Executing the big picture one detail at a time
An often-heard remark in arguments between people is, “You’re not looking at the big picture.” But it’s often just as important to look not just at the big picture, but all the little parts that constitute it, especially if you’re the head of store operations for a major retail chain.
For Rite Aid, the big picture is creating a better experience for its customers through its Wellness initiatives, from the new store format to its loyalty card program. But for Rite Aid EVP of Store Operations Bob Thompson, it’s as much about improving the experience for its associates — namely, by taking work out of the store — any way it can, to enable its people to focus on the customer experience. “We call it ‘project simplification,’” Thompson told Drug Store News. “We’re always looking for the next new way we can simplify things. It really is ‘How do you make a store easier to run? How do you simplify things so that the associates and management teams can focus on the customers?’ We want this to be a very customer-centric experience.”
Rite Aid’s overarching focus on “wellness” as the unifying concept behind its initiatives in the pharmacy and in the front end all tie into this goal, and Thompson’s role is to make sure all the little pieces in the store fit together to make it happen, particularly when it comes to the Wellness store concept. This includes the parts of the store that customers see, as well as the parts they don’t see.
Usually when customers come into a store, their first thought is where to find the products they’re looking for. But Rite Aid has a system that determines the location of everything that goes into its stores, from products to signs. Thompson calls it the “walk sequence,” which sequences all work in the store based on its location in the store; signs, for example, will arrive in a stack in the order in which they are to appear in each aisle.
The company also utilizes a backroom inventory system in which every item in the store is scanned by location. So when a store associate tries to find a product for a customer or restock an item that has run out on the shelves, he or she can scan the barcode, and the system will identify its location in the backroom. This makes it a lot easier to restock the store and maintain perpetual inventory, Thompson said.
A major aspect of the new Wellness concept is its more open, airy design, which calls for the de-cluttering of the store. That creates what Thompson calls a “decompression zone,” which includes removing select merchandise from the stores, lowering the shelves, reconfiguring some adjacencies and overhauling the traffic pattern through the store. The company has become better at deciding which SKUs to retain and which ones to remove, basing those decisions on factors like selling history, volume and demographics; for example, in a store in a resort area, seasonal might play more like a year-round category. “Part of the challenge in our business, as it is in every retailer, is understanding that an item may be important to a customer in spite of a slow selling rate,” Thompson said. “One of the things we do is, we look at all these remodel candidates in advance of the remodel, and we look at every demographic that’s associated with that store to help determine which products stay and which ones go, where to locate certain categories like photo and how to recapture space that could be reallocated to a more relevant business for that store.”
Rite Aid is even looking at how to improve the checkout experience — both for its associates and its customers — moving to more of a straight-line configuration, raising the cash register by a couple of inches, re-positioning the cashier and positioning monitors so that customers can watch as their items are being rung. These kinds of minor changes might escape a customer’s notice, but it can make a huge difference in the cashier’s ability to serve customers more effectively.
All of this is just a small part of changing the store, but not just in terms of appearance or getting inventory under control. Again, it’s about engaging its associates to help better engage the customer — a critical goal of the new Wellness stores. “The customer doesn’t just experience a new look when they come into the store — they get a new experience because our associates are responding to the format in such a positive way,” Thompson said. Just as Rite Aid measures its customers’ satisfaction levels, it also regularly surveys its associates regarding their work experience, as well as the tools, communication, resources and training they are given to get their job done. On this front, Thompson said associate satisfaction scores have been improving “in the double digits,” over the last couple of years — particularly since the introduction of the Wellness store concept.
The pharmacy gets a big makeover as well, both in front of the counter and behind it. Rite Aid has made a major commitment to advancing the profession of pharmacy, and has emerged as a major leader in the push to expand immunization services in community pharmacy, with all of its pharmacists certified to be immunizers. This changes not only the physical space, but also the equipment placed in the stores, Thompson said. One example is the need for appropriate refrigeration for vaccines. In addition, the “vast majority” of the new stores have consultation rooms near the pharmacy as well, said Thompson, who called the rooms a “game changer.”
Remodeling for wellness
And it’s all a pretty big job. Every week, Rite Aid completes about 15 Wellness remodels, adding up to about 500 per year — or one-and-a-half per day — with anywhere up to 45 stores being redone at any single time. The construction is designed to happen with minimal disruption, with stores remaining open while construction is underway. Stores are selected for conversion to the new Wellness concept based on front-end sales volumes, the profitability of the pharmacy and the amount of time it has been since the store was last remodeled.
