Walmart and Walgreens Won't Stop Selling Smokes, But Will The Decision Backfire?

Barbara ThauContributor

No matter that CVS walked away from its $2 billion cigarette business.

“Sin” items sell, and Walmart, Walgreens and Family Dollar, among the biggest sellers of smokes in the U.S., have no plans to drop cigarettes from their stores, they told Forbes.

It’s a stance that over time could strike a dissonant chord for shoppers amid a consumer culture that is rapidly changing, where health and wellness increasingly takes center stage.

Retail chains are playing a burgeoning role as healthcare providers with the rollout of out in-store clinics; the wellness movement is moving from the margins to the mainstream; and some states are banning the sale of tobacco in retail pharmacies.

Still, Walgreens, Walmart and Family Dollar, for one, are holding firm.

Sticking With ‘Sin’

Family Dollar added cigarettes, known along with alcohol in the industry as a “sin” item, to its merchandise mix in 2012, and it’s now sold in most of its 8,200 stores.

“At Family Dollar, our goal is to listen to our customers and tailor our in-store offerings based on the comments and feedback they provide,” Bryn Winburn, public and media relations manager for Family Dollar, told Forbes. “Based on such feedback, our stores began offering tobacco products in 2012, and, at this time, we have no plans to alter or discontinue the sale of these items.”

But while Family Dollar doesn’t operate health-related pharmacies and clinics in its stores, Walgreens and Walmart do. Nonetheless, neither will cease the sale of tobacco.

Walgreens, the nation’s largest drugstore chain, which sells cigarettes in most of it 8,200 stores and operates health clinics in about 420 stores, said that retail pharmacies account for only 4% of cigarette sales. “As a result — as many health experts and even a recent doctor survey have noted – a retail pharmacy ban on tobacco sales would have little to no significant impact on actually reducing the use of tobacco,” spokesman Jim Cohn said in a statement.

“As the U.S. retail pharmacy leader and health care partner in offering smoking cessation programs, products and initiatives … our goal is to help get the U.S. smoking rate, which has leveled off at around 18% of the adult population for a decade, moving lower again.”

A Tone-Deaf Stance?

Although Walgreens says it won’t drop tobacco, they might be forced to, said Dirk Defenbaugh, managing director of Interbrand Design Forum for Interbrand, the branding consultancy. Because cigarettes are such a big business, CVS’s decision marks a  “landmark ban that is really putting a stake in the ground about being a healthcare company,” he told Forbes.

CVS said it could not in good faith call itself a healthcare company with cigarettes lining its shelves, and Walgreens might decide that it faces the same public-relations predicament, particularly as they “specifically talk about being a health-oriented company,” he said, an image that’s trumpeted by its “At the Corner of Healthy and Happy” tagline.

You can bet that Walgreens will be watching CVS closely to see if the cigarette ban has cost them market share, he said. “They’ll be looking at market share on a market by market basis.”

Target TGT +0.53% stopped selling cigarettes in 1996 without sinking its profit margins, according to Interbrand.

But its archrival Walmart won’t drop cigarettes, Brooke Buchanan, a spokesperson for the nation’s biggest retailer, told Forbes.

More than 4,000 of Walmart’s 4,281 U.S. stores include pharmacies, and cigarettes are sold in most if not all of its stores, she said.

The retailer operates health clinics in about 112 stores via the Walmart Care Clinic program it’s piloting in a dozen locations, as well as in leased clinics run by health providers in about 100 stores.

Since the Walmart brand doesn’t stand for health, “selling tobacco is less damaging from a brand perspective,” Defenbaugh said.

Whether or not that position is sustainable remains to be seen.

In the U.S., health clinics inside retail chain stores have doubled over the last six years led by CVS, which plans to operate 1,500 in 35 states by 2017, according Interbrand’s 2014 Best Brands Report.

What’s more, as the Affordable Care act has granted more consumers healthcare, “an inevitable shortage of physicians, in conjunction with the convenience of store hours, makes retail [clinics] an attractive alternative to slow traditional systems,” the Interbrand report said.

And while cigarettes are still a big business, generating $85 billion at retail, sales are on a downward slide, dropping around 3% to 4% a year, according to aWells Fargo WFC -0.78% Securities, report on U.S. tobacco trends by Bonnie Herzog, senior analyst.

“Over the last few years, the decline has accelerated, largely due to smoking bans, health concerns, pricing and other government regulations,” Herzog said in the report.

Regulation, Wellness Trend Threaten Cigarette Sales

Today, cigarette sales are prohibited in some parts of California and Massachusetts.

An industry analyst, speaking on the condition of anonymity, said retailers might eventually be regulated out of the tobacco business, so why not opt out early and reap the public-relations rewards?

San Francisco was first to prohibit the sale of tobacco products in retail pharmacies in 2008, a ban that included independent pharmacies and drugstore chains such as CVS and Walgreens, but excluded supermarkets and big box stores like Walmart.

In San Francisco, Walgreens cried foul, and filed a lawsuit claiming “unconstitutional discrimination,” in a bid to prevent the implementation of the city’s tobacco-free pharmacy law. Courts denied the request.

Meanwhile, as the aging population explodes and more baby boomers enter the ranks of senior citizens, health consciousness is on the rise.

At the same time, health and wellness-oriented products are moving from niche status into the mainstream, evidenced by the launch of merchandise programs such as Walmart’s new Wild Oats organic product line and Target’s new Made to Matter natural, organic and sustainable collection of food, cleaning and personal care products. So national retail chains that peddle cigarettes, the leading preventable cause of death, open themselves up to appearing at odds with the times and consumer lifestyle trends.

According to “The Wellness Uprising,” a national study of 2,008 consumers by retail marketing consultancy WSL Strategic Retail, 69% of shoppers want stores to sell a broader selection of healthier choices, and 68% want stores to help them make healthier choices through products, signing, information, education and sales staff.

“Today, Americans are very conscious about the need and value of living a healthier life.  They want retailers to help them make healthier choices in terms of the products they carry and information and service they offer.  However, they don’t trust all retailers to deliver,” Wendy Liebmann, CEO of the firm, told Forbes.

Only two-thirds trust their chain drug store. Which speaks to why drug stores need to create a more credible health proposition — beyond the pharmacy — if they want to keep shoppers in their stores.”

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