Rite Aid is clinging to its position as a distant third (behind Walgreen and CVS) in the US retail drugstore business. The struggling company runs some 4,665 drugstores in about 30 states and the District of Columbia. Rite Aid stores fill prescriptions (more than two-thirds of sales) and sell health and beauty aids, convenience foods, greeting cards, and other items, including some 3,000 Rite Aid brand private-label products. About 60% of all Rite Aid stores are freestanding and 50% have drive-through pharmacies. Rite Aid acquired more than 1,850 Brooks and Eckerd drugstores from Canada's Jean Coutu Group for about $4 billion, which saddled the company with plenty of debt and redundant stores in some areas.
In addition to its retail pharmacy chain, Rite Aid operates more than 2,100 GNC stores-within-Rite Aid-stores that sell vitamins and mineral supplements through a partnership with General Nutrition Companies, Inc. Rite Aid, which considers the in-store GNC departments to be a differentiator between it and its larger rivals, plans to open an additional 500 GNC in-store departments by the end of 2014. The chain also offers healthcare services, including flu shots, other immunizations, and diabetes management consultants, at its drugstores.
Rite Aid's sales increased 3.5% in fiscal 2012 (ends February) vs. the prior year, and same-store sales climbed 2% over the same period. The rebound followed two years of negative annual sales comparisons and declining same-store sales. Nevertheless, Rite Aid failed to turn a profit for the fifth consecutive year. (The sustained losses have left Rite Aid short on cash to make improvements to its stores or to move them to better locations. While rivals Walgreen and CVS are adding hundreds of stores and making big acquisitions, Rite Aid is shrinking.) However, Rite Aid did manage to narrow its loss in fiscal 2012, a trend that continued in the first half of fiscal 2013. The company credited the sales gain in fiscal 2012 to the positive impact of its wellness and loyalty programs, flu immunizations, and other initiatives aimed at driving sales. More recently, Rite Aid's prescription sales got a boost from patients who could not fill their Express Scripts prescriptions at Walgreens stores during the dispute between the two companies, which has been resolved.
Rite Aid's heavy debt load, unprofitability, the recent deep recession, and tight credit markets have put the company in a vulnerable position and even led to speculation about its survival. In an effort to right its ship, Rite Aid has closed nearly 400 underperforming stores in the past four years, reduced inventory and costs, and cut its budget for capital expenditures. It also brought in a new CEO, John Standley, who had previously left Rite Aid to become CEO of Pathmark Stores. He succeeded Mary Sammons in June 2010 and was named chairman in June 2012. Standley faces the difficult task of turning the business around and proving that the Brooks and Eckerd purchase was not a colossal mistake. (Rite Aid has lost money every quarter since acquiring Brooks Eckerd in 2007.) To that end, Rite Aid is remodeling hundreds of stores and stepping up marketing efforts to lure shoppers with its Wellness loyalty card and pushing flu shots during the second half of the year. The loyalty card program (launched in 2010) is the first national marketing campaign that Rite Aid has undertaken in some 10 years.
Jean Coutu, which received a 32% stake in Rite Aid in the Brooks/Eckerd deal, currently controls about 19% of the total Rite Aid voting power. – less