But in reality, it’s a job that is bigger than just the operations group. Getting it all done requires substantial coordination between different parts of the organization, Thompson explained. In keeping with the more open spirit of collaboration and communication across departments that has come to define the new corporate culture at Rite Aid in recent years, executing store remodels includes regular conference calls with field leaders, real estate, merchandising, loss prevention and headquarters, all with the goal of making the company as a whole — not just departments and divisions — successful.
“We really do have everybody sitting down together, thinking about how we can make this store successful,” Thompson said. Thompson, who joined Rite Aid in 2007 from Target, told DSN that in that time he watched the company become much less silo-ed by department. “We’re singularly focused on making Rite Aid a great place to shop and a great place to work and a great place to invest in. I think it keeps us all moving in the same direction,” Thompson said.
The biggest challenge though, Thompson said, is communication — getting the right message to its employees in more than 4,600 stores. Technology certainly helps in this regard, he said. To get the word out, Rite Aid relies on a weekly update it calls, “Field Leader Focus,” to help the stores sort through priorities.
Providing great customer service is central to the store experience, and the cornerstone of how the company teaches customer service to associates is a program it calls “GET” — greet, engage and thank. A key to the GET program is promoting signup for the wellness+ card, which Thompson said requires every associate to be “very, very engaged.” The card does no one any good if it doesn’t get into the customers’ hands.
But the most important thing is consistent execution. “[Rite Aid] has developed some great strategies around customer loyalty, around health and wellness, around a great new prototype,” Thompson said. “All of those things have to be executed with consistency in order for us to be successful as an organization.”
Put another way: You have to have the ability to see the big picture, but you also have to be able to execute every last detail in order to bring it all into resolution.
Evolving a brand in the pursuit of Wellness
Drug stores, especially chain drug stores, brand themselves differently. But once customers step through the doors, they tend to only see slight variations of the same thing: the same shelves, too tall for mere humans to reach the top without a ladder; the same product categories every other drug store carries; the same pharmacy counter in the back of the store; and the same cash registers in the front. Some stores have carpets, others have tile floors.
But increasingly, it’s no longer enough for a retail pharmacy chain to be “the red one” or “the blue one.” Today, pharmacy retailers are looking for new ways to distinguish and differentiate themselves from the rest, with the goal of branding customers to their stores. Loyalty programs have become more than discount programs; they aim to form more personalized relationships with the shopper.
For Rite Aid and the company’s evolving journey to reposition its brand and turn around its business, this has meant wrapping everything it does around the central theme of wellness. “It’s not just a matter of putting pills in a bottle or putting product on a shelf,” Rite Aid COO Ken Martindale told Drug Store News. “Now it’s about helping our patients and our customers in their pursuit of wellness.”
The company’s “wellness empowerment” focus has informed just about every one of Rite Aid’s initiatives over the past couple of years, from its wellness+ loyalty card, to its Wellness stores and the Wellness Ambassadors who work in them. And Martindale has had a hand in all of it.
“Innovation hadn’t been one of our hallmarks,” Martindale said. “We grew quickly through acquisition, assimilating businesses. It’s what our team got used to doing, but we didn’t spend a lot of time on innovation. For us to compete in the future, we need to be innovative; we need to be creative; we need to get outside the box — and that would apply very nicely to what we’re doing both with our Wellness store and wellness+ program.”
That new spirit of innovation is on display at the company’s newest iteration of its Wellness store concept in Lemoyne, Pa. Martindale walked DSN through the new store in early October at a special grand reopening event. The store updates the whole look of the Wellness concept, featuring a softer layout designed to make it easy for customers to find what they’re looking for, with new signage and decor that includes ceiling rings clearly designating each section; lighting fixtures and brand headers across select departments like beauty; and a relaxing, warm color palette with wood tones and softer lighting.
Importantly, the store advances Rite Aid’s goal to put pharmacy on a stage and make it the star of the show, with lower sight lines that make the pharmacy pop the moment a customer enters the store. Offset wooden flooring creates a bee-line for pharmacy, which features a giant, dew-drenched leaf mural that communicates a less sterile, medicinal role for pharmacy, recasting it as a destination for wellness and prevention versus “sick care.”
