVS, Cigarettes, and TRUE North

By February 14, 2014 Uncategorized No Comments

CVS Caremark, the country’s largest drugstore chain with more than 7,600 stores nationwide, recently announced that it plans to stop selling cigarettes and other tobacco products by the end of October 2014.

From a pure revenue standpoint, it’s a puzzling move: every year, CVS earns approximately $2 billion from the sale of tobacco — a small portion of the retailer’s total income (about $123 billion), but still far from pocket change.

But from where I stand, it makes perfect sense: selling cigarettes simply doesn’t align with the organization’s TRUE North.

Over the last few years, CVS has taken great strides to transform itself from “just another retailer” into a true health care company, introducing in-store medical clinics, a medically supervised weight loss program, and, yes, even a smoking cessation program. Given this shift in purpose, it makes as much sense for CVS to sell cigarettes as it would for a hospital gift shop.

CEO Larry J. Merlo explained the decision in this statement on the CVS website (emphasis mine):

“The sale of tobacco products is inconsistent with our purpose helping people on their path to better health. […] By removing tobacco products from our retail shelves, we will better serve our patients, clients and health care providers while positioning CVS Caremark for future growth as a health care company. Cigarettes and tobacco products have no place in a setting where health care is delivered. This is the right thing to do.”

In other words, it’s the right move to keep this powerful organization on the TRUE North course that Merlo has established… and the brand’s top competitors may soon follow suit. Both Walgreeens and Rite-Aid have released statements indicating that they too are reviewing their product mixes.

It also emphasizes that not all TRUE North course adjustments are comfortable — in fact, most of them aren’t. Two billion dollars is a lot of money to turn down, even if it does represent less than 2 percent of the retailer’s overall revenue. The short-term impact may well be painful, but history has been shown to favor organizations who are willing to make tough decisions in staying true to their purpose.

OK, your turn: Do you think CVS’ decision to stop selling tobacco will benefit the company in the long run? And if the lost revenue does require some short-term belt-tightening, will employees and shareholders be willing to stick it out?

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