Kroger Co. stands to benefit from the CVS Caremark Corp. decision to stop selling cigarettes and other tobacco products by Oct. 1.
CVS Caremark, the Woonsocket, R.I.-based company that runs 7,600 CVS/pharmacy stores, is the first national pharmacy chain to take that step, it said Wednesday. That’ll push smokers and tobacco chewers elsewhere. And some will likely go to some of Cincinnati-based Kroger’s 2,641 supermarkets for their fix.
Just don’t expect a huge move in Kroger’s sales, Chicago-based Morningstar Inc. analyst Ken Perkins told me on Wednesday.
“The trick is moving the needle for Kroger,” Perkins said. “There could be a benefit, but I don’t expect a huge near-term surge.”
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CVS made the move to promote patients’ and customers’ health, it said. It expects to lose about $2 billion a year in revenue. That’s less than 2 percent of its $125 billion a year in revenue.
Kroger generates about $100 billion a year in sales. Even if it picked up all of the cigarette and tobacco business from CVS, it wouldn’t make that big of a dent, Perkins said.
Kroger didn’t comment on the impact of the CVS decision.
The key for Kroger will be to bring in some of that extra business and then get those people who come in for cigarettes to buy other things at Kroger.
“I don’t know that (cigarettes are) why people stop at Kroger,” Perkins said. “It’s all about the long-term sustainability of the company’s growth profile. Can Kroger continue to drive traffic and sales?”
Kroger has said it’s targeting earnings growth of 8 percent to 11 percent a year. It’s striving to keep its 40-quarter streak of achieving same-store sales growth intact. And new CEO Rodney McMullen is now leading the way.
Date: Feb 5, 2014