Russell Moore: CVS’s Freedom of Choice
Monday, February 10, 2014
So I was shocked that more people didn't see through CVS’s public relations gimmick last week when the Rhode Island based retail giant CVS announced that the company’s stores will no longer sell cigarettes to its customers beginning later this year.
"Put simply, the sale of tobacco products is inconsistent with our purpose," said Larry Merlo, the CEO of CVS.
Not The Peace Corps
CVS's purpose is to make money. And their executives are primarily, if not exclusively, concerned with driving up the company’s profits in order to increase the stock price for their shareholders. That’s the name of the game. CVS is not The Peace Corps.
So by announcing that the company was discontinuing its cigarette sales, it’s clear that the company did a mathematical calculation of the losses in revenue—reportedly $2 billion—due to ceasing cigarette sales, compared to the increased sales of whatever they’ll be replaced with, plus the free advertising due to the public relations win, and decided cigarettes should be phased out.
Remember: $2 billion in sales doesn't equal $2 billion in profits. And a 2013 report in Bloomberg Businessweek says that cigarette margins, due to high taxes and competition from smoke shops on Indian reservations, have been declining for years.It also notes that increasing cigarette taxes have hurt sales.
(As an aside, it's interesting to note that politicians will increase so-called “sin” taxes to try and discourage certain behaviors—like gambling and smoking, fully admitting that they believe the higher taxes discourage the behavior. That logic, once and for all, proves high taxes discourage behavior and low taxes encourage behavior. That makes a great argument for abolishing the income tax to encourage work and production.)
Does anyone think the CVS would discontinue cigarette sales if the company were making huge margins off of it? Anyone who believes that is the type of person who actually believed Obamacare wouldn't force anyone to lose their existing health care plan. In other words, they’d have to be someone who believes in economic fairy tales.
Pharmacy Freedom of Choice
Regardless of their decision, CVS is wholly entitled to sell, or not sell, whatever products they deem worthy of their stores. They have every responsibility to do what’s best for their shareholders—and perhaps not selling cigarettes fulfills that objective.
It’s amusing, however, that no one has found it ironic to see a company that had four of their executives indicted for paying off a state senator in 2007 get all of this praise for being a great corporate citizen for stopping the sales of a legal product. This is the company that fought like Spartan warriors to prevent Blue Cross Blue Shield RI members from buying their pharmaceuticals from places like Walgreens and other pharmacy stores.
With that in mind, it was interesting to note all the praise that was heaped on the company from the likes of Governor Lincoln Chafee, Providence Mayor Angel Taveras, and US Senator Jack Reed. In all instances, the politicos disingenuously passed off the CVS announcement as based on good corporate citizenship or putting profits before people or something Pollyanna like that. They know better.
If politicians like Chafee, Taveras, and Reed really believe that entities should put public health ahead of revenue, as they believe CVS is doing, then they have the perfect opportunity to lead by example. The three of them should support legislation that would ban smoking at Twin River and Newport Grand.
The state banned smoking at bars and restaurants and most all other public establishments a decade ago. But they carved out exemptions for the two gaming establishments because the state relied, even back then, heavily on gaming.
As someone who enjoys the simulcast gaming on the ponies, I've walked through Twin River in the evening and smokers abound. And why wouldn't they? It’s the one place where their business is welcomed by law. There’s nothing like a competitive advantage via monopoly.
Twin River smoking ban?
If entities shouldn't be profiting from smoking—that means Twin River and Newport Grand should ban smoking at those facilities—or have the state take care of that problem for them. Excuse me if I’m not holding my breath waiting for consistency from these guys.
For the record, I don’t think we should ban smoking at Twin River, as I’m a huge proponent of the sin economy due to the revenues we reap from it. But then again, I’m not the one applauding CVS for what I’m certain was a business decision made entirely from self-interest either.
You may personally like the CVS decision to discontinue tobacco sales, but don't think for one second that your well being had anything to do with it. It was a decision made in the best interest of CVS stockholder's well being.
Related Slideshow: 10 Historically Bold Moves Made By Big Companies
10. RJ Reynolds
The Smokeless Cigarette
In 1988, long after the American public wised up to the dangers of cigarettes, RJ Reynolds launched the Premier cigarette. They called it a “smokeless nicotine delivery mechanism that looks and feels like a premium cigarette.” It didn't. Smokers said it tasted like charcoal, and drug users quickly figured out how to use it to smoke crack. It has been reported that RJ Reynolds lost $1 billion on the product.
The alleged lobster roll – no one's sure there was ever any real lobster in there – from McDonald's was about as successful in New England as their McCrabcake was in Maryland. It looked bad, tasted worse, and was shunned by even the most die hard Golden Arches fans. (Unlike the McRib, which continues to have a bewildering trance on McDonald's fans.) The sandwich is still available in some Canadian franchises and occasionally in Maine.
Bans Employees From Working at Home
Enters the Auto Market with High End Electric
Fires Steve Jobs
One of the world's most famous college drop outs, Steve Jobs founded Apple, helped it grow into a billion-plus public company, and launched the Macintosh. He was also ousted by Apple's Board of Directors in 1985. The popular take is that the board was stupid to fire Jobs as the leader of the Mac division, because Apple would have more quickly become the company it is today. A new take on the decision posits that the then-30-year old Jobs was disruptive and incompetent in that role. After 12 years away from the company he founded, he learned the skills and discipline required for Apple's rebirth.
Takes on Sony + Nintendo in the Console Gaming Market
Microsoft has one person to thank for its console gaming success, and that person isn't even real. Master Chief is the hero of the insanely popular "Halo" franchise, which was first released was a launch title with the original Xbox. The game revolutionized First Person Shooters on consoles, and sold millions of consoles along the way. At the time, Microsoft was known as primarily a software company. They may have took a bath on those early consoles, but they now join Sony as one of the two major console makers left standing. (Sorry, Nintendo. The Wii U is going to sink you.)
Changes Pricing Plan
Netflix is back on top now, but it almost went under in 2011 when it mishandled its pricing changes and attempted to slice off it DVD business under the name Qwikster. As they did with the New Coke launch, customers responded with immediate anger, leading Netflix CEO Reed Hastings to apologize. The company reverted to its $7.99 streaming plan and has never looked back.
Opts out of Government Loans
After Detroit’s automakers went to Washington in 2008 asking for emergency loans to keep their enterprises afloat, the big bus oval was the only one to opt out of the bailout. Ford decided to mortgage all of its assets to raise operating funds instead. Taxpayers eventually spent $80 billion to rescue General Motors Corp. and Chrysler Corp. Ford focused on efficiency and increasing sales without using government bailout money - thus avoiding the federal tinkering that Chrysler and GM had to accept as a part of their deals. The company has since kept pace with GM, the country's largest automaker.
Perhaps the most famous brand misstep since Ford's Edsel, New Coke is the Titanic of corporate miscalculation. In the 1970s and early 80s, the soft drink giant faced increased competition from Pepsi and other products. To stay on top, Coke executives stopped production of the classic formula and introduced New Coke with tremendous fanfare. The public's responded with immediate outrage. Coca-Cola re-launched its original formula – called Coca-Cola Classic – almost immediately. Today, unopened cans of New Coke go for hundreds on eBay.
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