Rite Aid Corporation is a large USA based chain of retail drugstores with over 4,600 locations in 31 states as of March 2013. Stores offer prescription drugs, other the counter drugs, beauty aids, personal care items, food, beverages, greeting cards, seasonal merchandise and other products typically found in a drugstore. Rite Aid also has a strategic alliance with GNC providing their products in all Rite Aid stores. In addition, Rite Aid has recently converted 800 stores to a wellness format as a means of trying to differentiate from lead competitors CVS and Walgreens. The company has been struggling over the last five years to turn a profit with the only yearend profit coming in 2012. Much of this profit was attributed to Walgreens being unable to fill many of their customer’s perceptions due to a conflict with a supplier, but this problem for Walgreens has since been reconciled, and same store sales for Rite Aid have again started to trend downward. Rite Aid is headquartered in Camp Hill, Pennsylvania and has over 50,000 employees.
Vision Statement (proposed)
Rite Aid strives with our new wellness format to become associated as the most personable and trustworthy drugstore chain in the United States.
Mission Statement (actual)
“To be a successful chain of friendly, neighborhood drugstores. Our knowledgeable, caring associates work together to provide a superior pharmacy experience, and offer everyday products and services that help our valued customers lead healthier, happier lives.”
At Rite Aid we are on a mission to provide the best possible drugstore experience for our customers (1) around the United States (3). We achieve our mission by using our propriety information system (4) that provides our pharmacist (9) with warnings of any possible drug interactions to help better ensure the safety of our customers (8). At Rite Aid, we are committed at not only meeting our customer’s perception needs but also improving their overall health through our wellness programs. (5). In addition we offer an extensive line of other beauty, food, drink, cosmetic, and vitamin products through our alliance with GNC (2). We believe in treating our customers like family (6) and strive to maintain our status as the most personable drugstore (7).
- Products or services
- Concern for survival, growth, and profitability
- Concern for public image
- Concern for employees
- With more generic drugs, come lower sales but much higher margins.
- Baby Boomers represent 26% of the USA population and 40% of the USA economy.
- Women who consider themselves health conscious are 36% more likely to take medicine as soon as they feel bad.
- Women who consider themselves health conscious are 60% more likely to prefer brand-name drugs even at the higher cost associated with these drugs.
- Nearly 90% of women who consider themselves health conscious have household income over $35K.
- Around 40% of health conscious women frequently read the print or e-edition of their local newspaper, and around 30% watch the Lifetime Network at least once a week.
- Around 67% of US adults and 33% of US children and adolescents are overweight or obese.
- Of the $26 billion global weight loss market attributed to pills, weight loss programs, diet food and drinks, around 73% or $18 billion was attributed to diet food and drinks alone.
- Growing awareness among people worldwide to live a more healthy lifestyle.
- Walgreen and Express Scripts (a pharmacy benefits manager) reconciled their differences in September 2012 coming to a compromise resulting in a return of many Walgreen’s customers that were doing their prescription business with CVS and Rite Aid.
- CVS and Walgreen are both larger than Rite Aid with better economies of scale and growing. CVS revenues were up 15% for 2012, and Walgreen is quickly rebounding after the Express Scripts issues.
- Greater generic drug pressure is driving prices down as countless billion dollar drugs lost patent protection over the last two years.
- An increasing number of grocery stores and discount stores such as Wal-Mart and Target are entering the pharmacy market.
- Online retailers offer vitamins much cheaper than GNC and Rite Aid.
- Shortage of certified pharmacists are increasing competition and raising labor costs.
- Women who consider themselves health conscious are 26% more likely to order their prescription drugs over the Internet.
- When marketing health foods and products, great care must be taken not to market them in such a way that the FDA considers it misleading.
Competitive Profile Matrix
Rite Aid received a lower rating than CVS and Walgreens on every factor in the matrix. The company should focus on paying down long term debt by increased sales of food, drink, beauty products, and various other non-drug items that have higher margins.
