CVS Caremark Corp. said it will lose about $2 billion in annual revenue by phasing out tobacco.
New York, NY (PRWEB) February 10, 2014
The recent announcement by U.S. drugstore giant CVS that its locations will phase out sales of tobacco products (http://info.cvscaremark.com/newsroom/press-releases/cvs-caremark-stop-selling-tobacco-all-cvspharmacy-locations) is jarring but should not be surprising, according to healthcare market research firm Kalorama Information. Kalorama says much of the revenue lost will be replaced by new markets that may not have been sustainable if the firm didn’t make the move. Kalorama’s recent report on retail clinic markets calculated the direct and indirect income from clinics within drug stores, a business that Kalorama said is greatly enhanced by the move.
CVS Caremark Corp., which has 7,600 stores nationwide, said it will lose about $2 billion in annual revenue by phasing out tobacco, but the move will not affect its 2014 earnings forecast. CVS notches about $1.5 billion annually in tobacco sales, but it expects a bigger hit because smokers often buy other products when they visit their stores.
“It’s a sacrifice, but not as much as it might appear,” said Bruce Carlson, Publisher of Kalorama Information. “The potential for the retail clinics market might mitigate a good amount of that revenue, and strategically it’s a much better market in terms of their competitive position than the cigarette market which has many venues.”
Kalorama estimated a 1.4 billion dollar retail clinic market in 2013, of which CVS is a significant player. An additional $450 billion may be earned by the stores by patients who enter a retail clinic and then buy OTC drug products. In the next five years, if clinics in stores grow, these revenues have the potential to double, according to Kalorama’s report.
However, Kalorama notes that these trends were endangered by continued tobacco sales. CVS is already a U.S. retail clinic leader, operating around one out of every two retail clinics in the country. Positioning will be key for CVS and other retail clinics seeking inclusion in emerging patient care models, which figure to capture market growth from the ACA-newly insured and aged population. According to Kalorama, drugstores are the prime venue for retail clinics due to pre-existent healthcare-oriented business models, including an onsite pharmacy.
“The relationship between pharmacies and retail clinics is natural within the consumer’s mind, and explains the relative success of drugstore clinics compared to grocery store clinics that have recently been subject to closures and contraction,” said Emil Salazar, analyst for Kalorama Information. “Selling an unhealthy product might have been unsustainable given the areas the brand wanted to expand into.”
Greater consumer awareness of retail clinic services, however, will likely hinge on their acceptance within the health community. As CVS has been working to team up with hospital groups and doctor practices to help deliver and monitor patient care, the presence of tobacco in its stores has made for some awkward conversations.
Retail clinics are also poised to add business from areas of patient demographic growth in the United States. Working with traditional healthcare providers, retail clinics can more frequently monitor patient care and conveniently provide preventative care services to aged patients. The value of such services and the expediency at which retail clinics can provide them are increasingly recognized in the United States, where coordinated care (CCOs) and accountable care organizations (ACOs) are able to be reimbursed for patient outcomes rather than services rendered. The expansion of the U.S. insured population as a result of the ACA will also include many new patients between the ages of 18 and 44.
Kalorama Information’s report contains surveys of retail clinic customers, statistics on the number of clinics in the United States by key cities. For information on “Retail Clinics 2012: Growth of Stores, Consumer Opinion Surveys, Winning Competitors, Supplier Sales of Products to Clinics, Clinic Sales Forecasts and Trends,” please visit: http://www.kaloramainformation.com/Retail-Clinics-Growth-7229565/.
About Kalorama Information
Kalorama Information, a division of MarketResearch.com, supplies the latest in independent medical market research in diagnostics, biotech, pharmaceuticals, medical devices and healthcare; as well as a full range of custom research services. We routinely assist the media with healthcare topics. Follow us on Twitter, LinkedIn and our blog.