On its face, Wednesday was a bad day for Big Tobacco in America.
CVS, the second-largest drugstore chain in the country, decided to forgo $2 billion in annual sales and stop carrying tobacco products by October. Other drug superstores, like Walgreens, are now weighing their options.
But Big Tobacco’s response so far has been muted. “It is up to retailers to decide if they are going to sell tobacco products,” a spokesman for Altria, the parent company of cigarette manufacturer Philip Morris, said in a statement. “We’ve appreciated working with CVS over the years, and we respect its decision — for our part, we will continue to focus on the nearly 250,000 retail stores with whom we work to sell tobacco products to adult consumers in a responsible way.”
The quiet response isn’t just an industry strategy to save face. In fact, Big Tobacco may not have much to worry about. That’s because if tobacco products disappear from America’s biggest drugstores, the tobacco industry doesn’t have to go with them.
Never count out Big Tobacco. Just look to e-cigarettes, a young but quickly booming market.
“We don’t sell e-cigs today,” CVS CEO Larry Merlo said Wednesday. “It’s something that there’s obviously been a lot of conversation about and we’ll continue to monitor FDA action on it.” The FDA, for its part, is still figuring out how to regulate the new industry.
But Big Tobacco is readily hopping in. Lorillard, the third-largest cigarette manufacturer in the country, already owns one of the bigger brands in the e-cig market, blu. Altria is increasing its e-cig investment, the company’s CEO said last week, including through a new company called Nu Mark. And Altria isn’t dragging its feet either: Nu Mark is now closing a roughly $110 million deal to buy up an e-vapor business.
There’s a lot of money in the fake-cigarette market. Ratings agency Fitch estimates that 2013 e-cigarette sales hit $1.5 billion, up from under $10 million in 2007. Give it another decade or so, and the e-cig market could overtake the traditional tobacco market, if FDA regulations allow.
But if the nation’s bigger drugstores start distancing themselves from tobacco products, Big Tobacco may be able to fill that market gap with e-cigs. Walgreens, the country’s largest drugstore chain, already sells e-cig products, including Lorillard’s blu.
This week’s move by CVS was about branding in more ways than one. Sure, CVS can now take public pride in being the first drug mega-store to stop selling tobacco, along with the presidential epaulets that come with the decision. But Big Tobacco still has a potentailly big future in America’s drugstores. It just doesn’t involve tobacco.