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February 5th, 2014
05:38 PM ET

Investment analyst: CVS dropping cigarettes is 'a very slippery slope'

(CNN) – CVS Caremark announced Wednesday it will stop selling cigarettes and other tobacco products at its CVS/pharmacy stores by October 1.

The store is marketing the decision on social media, tweeting: "RT (retweet) if you will join us in our commitment to go tobacco-free, #cvsquits."

But the move could open the door for health advocates to push CVS to stop selling candy and junk food.

"This is a very slippery slope for any company," said RBC Capital Markets Consumer Analyst Nik Modi, who does research analysis of tobacco products for the investment bank. Modi says tobacco companies' profits are not affected by decisions like CVS's.

CVS Caremark estimates it will take an annual loss of $2 billion from tobacco shoppers: $1.5 billion in tobacco sales, and the rest from other products tobacco shoppers purchase while in the store.

So while the retailer got accolades from those trying to get people to stop smoking, it may very well be a poor financial decision.

"Historically, when a retailer de-emphasizes the tobacco category, they tend to see foot traffic issues," said Modi, adding that it's hard to make up that money.

"It's obviously a large dollar ring given the price of tobacco products today. And you also lose the basket – typically when a consumer comes in to buy tobacco products, they also buy something else," says Modi.

"The reality is the consumer is going to go somewhere else to buy their products. And we've seen this happen time, and time again," said Modi.

CVS competitor Walgreen's said in a statement today: "We've been evaluating this product category for some time to balance the choices our customers expect from us, with their ongoing health needs. We will continue to evaluate the choice of products our customers want, while also helping to educate them and providing smoking cessation products and alternatives that help to reduce the demand for tobacco products."

"In the end, all these companies are in business to make money," said Modi.

"The companies that I follow generate 5-6% of their sales from the entire drug channel, so it's not like it's such a big part of the business. And in the end, I think the consumer is going to go elsewhere if they can't find their brand," said Modi.

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