Rite Aid Ready to Run with Deal Approval
Rite Aid announced yesterday that it expects to close the deal to acquire the Brooks and Eckerd chains by the end of next month, pending final approval from the Federal Trade Commission (FTC) along with Attorney General offices in several states where the individual chains now operate.
With the purchase, Rite Aid will add 1,850 additional stores along with six distribution centers. Rite Aid has agreed to divest 24 stores from Maine to Virginia.
“We’re excited about closing the transaction shortly and integrating the Brooks Eckerd stores and associates into Rite Aid. With a detailed integration plan already in place, we’re ready to hit the ground running,” said Mary Sammons, Rite Aid president and CEO, in a press release.
Rite Aid is looking for its new larger network of stores to give it the scale necessary to compete with Walgreens and CVS.
“We’re getting good stores in good locations and talented associates dedicated to serving their customers,” Ms. Sammons said. “This is a great opportunity to dramatically accelerate our growth strategy and strengthen our position as the third largest national drugstore chain.”
Discussion Questions: What will the newly expanded Rite Aid Corporation be up against once its deal to acquire Brooks and Eckerd is signed and sealed? Do you share Mary Sammons’ optimism that Rite Aid and the chains it is acquiring will be “ready to hit the ground running” once the deal is formally approved and signed? Where do you see the greatest opportunities for the larger company to benefit from the various strengths of the individual chains and their human and other assets?
Not to be overlooked, Mary Sammons commented on the talented associates that Rite Aid will inherit from Brooks-Eckerd. I wholeheartedly agree. For twenty seven years I have enjoyed working with hard working people at both Brooks and Eckerd that have shown care and consideration not only to their customers, but also to suppliers and partnering brands. Under Mary Sammons’ leadership the newly expanded Rite Aid will do well. I have worked with Rite Aid for this same length of time and know first hand that Rite Aid has many outstanding executives and managers with far reaching backgrounds and capabilities. In addition, what Rite Aid needed the most was to improve the mix and geographic spread of their locations and this is now accomplished. Not to be overlooked are Rite Aid’s suppliers that were asked to support this transformation in a very large way and are doing so as well.
Rite Aid will need to work quickly to gain the real benefits. First is the culture difference that must be addressed. Second is the difference in customer base. Third is the management of a much larger logistics network. Now there will be three major drug chains; the challenge for Rite Aid is how are they different from Walgreens or CVS?
Rite Aid is not getting an automatic home run gift. Jean Coutu wasn’t satisfied with the Eckerd and Brooks performance, and they’re experienced operators. Furthermore, when a company is sold it’s always disruptive (to the staff as well as the customers) and when it’s sold more than once, the damage is much harder to repair. A sad comparison: it’s like passing foster children around from family to family. It’s very stressful and sometimes the children’s behavior deteriorates badly.
Acquisitions are always a challenge. Few companies handle them well. During the fear and panic of the unknown, many companies do not communicate well with associates, so the talented and most knowledgeable ones accept offers and bail. I am sure many head hunters are circling now, calling the key executives in every operational area to share new opportunities. Of course, other companies have accomplished their demise on their own by letting go the most talented with the domain knowledge to help them succeed. Rite Aid will need to act fast to communicate their plan. Many times the acquiring company has an arrogance that “surely, they do things better” and don’t truly evaluate the positive aspects of the company they are acquiring. In this case, for instance, Eckerd does a great job fitting into the community, they get involved and support community events, etc. Brooks has a home-town feel, Rite Aid, in most areas, has a cold…bargain…almost cluttered feel. To compete with Walgreens and CVS, Rite Aid will need to find a niche–a better mousetrap–that their two admirable competitors have not executed well.
This acquisition adds six distribution centers too. This will give Rite Aid an opportunity to revamp their network and use this opportunity with the talent they are acquiring to become more efficient and effective in the supply chain. In the distribution network Rite Aid has similar software and automation so the learning curve is minimal.
I do share Mary Sammons’ optimism on the Rite Aid deal with Jean Coutu to acquire Brooks and Eckerd stores. Apart from productivity and distribution synergies, the fact that it is required to divest only 24 stores against Wall Street analyst’s expectation of 150-200 stores (Credit-Suisse), is a huge win for Rite Aid in making this deal profitable.