Rite Aid’s EFE score of 2.05 is below average and the company did not receive a single rating of 4 in the matrix. Unfortunately, most of the threats in the industry are of greater weight than the opportunities. Online drug sales, Wal-Mart and grocery stores having pharmacies, and Walgreens and CVS being substantially larger based on operating revenue plague Rite Aid.
- Rite Aid is the third largest retail drugstore chain in the USA based on both revenue and number of stores with 4,623 stores in operation as of March 2013.
- Rite Aid reported $118 million net profit in year-end March 2013 – their first profit in over 4 years.
- 17% of revenues are derived from Rite Aid branded products.
- Over 60% of stores are free standing.
- The conversion of 800 stores to a “wellness format” from 2011 to 2013 (and 400 more by 2014) has exceeded customer popularity expectations.
- Offering expanded merchandise offerings centered around wellness including gluten-free and organic foods and Forever Fit, Rite Aid’s exclusive line of at home fitness equipment created by Denise Austin, private health consultations, flu shots, and much more.
- Has over 52 million members enrolled in their Wellness and Loyalty Program. About 74% of front-end sales and 68% of prescriptions are filled by members of the Program.
- Rite Aid has over 2,100 GNC stores located within Rite Aid stores and a commitment to open additional stores.
- Rite Aid’s information system allows customers to fill or refill prescriptions at any Rite Aid in the country. The system provides pharmacists with warnings of possible drug interactions.
- Easy to use smart phone app for placing prescription orders.
- About 91% of all prescription drugs are purchased through McKesson, leaving Rite Aid dependent on McKesson for a timely supplying of drugs.
- Rite Aid’s relationship with Canadian pharmacy chain Jean Coutu Group (through the acquisition of Brooks Eckerd) which controls 25% of the voting power, hinders Rite Aid’s financial position.
- Rite Aid has $6 billion in long term debt as of March 2013.
- From September 2012 to April 2013, same store sales declined vs. the previous year.
- Rite Aid continues to stay stable or shrink in total revenues and store numbers and is unable to compete with CVS and Walgreens on the price of many items.
- Only employs 3 women among the top 31 executives.
- Over 4,400 of Rite Aid stores or approximately 94% are under non-cancelable leases with terms of 10 to 22 years.
- Rite Aid has a ROA of 1.6 while CVS’s ROA is 6.2.
- Rite Aid’s inventory turnover ratio is only 5.7 compared to 9.4 of CVS.
Financial Ratio Analysis
|Profit Margin Percent||Rite Aid||Industry||S&P 500|
|Net Profit Margin||0.47||NA||12.41|
|Return On Equity||NA||NA||22.33|
|Return On Assets||1.6||NA||7.7|
|Return On Capital||2.5||NA||10.2|
Rite Aid’s Inventor Turnover ratio is 5.7 while CVS’s is 9.4. Rite Aid should increase non drug retail products such as food and drink. The company also has $6 billion in long term debt.
Net Worth Analysis (in millions)
A quick rise in Rite Aid’s stock price has led to method 3 being larger than method 4. CVS is worth around 30 times Rite Aid.
With an IFE score of 1.89, Rite Aid is grossly underperforming on internal factors. Financial issues and being fully dependent on McKesson and constrained by long term lease agreements are major weaknesses. With the current landscape of strip malls (where 40% of Rite Aid stores are located) going in and out of business, new roads being built and traffic patterns changing, being completed to long term lease agreements is a major weakness.
- Invest $5 million in an advertising campaign to promote the new wellness program at Rite Aid (S5, S7, O8, O9).
- Allocate $5 million to study the most effective way to market organic food, private health consultations, and flu shots (S6, O2, O7).
- Spend $10 million to redevelop the Wellness and Loyalty program to take advantage of the new generic drug climate (S7, O1).
- Increase surplus stock of drugs by 20% to help better ensure customers’ needs can be met if there were a short term problem with McKesson supplying Rite Aid (W1, O4).
- Increase shelf space by 10% for weight loss pills and diet food and drinks to improve inventory turnover (W9, O8, O9).
- Hire 5 new women into upper management to gain diverse insight and promote Rite Aid as female friendly (W6, O3, O4, O5, O6).
- Promote in house health consultations, flu shots, and other services to counter online drugstores, and Wal-Mart (S6, T3, T4).
