Doctors Prescribe a Pharmacy Ban on Tobacco Sales, Dollar Stores Rejoice

Medical societies join call for separating health centers and cigarettes, but not every one is conflicted.

Jun 12, 2014 at 10:40AM

Major medical associations are rallying pharmacies to follow the lead of CVS Caremark (NYSE:CVS) and ban tobacco sales in their stores.

Earlier this year the pharmacy chain said that by Oct. 1 it will stop selling cigarettes at its more than 7,600 drugstores, saying the contradiction of it caring for its customers' health and selling a major cause of their illness is too great to continue. Although rivals like Walgreen (NASDAQ:WBA) and Rite Aid (NYSE:RAD) have not followed suit, with Walgreen dithering about it "evaluating this product category," the pressure to do so builds. Shortly after CVS' announcement, eight Democratic senators and 28 attorneys general from all across the country sent separate letters to the pharmacy chains calling for them to yank tobacco products from their shelves. President Obama also praised the decision.

So an article appearing last week in Forbes highlighting the American Medical Association, the American College of Cardiology, and other physicians groups either joining the call for or reiterating their advocacy of opposing the sale of tobacco where health services are provided keeps the screws tightened, even if they don't mention Walgreen or Rite Aid by name.

We need growth, stat!
Admittedly, it's odd that health and wellness companies are also selling one of the major causes of sickness and death, but because cigarettes are a big driver of sales, the pharmacies might not be so fast to tag along.

Deep-discount chain Dollar General (NYSE:DG) reported that it was due to the strength of the tobacco products it recently introduced that its consumables category was able to far outpace the growth witnessed in nonconsumables in 2013. Total sales jumped 9.2% last year to $17.5 billion with same-store sales 3.3% higher as traffic and average transaction amount rose.

Similarly, Family Dollar (NYSE:FDO) also reports tobacco as a primary cause for the robust sales growth it enjoyed last year as well as over the first six months of 2014. And though second-quarter comps fell 3.8% because of fewer customer transactions, its results were likewise strongest in consumables because of strong growth in tobacco.

Take heart
With approximately 1 million people every year dying from heart disease in the U.S., it's the No. 1 killer for both men and women. Obesity is one of the leading causes of heart disease, and nearly 70% of American adults are either overweight or obese, with poor diet -- the intake of too much sugar and not enough healthy fruits and vegetables -- being a primary culprit. A recently published study appearing in JAMA Internal Medicine pointed out that "a higher percentage of calories from added sugar is associated with significantly increased risk of [cardiovascular disease] mortality."

So if selling cigarettes is to be taboo, then what can CVS or the medical groups say about the wide aisles featuring row upon row of candy and chips, and the refrigerators stocked with soda, artificially sweetened juices, and ice cream? Why are they not similarly targeted for elimination?

Sweet tooth
CVS says that by taking cigarettes out of its stores, it will be forgoing $2 billion annually in revenues and as much as $0.17, or 5%, of its per-share profits. General merchandise like the snacks it sells, however, comprise almost 15% of its $126.8 billion in annual revenues, or more than than $18.5 billion.

If Walgreen and Rite Aid succumb to the pressure being applied by outside organizations, it may be the dollar stores that become the biggest beneficiary. Certainly, the pharmacies would have a more consistent thesis to their health and wellness mantra, though strains of hypocrisy would still ring out while high-sugar drinks and high-salt snacks are sold on their shelves. However, people who still smoke will continue to do so, and they'll turn to those places where they can still buy cigarettes: the local dollar stores, where no moral conflicts reside.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends CVS Caremark. 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.

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