Rite Aid

Rite Aid Case Analysis

Integrated

Strategy

•Focus on same store sales growth, not market share

•Private Label Brands

•New services

•Customer -focused loyalty programs

Restructure

•Narrow footprint through the divestment of unprofitable stores

•Invest in image upgrades of new store base

•Reduce management overhead

Culture

•Create scholarship programs for pharmacists

•Implement new training & retention program

•Implement employee incentives programs

•Invest in employee facilities and wellness

Recommendations

Mission

“To be a successful chain of friendly, neighborhood drugstores. Our knowledgeable, caring associates work together to provide a superior pharmacy experience, and offer everyday products and services that help our valued customers lead healthier, happier lives.” – Riteaid.com

Wellness+, Employee loyalty, Investments in online tie into the Superior Pharmacy Experience.

Investments into on-site healthcare clinics ties into healthier, happier lives.

Core Values

Passion for customers. Encouragement for employees. Winning through teamwork. Commitment to diversity and respect for the

individual. Accountability for actions and results. Integrity in all Rite Aid does. Value for shareholders. Caring neighbors.

Business Model

Growth Through acquisition of other pharmacy retailers. Diversified growth Purchasing of PCS Health

System.

Create strategic partnerships Increase market presence and reach across

various distribution channels. Ex: GNC & drugstore.com partnerships.

Strong focus on customer loyalty.

Strategy: The Pharmaceutical Retail Industry.

High bargaining power for wholesalers (Control 85% of all drugs sold).

High bargaining power for buyers due to Pharmacy Benefit Managers and legislation.

Strong rivalries between existing three major players.

Substitutes to high margin brand names by generics.

Analysis / Assessment – Industry

Types of pharmacies: independent, chain, mass merchants, supermarkets, and mail-order.

Key Players: Walgreens, CVS, Medco, and Rite-Aid. Large customer base and opportunity for growth.

Growing population of older consumers. Health care laws (40M previously uninsured).

Highly competitive. Average profit margin for pharmacy-related sales is 2-

4%. Over $4.5B prescriptions were filled in US, accounting

for $300B in total sales. Average # of prescriptions filled per person = 12.6.

Overall Strategy - Past

Competition based on low cost.

Create economies of scale through acquisitions of other chains.

Smallest of three major retailers (Rite-Aid, Walgreens, CVS).

Cannot sustain strategy – over–leveraged.

Strategic Shifts & Future Strategies

Differentiate – cannot compete on economies of scale.

Create products and services that offer an advantage over competitors.

Provide higher levels of service and a better customer experience.

Move from store - key to customer-centric approach

Industry Trends

Consumers search for low-cost alternatives. Internet-based.Mail-order.

Economies of scale, lower overhead discounts.

Automated.Generic drugs (80% of FDA-approved drugs have

generic equivalent).

Increased demand for:Prescription drugs.Pharmacists to spend more time on patient

counseling.Walk-in clinics.

Portfolio Analysis

Retail pharmacy services. Over-the-counter drugs. Household and personal care items. Convenience foods. Nutritional supplements. Photofinishing services.

SWOT Analysis

Strengths3rd largest pharmaceutical chainOnline website (convenience)Implemented front-end merchandising to ↑ profits (pharmacy, foods, supplements)Loyalty programs (Wellness+)

WeaknessesOverly aggressive acquisition strategySubstantial amount of debtEmployee unions issuesPoor credibility (Medicare fraud, executive malfeasance)

OpportunitiesMail-order salesWalk-in clinicsTest marketing new grocery store/pharmacy concept in SC Full scale implementation of private brand (Simplify)

ThreatsCompetitors’ position and plansPrices dictated by US pharmacy distribution & reimbursement systemPBMs provide pharmacies with lower reimbursementsEconomic downturns (↑ # of unfilled prescriptions)

Financials

Rite-Aid(as of 2/27/10)

Walgreen Co(as of 8/31/09)

CVS(as of 12/31/09)

Current Ratio 207% 178% 143%

Quick Ratio 58% 78% 58%

Cash Ratio 5% 38% 9%

Gross Margin 27% 28% 21%

Oper. Margin 0% 5% 7%

Pre-Tax Margin 2% 5% 6%

Profit Margin 2% 3% 4%

Pre-Tax ROE 29% 22% 16%

After-Tax ROE 30% 14% 10%

Gross Profit $6,824,090 $17,613,000 $20,358,000

NI Applicable toCommon S/H

($515,585) $2,006,000 $3,696,000

Financial Ratios Comparison (NASDAQ)

Financials

Ranking by Rx Sales(Retail Pharmacy Annual Report: 2010)

Proposed Sources of Same Store Sales Growth

Increase front-end economical products’ sales. Private label branding. Zone pricing. Immunizations. Specialty services.

Patient counseling services. On-site healthcare clinic services.

Mail-order pharmacies. Grocery store/Pharmacy model. Customer loyalty programs.

Integrated

Strategy

•Focus on same store sales growth not market share

•Private Label Brands

•New services

•Customer- Focused Loyalty Programs

Restructure

•Narrow footprint through the divestment of unprofitable Stores

•Invest in image upgrades of new store base

•Reduce management overhead

Culture

•Create scholarship programs for pharmacists

•Implement new training & retention program

•Implement employee incentives programs

•Invest in employee facilities and wellness

Conclusion

Questions?