Will Walgreen Follow CVS' Anti-Tobacco Move?

CVS plans to stop selling tobacco products and Walgreen is likely to follow. Will this contagion hurt Altria?

Feb 23, 2014 at 11:00AM

CVS' (NYSE:CVS) well-publicized decision to stop selling tobacco products in its stores was done for all the right reasons from a health perspective. The company reckons that the move will cost it around $2 billion in annual sales, which is under 2% of its 2013 revenue. However, now that CVS has made the first move, pressure has been increasing on Walgreen (NASDAQ:WBA) to also remove tobacco products from its stores.

A trio of organizations which included the National Consumers League, the Center for Science in the Public Interest, and the Change to Win Retail Initiatives sent a letter to Walgreen asking the company to remove tobacco products from its 8,700 stores. The letter highlighted survey results which showed support for the move from the American public as well as the American Pharmacists Association and the American Medical Association. So, all-in-all, there are quite a few people pushing for the removal of tobacco from stores. 

Unfortunately, it looks as if Walgreen might take the plunge. As of yet there is no evidence to support this view but it would be a perfect time for the company to do so, especially with so much pressure building. Indeed, the Walgreen mission statement is to help the consumer "get, stay and live well" so some could say that the company should never have stocked tobacco products in the first place. What's more, like CVS, Walgreen could find that now is the right time to cut tobacco from its stores, as whatever revenue it loses from the move it is bound to recover.

Why is this the case? Well, some analysts have brought up the issue of the Affordable Care Act, Obamacare in other words, which is going to bring insurance coverage to 50 million previously uninsured American's. The Act is also likely to push heath care prices up across the board, which is likely to drive patients to seek prescriptions over expensive health care facilities. So, analysts have speculated that this surge in prescriptions will more than offset the decline in revenue from tobacco sales for CVS and the same could be said for Walgreen. 

Is big tobacco worried?
It would appear that on the face of it, big tobacco does not need to be worried. In particular, according to the Financial Times, sales of cigarettes from drugstores only make up a tiny fraction of the $90-billion US tobacco market. This implies that cigarettes companies like Altria are unlikely to see a major impact from the decision. According to Nik Modi of RBC Capital Markets:

Over 75 per cent of tobacco sales come from convenience stores, so the drug channel is not that big, 

Further, it would appear that CVS as well as other drugstores will still stock smoking cessation aids, or as Philip Morris International and Altria (NYSE:MO) like to call them, 'reduced-risk products', and both Philip Morris and Altria have been working to increase their share of this market during the past year.

For example, Altria already has two 'reduced-risk' products for sale within the United States. These products are Verve, a chewable nicotine product, and Denmark, a type of gum that contains tobacco. Altria is also receiving several new reduced risk products as part of a technology-sharing deal agreed upon recently with Philip Morris. In exchange for the 'reduced-risk' products, Philip Morris is receiving exclusive rights to market Altria's e-cig products outside of the US. Now, I could mention electronic cigarettes here and say that Altria will benefit from sales of e-cigs in drug stores, but due to the regulatory environment surrounding e-cigs I'm not comfortable with making this claim.

Foolish takeaway
So in conclusion, there is pressure building on Walgreen to follow in CVS' footsteps and remove tobacco products from its stores and it would seem that right now would be the right time to do it. On the other hand, so far big tobacco does not seem to be worried by this move. If anything, Altria is likely to benefit from its ownership of reduced-risk products, which are likely to become more prominent in CVS' stores following the removal of tobacco. 

A dirty little secret
Few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Rupert Hargreaves owns shares of Altria Group. The Motley Fool recommends CVS Caremark. The Motley Fool owns shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers