What Walmart’s rumored acquisition would mean for Rite Aid’s West Coast operations
WHAT IT MEANS AND WHY IT’S IMPORTANT — If the rumors that surfaced last week about Walmart eyeing Rite Aid for a possible buyout turn out to be true, it would be one of the biggest stories of the year: Walmart would acquire the country’s third-largest drug store chain and more than double its U.S. store count.
(THE NEWS: Report: Walmart may be eyeing Rite Aid. For the full story, click here)
But the rumors — which so far, neither chain has commented on — raise at least one big question: What would Walmart do with 4,700 stores whose average size is 12,400 sq. ft., notwithstanding the good chance that the Federal Trade Commission would require it to give up many of them due to market overlap?
While known for its big-box stores, Walmart lately has expanded on the small-format front as well, notably with Walmart Express stores, which have an average size of 15,000 sq. ft. and at their largest are 30,000 sq. ft. Many of Rite Aid’s stores on the West Coast, some of which are as large as 20,000 sq. ft., could accommodate the format, and perhaps its 14,000-sq. ft. stores could as well; but its East Coast stores, which average about 11,000 sq. ft. and often are less than 10,000 sq. ft. would be too small to be anything except drug stores.
Other issues call the rumors’ veracity into question as well.
For years, analysts have suggested that Rite Aid sell off its West Coast stores, but while expressing openness to doing so if the right offer came along, it has basically said no. Despite they’re not performing as well as their East Coast counterparts, the stores represent a big part of Rite Aid’s business, and selling them would mean abandoning an important region of the country.
Another issue is the company’s efforts to spur organic growth — particularly, the Wellness+ loyalty card program and such store segmentation efforts as the new Wellness store format — which have taken place under the leadership of president and CEO John Standley and chairman Mary Sammons. Standley was part of Sammons’ original recovery team at Rite Aid, and he engineered the recovery at Pathmark before that chain’s acquisition by A&P, but Rite Aid’s growth efforts don’t look like those of a company getting ready to put itself up for sale. This includes a new Wellness store in Newport Beach, Calif., which indicates a continued commitment to its West Coast business, not to mention a $300 million capital expenditure budget that includes $127 million for store remodels and merchandising initiatives and plans to remodel about 500 stores in fiscal year 2012.
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Sammons’ legacy is one of turnaround
When Rite Aid chairman Mary Sammons accepted the Sheldon W. Fantle Lifetime Achievement Award at the National Association of Chain Drug Stores’ Annual Meeting in Scottsdale, Ariz., in May, it was the culmination of a career that had seen Rite Aid emerge from a period of darkness that had lasted more than a decade.
Sammons plans to stay on as chairman of Camp Hill, Pa.-based Rite Aid until the company’s annual meeting in June 2012. But when she does hang up the gloves, she will have a lot to look back on.
Sammons joined Rite Aid as president and COO in December 1999 after a career as president and CEO of Portland, Ore.-based mass merchandiser Fred Meyer, along with former Fred Meyer executives Bob Miller, David Jessick and John Standley.
At that time, Rite Aid already was in trouble. Its stock was in freefall, leading former chairman and CEO Martin Grass, the son of the company’s late founder Alexander Grass, to step down amid major fraud charges.
The chain’s West Coast operation of more than 900 stores, the result of its 1996 acquisition of the Thrifty PayLess chain, was up for sale due to poor performance compared with its East Coast stores, and by the time Sammons was on board at Rite Aid, 32 stores already had been sold to Longs Drug.
But under Sammons and former chairman and CEO Bob Miller, the West Coast stores were taken off the block. Since then, the chain has had its share of troubles, but the leadership of Sammons, Miller and Standley, the latter of whom returned to Rite Aid in 2008 after a successful turnaround of Pathmark Stores, has helped steer the company back into credibility. At press time, the company’s stock was safely above $1, and it had already started narrowing its losses thanks to rising sales and the wellness+ loyalty card program. The 2007 merger with Brooks Eckerd Pharmacy greatly increased Rite Aid’s footprint on the East Coast.
The company again came under pressure to sell off its West Coast stores in 2009. In a conference call with analysts held around the time of CVS’ takeover of the Longs Drug chain, Sammons recognized that the West Coast was an important part of Rite Aid’s business. “[The West Coast] is also a strong contributor to … scale, our ability to really have greater capacity to buy better and do what we do and leverage expenses. We have strong market shares out there. We’ve invested a lot of dollars out there … frankly,” she said.
That thinking paid off: The company recently remodeled one of its stores in Newport Beach, Calif., with its new wellness store format, the first of its kind outside the Northeast. At press time, the wellness stores were trending at between 100 and 200 basis points better than the rest of the stores in the chain.
Under Sammons’ leadership, Rite Aid regained its footing and has already embarked on its renaissance. She’ll have a lot to be proud of next June.
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not to be a wet blanket, but...... Granted, Ms. Sammons inherited a mess, but even after 12 yrs, the company is still bleeding red ink. I can not think of any other CEO, in any company, who lasted this long with such a poor balance sheet. (And, NO......I am NOT a disgruntled former RAD employee.)
Wellness+ reaps benefits for chain and consumers
Since its nationwide launch in April 2010, Rite Aid’s wellness+ loyalty card program rapidly has proven itself to be a phenomenal boost to the chain’s business as the first-ever loyalty program designed to enhance customers’ savings and well-being together.
“Our customers told us they wanted a program that offered more than just discounts. The wellness+ program marries our customers’ fiscal and physical well-being, and we reward them with both member- only shopping discounts and health-and-wellness benefits that increase the more they shop and the more prescriptions they fill at Rite Aid,” SVP marketing John Learish said when the card was launched.
In a June 23 conference call with investors to discuss the company’s first quarter 2012 financial results, president and CEO John Standley said that wellness+ card members were emerging as some of Rite Aid’s most valuable customers. At that time, the program boasted nearly 40 million members across the country — compared with 16 million as of July 26, 2010, just 12 weeks after the program’s nationwide launch.
Card members accounted for 67% of front-end sales during the quarter and 62% of total scripts. Gold and silver members were shopping at both ends of the store, and 50% of those customers were visiting the stores every week. In addition, members had higher basket rings than nonmembers.
Needless to say, wellness+ has been a smashing success and, along with store-segmentation efforts, a major factor in ushering in a renaissance for the country’s third-largest retail pharmacy chain, a company once better known for its period of retrenchment following legal and financial troubles during the last decade.
The program offers a multitude of benefits for members, such as shopping discounts — including 10% off Rite Aid-brand products — weekly members-only discounts and access to pharmacists 24 hours a day and seven days a week by telephone or online. Members earn points through certain pharmacy and store purchases, which they can put toward free health screenings and additional merchandise discounts.
But the program also is a big opportunity for suppliers. When Tony Montini returned to Rite Aid as SVP category management in February — he served brief stints there in the late 1980s and early 2000s, and has since been promoted to EVP merchandising, with former SVP business development Bryan Shirtliff taking over as SVP merchandising — he appeared well-prepared to increase the success of wellness+ among suppliers.
Suppliers that participate in the program get to participate in Rite Aid’s weekly promotional email program to members and get access to the chain’s CRM analytics reports, which include a scorecard of loyalty metrics, shopper decile analysis, category affinity analysis and market basket analysis, according to a program brochure for suppliers. The brochure also touts target marketing opportunities, such as weekly emails, the online member dashboard on Rite Aid’s website and direct mail.
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