CVS Caremark Snuffs Out Tobacco, but How Far Will They Go?
A great development last week from the evolving world of companies aligning business strategy with their social purpose – the splashy and heavily publicized decision by the US-based CVS Caremark pharmacy chain to “stop selling cigarettes and tobacco products at its more than 7,600 stores nationwide by October 1, 2014.” CVS’ own full-page ad in the Boston Globe summed it up best by saying “The sale of tobacco products is inconsistent with our purpose – helping people on their path to better health.”
The accompanying reportage in the Boston Globe quoted unnamed “analysts” who seem to miss the point by implying that since tobacco sales represent less than 2% of CVS Caremark’s Corporations annual revenues, it was not really a material impact on the company. Fortunately, the article proceeded to the heart of the matter indicating that this move would improve CVS’ strategic positioning by “making it easier to form partnerships with doctors, hospitals, and insures and allow the chain to expand its brand as a health care provider – a business expected to become more lucrative as the population ages and the new federal health care law increases demand for basic services such as check-ups.”
In other words, aligning what’s for sale in the store (health care products, basic medical services, prescription and over the counter pharmacy products) with what CVS Caremark is trying to accomplish as a business trumps whatever their tobacco buyer is thinking about in terms of volume, margin and turnover behind the counter. Undoubtedly, the company also will benefit from some, admittedly less-easy-to-quantify, halo effects as President Obama among others hailed the positive signals this change sent to other tobacco retailers and consumers. Apparently, CVS has concluded that the tension between trying to be in the health care business and selling tobacco was too much to bear.
What I like about all of this is bringing the purpose of the business front and center. My colleagues Marc Pfitzer and Valerie Bockstette talked about this trend of re-aligning business strategy with social purpose in their September 2013 HBR article on the role of shared value in the social innovation process. This trend isn’t completely new; for example, doesn’t it seem like IBM has been building Smarter Planets and Cities for a few years now instead of selling mainframes? But what is new, or at least still clearly evolving, is the translation of these top-line reformulations of business purpose into concrete business strategy decisions. In other words, we’re all about a Smarter Planet now – at a high level, we’re sold on it. But what does that mean in the 100+ geographies and numerous client segments in which your company works? How does that change how you develop, sell, and market products and services? How do you make capital allocations differently with that business purpose in mind, and how do you communicate success to Wall Street differently?
Given this ongoing evolution to purpose, there’s a deeper and more interesting story that I’d like to know behind the announcement. It’s the story of the business decision-making process, the executive conversations, the financial modeling, the consumer demand analysis, and the vendor conversations that all led to this moment. Visibility into that process would clearly indicate the depth and thoughtfulness in which CVS Caremark is considering these decisions and – perhaps most intriguingly – how far the company is willing to go in order to align their purpose with their business strategy.
Because if you pause for a moment (and I don’t mean to be cynical), what’s amazing is how much attention CVS received for this decision and the clear message it sends: We’re about health, we currently sell products that can negatively impact your health, and now we are going to stop selling them. But, isn’t there a much bigger lurking grey zone within those same 7600 CVS stores? For instance, are they now considering their assortment of convenience food items (many unhealthy) differently and building a long-term pathway for a different assortment or consumer education around their purchase and consumption? Is carrying unhealthy food as inconsistent to their purpose as it was to carry tobacco?
I’m not suggesting there’s an easy answer to this question, and I’m not suggesting that CVS has to become a health food store. But, visibility into the decision-making mindset of CVS Caremark would illustrate how far they are willing to go to align purpose and strategy… and importantly for what intended business and social outcomes.