In this week’s (long overdue) Fun with Excel, I explore a social phenomenon mostly commonly known as the ridiculous long CVS receipt.

Full Disclosure: I’m a frequent shopper at CVS, and a long-time ExtraCare Card holder. I’ve been generally impressed by the company’s wide variety of product offerings (cheap generic drugs, am I right?) and convenient self-checkout kiosks. But the one thing that has left me scratching my head is the amazingly long receipt that the company seems to insist on pushing onto its customers. Case in point: I went to CVS last week to pick up some orange juice and soap, and ended up with a 3.5-foot-long receipt.

There are a few things that always cross my mind whenever I pick up my receipts from CVS:

1. The obvious: Why the hell is it so damn long?
2. Are any of the coupon on this thing actually useful? Sadly, the answer to this is no. Aside from the occasional extrabucks (woohoo!), most of the “coupons” on these long receipts sound something like this: “10% off any Beauty purchase & Join Beauty Club with this coupon!” (What is the CVS Beauty Club, and why would I join?), “$2 off any Vitamin purchase of $8 or more!” (Sorry, I don’t take vitamins), “$2.50 off $12 Shampoo, Conditioner, Hair Treatment or Styling” (That’s some really expensive hair product for a dude…), or “$2 off any Sunless Tanner or Sun Protection purchase $10 or more” (Again, I don’t tan, and I’m pretty sure the people who do wouldn’t get their stuff from CVS). What’s more frustrating is that these coupons almost always expire within 1 or 2 weeks, which makes redeeming them even less practical.
3. If long receipts tend to be nothing more than a big waste of paper, then why does CVS insist on continuing to print them? Well, here’s where a little analysis might come in.

With some help from CVS’s latest 10-K and a few articles on the internet, I was able to gather some basic information on the company’s financials and store information. From personal experience, I have only gotten long receipts when using the self-checkout kiosks, so I made the number of kiosk-equipped stores a key driver in my analysis. CVS currently has about 7,500 stores, and in the base case, I assumed that 1,000 of these had kiosks (according to this article, the company expected 420 such stores by the end of 2011, so this estimate may already be aggressive). I further assumed that on average each kiosk-equipped store had four kiosks, that the average number of unique visitors per store was 25 per hour, the average number of operational hours per day was 12, and that 75% of all visitors used the kiosk. On the cost side, I used this product off Amazon as a benchmark, assuming that CVS would achieve a 25% cost savings due to its ability to purchase wholesale. From there, I calculated the annual total cost of receipt paper in the base case (assuming 3.5′ to be the average), as well as the total cost of receipt paper assuming a more reasonable receipt length (6 inches).

The results lead to a clear answer to the question posed in #3 above. The bottom line is that the cost savings from using less receipt paper are likely outweighed by the potential increase in sales revenue (due to customers either redeeming their coupons, or returning to CVS due to the perception that they are getting a good deal). You can take a look at the simple spreadsheet I put together here. As usual, please be sure to provide proper attribution where appropriate if you plan to re-use it!

To put things in perspective, CVS had sales of $123 billion in 2012, and operating expenses of roughly $15 billion. In our base case, the total cost of receipts comes out to a measly $1.14 million, versus a “potential” cost of $0.16 million if we assumed that CVS started printing only 6” receipts. While a million bucks in savings might not sound like a bad idea (and indeed it isn’t), the costs savings represent only 0.006% of annual operating expenses. Even when using a very aggressive set of assumptions for both kiosk and visitor data, the potential cost savings still only amount to about $4 million a year, or 0.026% of operating expenses. At this point I’m assuming that management reasonably believes that the potential gains in revenues more than offset the costs, although I’m highly interested in their rationale for this, considering that the majority of the coupons offered tend to be irrelevant (see #2 above), and that the wasteful practice of printing long receipts in general may reduce the company’s integrity in the eyes of this generation’s more eco-conscious consumers.

Readers, what do you think?