Rite Aid discovers innovation can do wonders

WHAT IT MEANS AND WHY IT’S IMPORTANT — In June 1997, the cover of Wired magazine showed Apple’s logo with a crown of thorns and the foreboding word “Pray.” Amid the nascent tech boom, the company’s stock hit a low of about $12 per share that summer. The future, it seemed, was IBM-compatible.

(THE NEWS: Rite Aid shows off innovation with Wellness store. For the full story, click here.)

Nobody is laughing today: Apple’s stock now trades at more than $300 per share, and its products regularly leave competitors in the dust and spawn myriad imitators. Apple’s renaissance began with the letter “i” — iPod, iPhone and iPad, but above all, innovation.

In recent years, Rite Aid, the country’s third-largest retail pharmacy chain with about 4,700 stores, has found itself in a situation similar to that of Apple in the 1990s. Its stock trades at around $1 per share — compared with around $30 to $40 for Walgreens and CVS, which each have more than 7,000 stores — and it plans to close 60 stores this year.

But Rite Aid’s new Wellness store format could revitalize it the way the iPod did for Apple. As Rite Aid COO Ken Martindale told Drug Store News during an exclusive tour of a new Wellness store near Harrisburg, Pa., the format is the Rite Aid of the future. “This is positioning us for future opportunities down the road,” Martindale said.

The men’s grooming section — developed in conjunction with Procter & Gamble — the family care section and the modern, airy look of the stores are just some of the features that give a glimpse of what the chain has in mind.

Currently, there are eight Wellness stores in southern New Jersey, Pennsylvania and California, with another one planned for the Harrisburg area, so it’s a little early to make a conclusive judgment about the format’s success, but according to some initial data, sales at the stores are tracking at 100 to 200 basis points above the core Rite Aid stores. The company plans to renovate around 500 more stores over the course of the year using components of the Wellness, Rite Aid/Save-a-Lot and Value formats.

In addition to the new formats, the company’s Wellness+ loyalty card program continues to grow, with close to 40 million members, boosting same-store sales and helping the company narrow its losses. Members accounted for 67% of front-end sales during the quarter and 62% of total scripts and have shown larger basket rings than nonmembers, especially gold and silver members. In addition, gold and silver members shop on both sides of the store, and 50% of members visit Rite Aid every week.

“Innovation” has become a popular word lately. Such commentators as Fareed Zakaria promise it will save America’s economy and guarantee the country’s competitiveness in the long term. As Apple has demonstrated since Wired prematurely diagnosed it as terminally ill, innovation can do wonders for companies as well. And it appears that Rite Aid has learned that lesson well.

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