CVS’s move to quit selling tobacco products in September 2014 was the catalyst in a makeover for a corporation known historically as a drugstore chain.
The company has opened more than 1,100 in-store clinics through the MinuteClinic brand, adopted a new concept store model called HealthHUBs after a pilot in Houston and acquired health insurer Aetna.
CVS is also cutting floor space for certain retail products, like poorly selling greeting cards, and devoting more space to health care, such as a new partnership with teeth-straightening service SmileDirectClub.
Taken together, the decisions illustrate the company’s evolution away from its image as a drugstore. The companys chief rivals, Walgreens and Rite Aid, each recently raised the minimum age to buy tobacco products to 21 but continue to sell them.
To be sure, CVS continues to operate about 9,600 locations, including standalone stores and pharmacies run inside Targets.
But as the company fends off online retailers and faces the prospect of pharmacy competition from Amazon, it’s under pressure to continue its transformation to ensure it doesn’t get caught up in the same crisis that has engulfed many traditional retailers.
In an interview with USA TODAY’s Nathan Bomey to mark the five-year anniversary of the company’s move to end tobacco sales, CVS CEO Larry Merlo discussed the role of that decision to drop tobacco in paving the way for the company’s future.
Excerpts from that conversation, condensed and lightly edited for clarity:
USA TODAY: How has this decision affected American public health?
Larry Merlo: In states where CVS Pharmacy had a market share of 15% or more, there was a direct correlation to the amount of tobacco that was sold in those markets. That translated into almost 100 million fewer packs of cigarettes being sold in states across the country.
What we found from research was that people who purchased their cigarettes exclusively from CVS Pharmacy were about 38% more likely to stop buying cigarettes altogether. We heard that anecdotally from our store teams, our pharmacists and our customers – this phrase, “When you quit, I quit.”
Did you lose foot traffic because of this decision?
We sold approximately $2 billion of tobacco and related items. We didn’t make up $2 billion worth of revenue in a direct way.
But that decision became an important foundational moment and a foundational decision for our company as we were on this journey of becoming more of a health care company. So as you look today, we have more than made up for the shortfall that may have created.
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Those customers buying tobacco that were using the CVS Pharmacy more as a convenience store … just shifted over to a convenience store or even some of the gas stations that offer convenience products like tobacco.
But customers who did use the drugstore for more items – whether it was their over-the-counter or personal care items or even pharmacy items – they continued to remain loyal CVS customers.
You’ve announced a series of things in the last few years to begin to remake the stores, and the HealthHUB concept is one of the significant ones recently. Can you envision a day when the CVS store looks so much different that someone wouldn’t recognize it a decade ago?
I think our HealthHUBs are a reflection of the evolution of what some would describe as the corner drugstore. The HealthHUB is more of a destination. It’s anchored by pharmacy services and MinuteClinic related services and some other health services, but it continues to offer elements of convenience that focus on health and wellness as well as personal care and beauty and other elements of convenience as people think about their shopping trip.
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(The plan is) to have 1,500 HealthHUBs across the country by the end of 2021. So that reflects the experience that we’ve had in Houston and that experience validating our beliefs and our strategy of making health care more local and meeting people where they are in their community.
Can you envision using your ownership of Aetna in the future to begin to nudge people to get health care services at a MinuteClinic or HealthHUB?
Think about the person that goes to the emergency room because they have a sore throat and 101-degree temperature. The cost associated with providing the care required for that particular ailment in an emergency room is probably 10 to 15 times what the cost would be if that person visited a retail clinic.
That’s where we have opportunities in health care today. We haven’t done an effective job of matching cost associated with the required care.
But do you think you need to consider structuring the insurance plans to make sure that people visit those MinuteClinics to get better health care services?
Some of it is really tied to education and awareness in terms of understanding the relative costs associated with each of those care settings.
If someone is experiencing chest pains, yeah the emergency room is the place they need to get to. And that’s very different than the example that I was providing around a sore throat and 101-degree temperature.
With tobacco being a significant health crisis for America, another one is obesity. Certainly CVS sells some products that contribute to that – candy, sugary beverages. How about taking a step to cut back on those?
We talked about that. These products are different than tobacco in that there’s no amount of tobacco use that can be considered safe.
But (customers said) help educate me about healthier alternatives. We have been working on that very diligently.
Our stores today offer lines of snack products that have no trans fat, lower sodium content, and we have worked to help create awareness and education for our customers in terms of healthier alternatives than the traditional snack items.
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.