- Synchronize orders placed online with drugs mailing from a distribution center at a lower cost to the consumer (S10, T5, T6, T7).
- Increase awareness of Rite Aid branded products as a quality substitute for brand name products (W5, T2).
- Develop relationship with another provider of prescription drugs (W1, T3, T4).
Rite Aid lands in the Competitive quadrant of the SPACE, but could easily be considered Defensive as well, if it were not for the overall industry being an industry to operate in, as baby boomers are aging, and there is a growing health minded public. Rite Aid should continue to promote their wellness programs, consider an increased online presence, and increase offerings of high margin retail times.
Grand Strategy Matrix
Rite Aid is clearly in a weak competitive position with respect to CVS, Walgreens, online merchants and even Wal-Mart. The overall industry is enjoying above average growth. Rite Aid must market itself as a place for more personal care with services like flu shots, health consultations, and more personable pharmacists to compete against competitors with larger economies of scale in what is, in many ways, a commodity based business.
The Internal-External (IE) Matrix
|Business Segment (in millions and rounded)||Year End 2012 Percent Revenue|
|(1) Prescription Drugs||67.6|
|(2) Over the Counter Medications and Personal Care||9.9|
|(3) Health and Beauty Aids||5.2|
|(4) General Merchandise and Other||17.3|
Prescription drugs accounted for close to 68 percent of revenue in both 2012 and 2011. Rite Aid struggles greatly on front end sales (health and beauty aids along with general merchandise) which account for only 17% of total revenue. However, these items generally have a higher profit margin than brand name drugs.
QSPM reveals that both increasing sales of front end goods and increasing an online presence for the sale of prescription drugs are equally attractive for Rite Aid.
- Invest $5 million in an advertising campaign to promote the new wellness program at Rite Aid.
- Allocate $5 million to study the most effective way to market organic food, private health consultations and flu shots.
- Spend $10 million to redevelop the Wellness and Loyalty program to take advantage of the new generic drug climate.
- Hire 5 new women into upper management to gain diverse insight and promote Rite Aid as female friendly.
- Promote in house health consultations, flu shots, and other services to counter online drugstores, and Wal-Mart for a cost of $15 million.
- Synchronize orders placed online with drugs mailed from a distribution center at a lower cost to the consumer for a cost of $2 million.
- Develop relationship with another provider of prescription drugs.
EPS/EBIT Analysis (in millions expect for EPS and Share Price)
Amount Needed: $37
Stock Price: $2.53
Shares Outstanding: 904
Interest Rate: 5%
Tax Rate: 30%
Rite Aid has reported EBIT between $2 million in 2010 and $522 million in 2012 so estimating EBIT is quite difficult. Maximizing EPS it is indifferent over all streams if Rite Aid should use debt or stock. Debt financing may be difficult to obtain with the firm’s $6 billion in long term debt on the balance sheet, and equity financing is also problematic with share prices less than $3 a share. With Rite Aid performing mostly defensive strategies, large sums of capital are not needed.
Rite Aid, in an attempt to boost sales of front end products, started its Nail Extravaganza in 2012 and renewed the program in 2013. Both amateurs and fashion experts can submit nail designs and win 20 different prizes. The Extravaganza is designed to allow fans to vote on the website their favorite designs. The grand prize winner will receive a $500 Rite Aid gift card and free nail products.
Rite Aid also announced in spring 2013 for the second straight year that it plans to sponsor once of the premier women’s cancer run/walks held in both New York and Los Angeles. Rite Aid will sponsor teams of runners and walkers, man booths, and host Denise Austin on site to warm up participants. Rite Aid also reported it was going to donate $100,000 in a partnership with Revlon to the Entertainment Industry Foundation to help with the fight against women’s breast cancer.
With the rise in Rite Aid’s stock price, Jean Coutu Group sold 72.5 million shares, reducing its stake from 25% to 11.7%. The sale of stock will reduce Jean Coutu’s voting rights and possibly improve Rite Aid’s internal position as Jean Coutu’s 25% stake has been viewed a weakness by Rite Aid management.