How CVS's Decision to Stop Selling Cigarettes Helps Small Businesses

Liquor stores and other independent retailers are set to profit off of the chain's move.

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REUTERS

Everybody knows the refrain about national chains, which is that they hurt independent retailers by offering much more stuff in one place for the same (or more often, lower) prices. CVS is basically preparing to do the opposite: By deciding to no longer carry tobacco products in its stores, the large chain drug store will be sending business to other retailers.

In big, dense cities, independent retailers will be among those benefiting from CVS's decision. For an example of how this would work, take a look at where the CVS is located closest to where I live, in Washington, D.C.:

The "A" marker is on top of the CVS, which book-ends a long row of restaurants and retail outlets in D.C.'s Woodley Park neighborhood. As a former smoker, I remember there being only one other place on that block you can buy cigarettes, and it's a liquor store halfway up the block. If you live in the residential neighborhoods that surround that CVS, or are staying at one of the two massive hotels down the street, which regularly host conventions, you'd have to walk a half-mile north or a half-mile east to get to the next closest tobacco seller. Even if there is another store that sells cigarettes that I'm not aware of closer by, none of them are chains. By a little or by a lot, that little liquor store in Woodley Park is going to absorb CVS's tobacco sales—and its huge tobacco profits

I doubt it'll be the only indie retailer to benefit. There are 25 CVS stores in Washington, D.C., an incredible amount considering how small the city is. How many of those CVS's are the only chain within a quarter mile or half mile that sell tobacco? And what happens if/when Rite Aid and Walgreens follow its lead and drop tobacco, too? There's already been a rebuttal to the idea that CVS's decision will bring "a sea change in competition," as CVS's 7,600 stores make up only 3 percent of the total number of cigarette retailers. That's definitely going to be true in areas where CVS stores are surrounded by gas stations. But in dense urban areas? CVS will be taking a lot of competitive pressure off smaller retailers.  

But what's really interesting is just how big a gap CVS is leaving in local retail tobacco market. Next time you're in one, check out what they have behind the counter. They don't just carry a high volume of a lot of different cigarette brands, they also carry cigars and cigarillos, which can be harder to find at independent retailers, who are limited by space. I doubt indie retailers will be able to offer as much variety. 

Top image: Look at all the cigarettes CVS sells! REUTERS/Carlo Allegri

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