Rite Aid Looks for Strong Second Half
Mary Sammons, chairman, president and CEO of Rite Aid, is not about to let a 20 cents per share loss in the first quarter get her down. The year is just getting started and Ms. Sammons is convinced that all the signs point to 2008 being a solid year for the nation’s number three drugstore chain.
“We increased both pharmacy and front end sales in the core Rite Aid stores during the quarter, and sales trends in our acquired stores continued to improve,” Ms. Sammons said in a press release. “We also passed a major milestone in the integration of the former Brooks Eckerd stores by completing the store systems conversion. Today pharmacy dispensing, cash registers and all business applications are now consistent in all of our stores, and we can manage our business seamlessly nationwide. We’re in the home stretch now, finishing the remaining minor remodels of the acquired stores.”
Ms. Sammons said that Rite Aid still had a ways to go as evidenced by recent cases in New Jersey and New York where company stores were found to be selling expired product. Calling the situation “totally unacceptable,” she added, “We’re on top of the situation and will do everything that we can to make sure that our stores are free of that kind of problem.”
Looking ahead, Rite Aid’s chief called the current business environment challenging but said, “We expect that completing the minor remodels, sales turning positive in the acquired stores and new pharmacy and front end initiatives will contribute significantly to strong results in the second half of the fiscal year.”
Discussion Questions: Has Rite Aid finally gotten squared away with the Brooks Eckerd integration? Is the chain doing the right things to achieve the “strong results” that Mary Sammons is predicting?
I echo the two points. If expired stock is being sold and shelves are empty that points to sub optimal: marketing, logistics, return logistics, merchandising, warehousing, purchasing, vendor management, demand/forecast management, interpharmacy transfers and pharmacist management.
Rite Aid is certainly getting better at retail, but as a vendor supplier, there are many other inefficiencies that impact Rite Aid’s bottom line that need to be improved. These include developing more efficient product handling systems, and logistics that reflect true product performance capabilities.
Rite Aid does not have a supplier performance system that enables anyone to better manage their products (like Wal-Mart does with their retail link system) and provide internal feedback on issues. This has a direct impact on product sales and corporate profitability.
Rite Aid also has internal communication issues that still need to be resolved since the merger. The company is doing better but is a long way off from “great.”
Rite Aid’s problems run a little deeper than merger issues. That whole expired product issue really bothers me and it should bother most of their customers. Rite Aid’s bread and butter is OTC and Pharm and if they can’t even manage that category, what hope do they have in ever becoming successful?
As a customer, I would be wary. Rite Aid needs to fix their internal merchandising problems and allocation (the shelves are almost always empty at the 3 Rite Aids I visited in the North East some months ago). Then they need a huge customer pull by having massive promotions to get customers and scripts back into the stores. Merchandising and store standards need to be supervised by a stronger field team (District Managers, Regional Directors etc). In one of the Rite Aids I visited in Boston, the store manager had said he hadn’t been seen by his district manager in more than 6 months (and the store looked like that was true). This could just be a one store issue, but it is indicative of the support that at least one store gets.
Rite Aid has a long road to follow in a very competitive market. I would like to see them succeed as the issues they need to resolve are just common sense but it is a long road and I doubt we will see a successful year for 2008.
Rite Aid has over 5,000 stores in 30 states with $24 Billion in revenue and almost no profit. CVS and Walgreens are still the 300 pound gorillas in the room. Instocks are bad and service is also lacking at their outdated stores.
Do I believe that Rite Aid is going to buck the trend and see a great year? Not so much. Wouldn’t healthy, contemporary retailers with an organized growth strategy have a better chance at that?
I gave Rite Aid an “F” for failing to capitalize on their size and store count. They will follow the path of their unprofitable peer, Kmart, and shutter their stores in the near future.
I have had some exposure to the Rite Aid organization over the past couple of years, and I fear that they still have a long way to go before arriving at a defensible position against the onslaught from CVS and Walgreens.
The United States is held up as the world’s best retail market, and generally I agree with this assessment. However, I feel that the US retail drug channel is poorly developed, with unfriendly stores, unimaginative product assortments, and in the case of Rite Aid, downright awful private brand programs. The private label products available in Rite Aid are as good as are available anywhere, but the packaging and merchandising of the program are so bad to make the product unbuyable–at least to this shopper.
There are some truly great examples of drug stores around the world–from Boots in the UK to Shoppers Drug Mart here in Canada. I don’t understand why the executive teams at Rite Aid (and the other US drug store chains) don’t emulate these universally identified industry best practices.
Rite Aid stock is $1.59. A year ago it was over $6. They borrowed $425 million today, paying 12.25%. Is Rite Aid a screaming buy? Is it safe to hold the debt? While 12.25% isn’t cheap, the really weak retailers can’t borrow at any cost.