The remodeled Lemoyne location is also a reflection of the journey Rite Aid has undergone as a company. The Wellness stores are an evolving concept that is elevated a little at a time, taking on a bit more life with each iteration. As the new stores have generated positive results and its loyalty card program has taken hold, Rite Aid has been able to increase its investment in Wellness stores. Martindale said the company intends to incorporate elements of this “genuine wellness” design in upcoming store remodels and relocations, and expects to have a total of nearly 800 Wellness stores by the end of its fiscal year on March 2, 2013.
And it’s not just the stores that have had a makeover. In an effort to get its store teams even more engaged, the company reevaluated its somewhat dated associate uniforms. This fall, the chain unveiled its new “team colors” — khaki trousers for men, khaki skirt or pants for women and a navy blue top. Associates are able to choose what they want — as long as it fits that color scheme.
Another area in which Rite Aid has shown innovation — and in which it is significantly investing in order to evolve its brand and differentiate the shopping experience in its stores — is its Wellness Ambassadors. A new role in the store, these specially trained staff, who walk the aisles wielding iPads with access to information about OTC products and supplements, have the job of actively engaging customers in the store, and of serving as a “bridge” between the front end and the company’s pharmacists. Martindale compares the new role to that of a free safety in football; these associates’ job is to “roam the backfield,” and to proactively engage with Rite Aid customers throughout the store.
Currently, Rite Aid has trained more than 800 of its associates to serve in this new role. About three-quarters of its Wellness Ambassadors were existing Rite Aid associates who demonstrated a special passion for wellness and for interaction with customers, and “they are shaping the role everyday” under the direction of Special Projects Manager Eric Hauser, a Rite Aid pharmacist who oversees the program for the company. Importantly, the Wellness Ambassadors also are tied into their communities, so the role is carried beyond the store. Martindale shared examples of Wellness Ambassadors who set up tables at the local Friday night high school football games, and who make visits to assisted living centers and gyms to raise awareness about flu shots and where to get them. “I think what makes them successful is a real passion for what they’re doing, and an enjoyment of getting out and engaging with the public,” Martindale said. “Because that’s really what we charge them to do — their job is to engage with every customer who comes through the door.”
The third critical leg of Rite Aid’s efforts to rebrand itself is, of course, the company’s wellness+ loyalty card program. Now in its third year, with more than 800 million transactions to speak of, the program is producing volumes of important data about its customers, and Rite Aid is using that data to inform its business across the company.
It is also a strong example of the amount of innovation that has gone into the reinvention of the Rite Aid brand. Rite Aid’s wellness+ was the first loyalty card of its kind to create a rewards program that provides members with free health and wellness benefits, as well as shopping discounts and special prices. “It also was designed from the pharmacy outward to the store,” Martindale said. “The structure resembles travel industry programs, and we put together what we consider the most compelling loyalty program in our industry.”
Importantly, the card solved a critical issue for the company — namely, how to create a vehicle that would enable it to grow script count in some stores and increase front-end sales in other stores. Again, over the years Rite Aid had become a product of its many acquisitions; it was a chain of many different types of stores that the company had done its best over the years to assimilate. The result was that customers shopped its various stores differently.
While the program is designed so that a customer earns one point for each dollar spent on most items throughout the store, the fastest way for customers to rack up points through wellness+ and advance to silver or gold status is to fill prescriptions at Rite Aid, earning 25 points per script where allowed by law. Rather than a straight discount-based card, the program also offers members certain rewards, including magazine subscriptions, gym memberships and free health screenings. Like the Wellness stores, wellness+ has evolved. In January, Rite Aid introduced Load2Card, the drug store industry’s first coupon management tool that allowed wellness+ members to save, manage and redeem Rite Aid and manufacturer coupons via their wellness+ card. And in September, the company introduced a new Load2Card function that allows customers to have +UPs— special rewards that can be used like cash toward future purposes and that are earned when customers buy certain items — loaded automatically to their cards, eliminating paper.
Another strong example of how the program has evolved was wellness+ for Diabetes, which Rite Aid introduced in 2011. The plan is to roll out new subsegments of the program that target other key disease states.
In the end, all of it, every aspect of Rite Aid’s efforts to rebuild and differentiate its brand is an evolution. And from its humblest beginnings, each iteration builds on the last. So far, so good. “We’re happy with the results, and we’re happy with the evolution of the stores because they’re getting better all the time,” Martindale said. “And, we are going to keep pushing.”
