Under pressure from federal regulators and some investors, Walgreens Boots Alliance Inc. is testing tobacco-free stores in the U.S., but the pharmacy chain’s leader has no plans to quit selling cigarettes entirely.
“The safety of our patients is very important, but we also have to do what our customers are requiring us to do,” Walgreens Boots Chief Executive Stefano Pessina said in a recent interview. “We see that when we don’t sell tobacco, we have a lot of [negative] reactions.”
The issue came up at the company’s annual shareholder meeting in January and again in February, when the U.S. Food and Drug Administration called out the company for selling tobacco products to minors. That month, a group of U.S. senators sent the Walgreens chief and other retailers letters urging them to stop selling tobacco products in stores.
While it continues to sell cigarettes in the vast majority of its stores, Mr. Pessina said Walgreens is trying to help smokers quit by also making smoking cessation products widely available. Employees are encouraged to direct customers seeking cigarettes to cessation products. The pharmacy chain has also reduced the visibility of tobacco products in some stores.
“Our objective is to convince people not to smoke, so we give them a cigarette and we ask them whether they want to stop smoking,” Mr. Pessina said. The Italian-born CEO took over as permanent CEO in 2015 after the merger of Alliance Boots and Walgreens.
Walgreens doesn’t sell tobacco products at a test store in Deerfield, Ill., near its headquarters, as well as 17 stores in Gainesville, Fla., as part of a 12- to 18-month pilot program it started last year. It also doesn’t sell cigarettes in Massachusetts, New York City and San Francisco, which have banned pharmacies from selling them.
Outside North America, the company’s Boots pharmacies don’t sell tobacco products. But unlike rival CVS Health Corp., which stopped selling tobacco products in 2014, Walgreens sells cigarettes, electronic cigarettes and other tobacco products in most of its roughly 9,600 U.S. stores.
Still, most cigarettes in the U.S. are sold at gas stations and convenience stores. Drugstores accounted for 1.7% of cigarette volume sales in the U.S. in 2017, and 39% of the dollar sales of smoking cessation products in 2018, according to market research company Euromonitor International.
Activist shareholders and antitobacco advocates have been asking Walgreens to discontinue sales of tobacco products in its North American stores. Some investors argue the company’s tobacco sales are putting their money at risk with threats of lawsuits, while activists say that tobacco products don’t belong in a health store.
“There is no reason that anyone needs tobacco products, so we do not think that they need to sell tobacco at all,” said Donna Meyer, director of shareholder advocacy for Mercy Investment Services Inc., which manages funds for a Roman Catholic order of nuns. Ms. Meyer raised the issue with Walgreens executives during the company’s shareholder meeting in New York in late January.
Walgreens says its tobacco sales provide customer choice. Executives said at the January meeting that they wanted to see how customers responded in its Gainesville test market to determine how the chain can reduce its reliance on the products.
Walgreens doesn’t disclose how much revenue it gets from selling tobacco products, but Mr. Pessina said its tobacco sales are decreasing. CVS quit selling cigarettes and other tobacco products in 2014 and added “health” to its name in an attempt to create a healthier image. CVS estimated the tobacco move cost about $2 billion a year in lost revenue.
Outgoing FDA Commissioner Scott Gottlieb called out Walgreens in February for selling tobacco products to minors after the agency conducted undercover checks. About 22% of the more than 6,000 Walgreens stores the FDA inspected sold to minors, the agency said. By contrast, 17.5% of Walmart Inc. stores and 9.6% of Rite Aid Corp. stores inspected had illegally sold tobacco products to minors.
In response, Walgreens said that it has a zero-tolerance policy on selling tobacco to minors and any employee violating its policy is subject to termination.
There is pending legislation in a number of states to raise the legal age to use tobacco to 21, and Walgreens has been publicly supportive of those efforts.
Walgreens is scheduled to release its second-quarter earnings results on Tuesday.
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