Gets Well

Armed with a new store concept and the wellness+ loyalty card program, the chain is mounting a comeback and posting its best results in years.

By the time it had unveiled the latest evolution of its hot, new Wellness store concept this fall in Lemoyne, Pa., Rite Aid was coming off seven consecutive quarters of Adjusted EBITDA and same-store prescription count growth — the strongest growth period for the company in several years. From its Wellness stores, which will number about 800 by the company’s fiscal year-end on March 2, 2013, to its highly successful wellness+ loyalty program and its 25 million active cardholders, to the 800-plus Wellness Ambassadors that are helping to knit the entire experience together for its customers — it is becoming increasingly clear that Rite Aid executives get “well.” And the chain is seizing on that knowledge to create programs that are resonating with customers, improving its sales and in a sense, helping Rite Aid to get its business well, too.

To be sure, the new Wellness store concept and its customer loyalty program are huge factors behind its recent success. The generic wave, which has helped make drugs cheaper, has been a help, and no doubt Rite Aid has gotten a significant boost from the dispute between Walgreens and Express Scripts that has helped bring in lots of new customers in recent months. And looking ahead to the future, healthcare reform is expected to create new momentum.

But if you ask John Standley, the 4,600-store chain’s Chairman, President and CEO, it all boils down to one key factor: people. And he ought to know. Now in his second tour of duty with Rite Aid, Standley first started at the company in 1999, as CFO, chief administrative officer and senior EVP. After some time away, including a tenure as CEO of Pathmark Stores from 2005 to 2007, he rejoined Rite Aid in September 2008 as president and COO, becoming CEO in June 2010 and chairman in June 2012.

“It’s really about people, and it’s not just the leadership team,” Standley told Drug Store News during a series of interviews with Rite Aid executives in mid-October. “It’s really about everybody in this organization pulling together to deliver a better customer experience.”

To support Standley’s assertion, the company has posted seven consecutive quarters of improved financial results, which is creating momentum for the company’s turnaround efforts. Needless to say, prior to that, it was a very different time and place, Standley said.

But comeback stories can happen when a company brings in people who understand its problems and how to solve them. “I am very much a believer in this company,” he said. “I thought it had huge potential. I knew a lot about it, understood it and had a sense of what needed to be done.”

“When we stepped in here in 2008 following the Brooks-Eckerd acquisition, we had a group of stores with significant negative script count trends. We had significant growth in [selling, general and administrative] expenses, a liquidity crisis compounded by a collapse in the financial markets, and a recession, so there was some urgency to some immediate issues,” Standley said.

That meant improving  liquidity and improving working capital, by taking some inventory out of the stores and the distribution centers, and bringing costs under control. Since 2008, according to Standley, the company has reduced costs by about $300 million per year.

But when a company is trying to mount a comeback, lowering costs isn’t enough. You’ve got to invest back into the business, and you’ve got to pick your shots. Rite Aid put its chips behind its wellness+ loyalty card program and a new store concept — and it has proven to be a winning bet for the company.

Loyalty card programs have become common among pharmacy retailers. The other two of the top-three drug chains, CVS and Walgreens, have programs of their own, as do Safeway, Kroger and many other supermarket retailers. But Rite Aid’s wellness+ loyalty program was born out of genuine necessity, and its aim was to be not just a discount card, but a “brand card,” that would provide members with free health and wellness benefits as well as shopping discounts and special prices. “We are a healthcare company at the end of the day, so ‘how can we compete to provide great value and service’ was the question Rite Aid’s executives had to address,” Standley said. “When we thought about how to go to market, a loyalty program seemed to be a natural in this space.”

At the time, Rite Aid was facing negative script trends because of the poor pharmacy performance of many of the old Brooks-Eckerd stores it had acquired, so the challenge was to bring traffic back into the stores. Uncomplicated, it was not. Any typical drug store will receive customers who only shop the front end, those who only go to the pharmacy and those who use both. But Rite Aid’s problem was that many stores had a mismatch. Some had lots of pharmacy business but little front-end business; others had lots of front-end business but little pharmacy business.

The goal of the program would be to help improve Rite Aid’s image around health and wellness, and help rebuild foot traffic back into the stores, Standley told DSN. The challenge was to bring pharmacy and the front end together, and work together through Rite Aid’s loyalty program.
So Rite Aid connected the card to the pharmacy, making prescriptions the easiest and fastest way to accumulate rewards, quickly moving a cardholder to “gold” or “silver” status.

The results have spoken for themselves: As of Rite Aid’s second-quarter 2013 results, announced in September, the number of active members of wellness+ stood at 25 million, an 8% increase over the same period the prior year. Members accounted for 74% of the chain’s fiscal year 2013 second quarter front-end sales versus 69% in the prior year period, and 68% of the company’s second quarter prescriptions filled compared with 67% in last year’s second quarter. Meanwhile, gold and silver members’ basket sizes are significantly larger than non-members, with about half of them shopping at Rite Aid stores weekly. Since its national rollout in April 2010, wellness+ has seen such enhancements as wellness+ for Diabetes, Load2Card and 
other features.

And, despite the fact that a rise in generic utilization shaved its pharmacy same-store  sales some 750 basis points during the second quarter, depressing pharmacy sales comps somewhat (down 0.7 percent during the period), it seemed the card was still helping drive front-end growth with same-store sales up 1.4% in the front-end of the store.

Another challenge Rite Aid faced was keeping its stores relevant to today’s consumer. Enter the Wellness store concept, which the company first unveiled in the spring of 2011. Rite Aid first rolled out the concept in eight key markets: Boston, Philadelphia, New York, Baltimore, Pittsburgh, Seattle, Los Angeles and Buffalo, N.Y.

One of the key differentiators  in these Wellness stores is Rite Aid’s Wellness Ambassadors, who work closely with Rite Aid pharmacists and are specially trained and provided with iPads to enable customers to obtain information about products such as over-the-counter medications, vitamins 
and supplements.

By September, the chain had trained some 815 of its associates to serve as Wellness Ambassadors. “That level of service, when you think about it, has a halo effect on the entire store and can truly help improve the customer experience,” Standley said. “Clearly it’s helpful to have dedicated, specially trained people in the store using this personalized, knowledgeable approach to further assist 
our customers.”

As for the customers Rite Aid gained as a result of the Walgreens-ESI dispute, Standley likes the company’s  chances to keep them and will use the wellness+ program as an incentive to keep their prescriptions with 
Rite Aid.

But through everything, it’s the people who make the difference, Standley said. “What makes you different is really a lot about the people inside the store,” he said. “A store is bricks and shelves and lights and floor, but in our business, it’s really about the people, the whole store team.”

That’s how Rite Aid is turning its business around — one store at a time, with all the people inside it. “It’s a store-by-store recovery,” Standley said. “As a company, we’re only as good as our stores are. It’s all about every single store team making good, steady progress that contributes to our overall performance. And right now, our store teams are doing a great job.”

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