CVS’s decision to stop offering tobacco products is an example of a company shifting its resources from cash-flow-generating, but declining businesses into higher growth markets. Tobacco, although a cash cow for many retailers (and a boon to local government coffers from the taxes on the product), is a business that in the United States at least is unlikely to ever be a growth engine again. In a way, the decision is analogous to the New York Hilton dropping room service or to Verizon selling off its phone book division – it involves disengaging from a business that is going into erosion or slow growth.
Further, as it becomes socially less acceptable to promote smoking, selling tobacco presents an increasing risk to the brand, particularly if the company’s goal is to reposition itself in the high-growth healthcare and services market.
I was interviewed on the topic by Marketplace here.