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CVS’s Big Move Could Change the Face of Retail

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With CVS’s recent announcement to ban cigarette sales by October 1, 2014, comes some questions and opportunities. How will this affect overall sales and what will consumer reaction be? Will similar retailers follow suit?

This bold move by CVS reflects the opportunity for the chain to boost its image in the public eye, in being an advocate for public health and the Affordable Care Act. The desire for CVS to position itself as a health-care provider, in addition to being the one-stop shop for cosmetics and greeting cards, shows a different kind of social engagement in retail that may be the beginning of a trend.

While many see this as a move to benefit the health and well-being of consumers, this shrewd move has other more practical implications. While cutting cigarette sales will cost CVS $2 billion a year in lost sales, the expected gain will be seen in acquiring more deals with health insurers and hospitals. Analysts have seen the use of retail health clinics, which offer basic inexpensive medical services, grow rapidly during the recession. It is expected that this trend will continue as millions of Americans get coverage under ACA.

Last year, CVS publicized that it would help promote the health law and it now offers in-store ACA experts at promoted events and an online guide for consumers. Additionally, the chain will offer “bridge prescriptions” to anyone facing coverage interruption.

With new health laws in effect, this cigarette ban could create more incentives to encourage doctors, hospitals and pharmacists to help patients become healthier. CVS could make more deals with traditional health-care providers, which could provide financial bonuses, if the pharmacy helps reduce smoking rates among patients.

CVS will also roll out an anti-smoking campaign in the spring with in-store and online components.

CVS’s MinuteClinics have grown in number and stature. With 750 MinuteClinics, CVS has the country’s largest chain of pharmacy-based health clinics. The clinics have allowed the company to pursue contracts with hospitals and health plans, often to provide primary care services on weekends and evenings, when doctors’ offices tend to be closed. In 2012, visits paid for by employers, health insurers and other third parties accounted for almost 85% of MinuteClinic’s total revenues.

While these in-store health clinics sought to offer pay-up-front health care to people who may have previously gone to emergency rooms, in fact, the majority of CVS’s revenue is now coming from insured customers. And with ACA in full swing, that group is growing at a rapid rate.

This strategic move is sure to reap big benefits for CVS, since they’ll be seen as white knights helping to sort out customers’ insurance questions, and more importantly, when people are insured, CVS gets more paying customers who will spend more on other items while in the store.

Other big retailers and pharmacies are sure to follow suit as CVS’s bold move is making competitors jump to respond. With health care making up a fifth of the U.S. economy by 2022, Rite-Aid, Walgreens and even Wal-Mart, Target and Kroger don’t want to be left behind and are rushing to open in-store clinics and administer flu shots. Walgreens issued statements saying it plans to educate customers and help them stop smoking by providing “alternatives that help reduce the demand for tobacco products.”

CVS is keenly aware of its evolving brand. It seeks to be a “pharmacy innovation company” that every day is “working to make health care better.” All retailers need to connect with, and at times re-position, their brand according to the changing consumer behavior. “

“Why do you continue to sell cigarettes?’” says Troyen Brennan, CVS’ chief medical officer. “Because from the physicians’ and nurses’ point of view, you’re either all-in for health care or you’re not.”

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