Unhealthy Sales
When retailers remove public health hazards from their shelves, overall sales suffer
When a retailer stops selling unhealthy products, its overall sales take a hit.
These losses in sales occur regardless of whether the products are banned voluntarily or by regulation, according to research by Ali Goli of the University of Washington Foster School of Business and Pradeep Chintagunta of the University of Chicago Booth School of Business.
For their study, Goli and Chintagunta focused on the sale of tobacco products, which are exhaustively well-documented to cause cancer and premature death.
They viewed sales figures across a national pharmacy chain before and after its decision to remove tobacco from their offerings. Eliminating this product category resulted in as much as a 4% decline in gross store sales.
Goli explains that unhealthy products like tobacco drive a certain amount of traffic to brick-and-mortar stores. People who come to a store to buy cigarettes tend also to purchase other staples like milk, bananas or batteries. When they are forced to go elsewhere for their cigarettes, those additional sales go with them.
On the other hand, banning the sale of tobacco may entice nonsmokers to a store. “The absence of a category in a store can simultaneously make the store less attractive for some customers and more attractive to others,” says Goli, an assistant professor of marketing at Foster.
Ultimately, though, the decision to drop an entire category based on public health issues—whether by choice or by legislative force—has a measurable impact on the revenue generated from other projects.
“A store’s voluntary decision to end, say, tobacco sales may draw nonsmokers more to its stores and compensate for losses from discontinuing the category,” says Chintagunta, the Joseph T. and Bernice S. Lewis Distinguished Service Professor of Marketing at Chicago Booth. “However, in the case of tobacco, our results show the short-term gains for retailers from dropping tobacco do not seem to outweigh the financial losses associated with these actions.”
This impact, the authors add, would likely be felt around the removal of other unhealthy products such as assault weapons, alcohol, even sugary drinks.
“What Happens When a Retailer Drops a Product Category? Investigating the Consequences of Ending Tobacco Sales” is published in the November 2021 issue of Marketing Science.
