re: CVS stops selling cigs... sales of other stuff tumbles

Tobacco Ban Clears Out Low-margin, Poorly Selling Cigarettes

Seems like CVS overestimated their ability to make up the profits on other items, but this article from February makes quite a few good points.

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Margins for cigarettes and tobacco average about 15 percent, which puts them into the basket of goods that Costco Wholesale Corp., which specializes in lower-margin items, typically sells, said Jeff Lenard, a spokesman for the National Association of Convenience Stores in Alexandria, Va. That compares to margins of 30 to 50 percent for health and beauty items, which occupy more retail space than tobacco, analysts said.

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While archrival Walgreen Co. and other chains continue to sell tobacco products, drugstores aren't where most smokers buy cigarettes. David Bishop, managing partner at Balvor LLC, a Barrington-based sales and marketing firm, estimates that drugstores account for 5 to 6 percent of all cigarette sales. Compare that to convenience stores, which capture 86 percent of all tobacco sales, according to their trade association.

CVS said in a statement that it has "identified incremental opportunities that are expected to offset the profitability impact," though the company declined to name specific categories.

But cigarettes aren't great money-makers for convenience stores, either. Tobacco products represent the largest in-store sales category for these small shops — 40 percent — but generate 21 percent of a store's gross profit, Mr. Lenard said. Soft drinks, on the other hand, generate nearly 19 percent of a store's profit though the category represents 15 percent of in-store sales.

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