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Rite Aid and Albertsons call off merger – what’s next?

Written by George Anderson

Photos: Getty Images; Rite Aid

Many have questioned the merits of a merger between Albertsons and Rite Aid since the two companies first announced their plans to do so back in February. Now, that the two companies have called off their deal, concerns about how the two will mesh are no longer relevant. What does remain, however, are questions about where the grocer and the drugstore operator go from here on their own.

Albertsons has been criticized for its plain vanilla approach and failing to stand out in an increasingly competitive grocery market, both in its namesake stores and for its Safeway chain. The company’s private equity ownership group led by Cerberus Capital Management has been criticized for failing to adequately invest in stores. Some saw the Rite Aid deal as nothing more than a smokescreen for management to continue neglecting its core grocery business. 

For many of Rite Aid’s biggest investors, the deal offer from Albertsons simply wasn’t high enough for them to cast their votes in its favor. In the end, there was enough opposition to the merger for the drugstore’s board to determine it needed to go forward as a standalone company.

"We remain focused on leveraging our network of conveniently located retail pharmacies, our EnvisionRxOptions PBM and our trusted brand of health and wellness offerings,” said John Standley, chairman and chief executive officer of Rite Aid, in a statement. “We will continue building momentum for key areas of our business like our innovative Wellness store format, highly successful customer loyalty program and expanded pharmacy service offerings, as we also enhance our omni-channel and own brand offerings to strengthen our competitive position and create long-term value for stockholders."

While Mr. Standley has expressed optimism about Rite Aid’s future, the drugstore chain faces an uphill battle as larger rivals CVS and Walgreens Boots Alliance have expanded store counts and made other moves to become more formidable. Walgreens acquired nearly 2,200 stores and three distribution centers from Rite Aid last year after a deal to take over its smaller rival ran into opposition from the Federal Trade Commission.

Amazon.com may further complicate matters for Rite Aid. The e-tail giant has been lowballing drugstores to gain share of the over-the-counter remedy market. Even more significantly, Amazon announced an agreement in June to acquire PillPack, an online pharmacy that delivers prescription medicines to customers in pre-sorted doses.

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