List price change vs. retailer margin
The economy continues to be the single largest influencer in the growth of the health, beauty and wellness industry. The annual inflation rate has averaged just more than 2% during the past five years. More than ever, consumers are focused on living well with less and are making every effort to save money. Manufacturers are struggling to manage the ever-increasing cost of goods sold, and retailers are under tremendous pressure to increase profits in a very competitive environment.
A recent study of list price changes over the past five years found that most HBW categories (19-of-34) saw average annual increases above the 2% inflation rate, although six categories actually experienced a decrease in list price. While the average annual percent change ranged from a high of +5.24% for foot preparations to a low of -2.64% for sun care, the HBW industry average increase in list price was 1.82%.
The lowest average annual list price increase during the past five years occurred in 2010 (+0.86%) as the U.S. economy struggled to recover from the recession that began two years earlier. Ironically, the most significant single-year increases occurred in 2008 (+2.62%) just as the recession began and was driven by home health care/sickroom (+27.14%), cosmetic makeup (+7.84%), home remedies (+5.75%) and toothpaste (+5.41%). The study further revealed that the categories with more competitors were not as likely to take price increases as high as those in less crowded categories. Examples include external analgesics (+1.04%), internal analgesics (-0.13%), internal cough-cold (+1.44%), vitamins (+0.62%) and weight control/nutritional foods (+1.14%).
Despite the economy, several categories were able to take double-digit list price increases at various times during the past five years; although in most cases, the increases were followed by decreases. In 2008, for instance, the home health care/sickroom category saw a 27.14% increase. That was followed by four consecutive years of average list price reductions. Similarly, the home remedies category showed an average increase of 16.5% in list prices in 2011 followed by a 1.45% decrease in 2012. By contrast, the laxatives/diarrheals and foot preparations categories saw double-digit increases of 13.2% and 11.11% in 2008 and 2011, respectively, and experienced list price increases in each of the following years as well. The family planning and weight control/nutritional foods categories have each shown average list price increases of 13.31% and 11.53%, respectively, during the past 12 months.
Interestingly, there were several categories that showed increases and decreases in list price during a given 12-month period that resulted in no net change (0.00%), including laxatives/diarrheals in 2008, toothpaste in 2009, cosmetic/makeup in 2010 and 2011, internal analgesics in 2010 and 2011, bath products in 2010, denture products in 2011, men’s and women’s toiletries in 2011 and 2012, and sun care in 2012.
Hair care, oral care, internal cough-cold and vitamins, the highest-volume categories across all classes of trade, had average list prices of $6.31, $4.57, $6.26 and $7.14, respectively. The categories with the highest average list prices were home health care/sickroom, home remedies, laxatives/diarrheals and baby products at $15.05, $13.54, $8.26 and $7.59, respectively. On the other hand, the categories with the lowest average list prices were deodorant, cosmetics/makeup, bath products and hair styling at $2.96, $3.17, $3.34 and $3.48, respectively.
At the same time manufacturers are looking to increase list prices, retailers are looking to maximize their margin across all channels. In general, drug retailers have been able to consistently generate the highest retailer margin. For example, the average retailer margin for the vitamin category in the drug channel is +41.7% compared to +37.9% in food and +34.5% in mass. This pattern holds true across all categories. The categories generating the highest retailer margin across food, drug and mass were foot preparations, family planning, home health care/sickroom and first aid. Conversely, the categories generating the lowest retailer margin across all channels were toothpaste, baby products, shaving products and home remedies.
The study also attempted to determine if categories with higher average list prices resulted in higher retailer margin. This was not the case as retailer margin varied greatly regardless of the average category list price in all channels.
As manufacturers attempt to increase list price and retailers seek to maximize gross profit margins, both must be cognizant of the consumer in this still struggling economy. Those manufacturers considering a price increase in 2013 will want to carefully consider the historical list price trends for the competitive brands and products in their categories, the average retailer margin they might expect in each channel and the impact the new everyday retail price will have on consumer purchasing behavior.
To view the study in its entirety — including the list price versus retailer margin analysis for the food and mass channels — visit CompetitivePromotion.com and click on the “News” section.
Glen Davis is president and CEO of Competitive Promotion Report. CPR is a leading provider of competitive intelligence, analytics and insights. For more information, email Davis at [email protected], or call 770-565-0735 x106.