Why It Doesn't Matter If Wal-Mart and Walgreen Stop Selling Cigarettes

It's nice to think that companies like Wal-Mart (NYSE: WMT  ) and Walgreen  (NYSE: WAG  ) could drive a stake through the heart of the tobacco industry if they chose not to sell cigarettes. But this simply isn't the case.

Lawmakers from two dozen states came together over the weekend to call on a handful of major retailers (with pharmacies) to stop carrying tobacco products. Wal-Mart, Walgreen, and Rite Aid were the three most notable companies to receive the formal request.

"Pharmacies and drug stores, which increasingly market themselves as a source for community health care, send a mixed message by continuing to sell deadly tobacco products," said New York Attorney General Eric Schneiderman, who spearheaded the effort.

And according to Ohio Attorney General Mike DeWine, "My fellow Attorneys General and I are asking these national retailers to take an additional step forward in keeping tobacco products away from youth by voluntarily not selling them in their stores with pharmacies."

The move comes after CVS Caremark (NYSE: CVS  ) , another leading pharmacy, began taking tobacco products off its shelves earlier this year. At the time, CVS said its decision will cost an estimated $2 billion a year in forgone revenue, amounting to a roughly 1.6% decline relative to the last 12 months.

Its CEO Larry Merlo was clear that "Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health."

But even assuming that retailers like Wal-Mart and Walgreen follow suit, there's little reason to believe that the tobacco industry will be driven asunder. This is because only a minority, or 8%, of tobacco sales derive from drugstores and supermarkets. By comparison, gas stations account for 48% of sales, while tobacco and convenience stores account for 21% and 16%, respectively.

On top of this, there's reason to doubt whether a company like Wal-Mart would voluntarily stop selling any particular product unless it's obligated to do so. As its current CEO Doug McMillon told The Wall Street Journal five years ago, "It's a big business, so it makes it harder to stop."

The net result is that Wal-Mart, Walgreen, and Rite Aid are stuck between a rock and a hard place. In this regard, they are little different from nicotine-addicted smokers who understand the importance of quitting, but can't get around to doing so.

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Comments from our Foolish Readers

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  • Report this Comment On March 18, 2014, at 4:36 PM, pondee619 wrote:

    Let's stop the grandstanding and the posturing. If you want to ban smoking, ban it. Make the growing, harvesting, possessing and smoking of any and all tobacco products illegal. Or keep raising the taxes on such products until no one can buy them. I got an idea, let's have smokers pay to keep Social Security solvent. What does Social Security need to stay afloat, divide that by the number of packs sold and you've got your tax. That was easy.

  • Report this Comment On March 18, 2014, at 5:37 PM, garyomega wrote:

    It's already ILLEGAL to sell to minors.....morons. Just more damn government nanny behavior.

  • Report this Comment On March 18, 2014, at 5:38 PM, garyomega wrote:

    Do you have the slightest idea of the massive taxes already placed upon the tobacco user in this country? And the states just waste it..easy money alright.

  • Report this Comment On March 19, 2014, at 8:49 AM, pondee619 wrote:

    garyomega:

    Yes, but the object is to stop people from smoking. If you aren't going to outlaw the practive completely and companies won't stop selling a legal product voluntarily, you tax it out of existence. My suggestion was to keep SS solvent for a while on the backs of those evil smokers. But what is done with the money is not relevant, the purpose is to stop people from smoking. You can either outlaw it completely (congress seems unwilling to do this), cajole companies to refrain from a legal money making activity (why would they?) or tax it to death. Take your choice.

    And, while it is illegal to sell tobacco products to minors, I do not think that is is illegal to sell them to morons. Or were you just being gratuitously insulting?

  • Report this Comment On March 19, 2014, at 9:25 AM, Stocklovr wrote:

    Outlawing OR to "tax it out of existence" is ridiculous. All you have to do is look at prohibition. The law didn't stop people from drinking, it created the Al Capone's of the world and taxing it too much will lead to a black market where people will pay zero taxes and the product will still be available - even if it has to come from outside the country. (I can see it now... Speakeasy's for cigarettes.)

    The best bet is to stop trying to control everyone else (i.e., via. the stupid vision of a Nanny State espoused by one political party who think it's their duty to control everyone) and decide how to best live your life to the healthiest and fullest.

    I am a non-smoker and hate the product but own the stocks because people have a right to buy and use a legal product. Period.

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