New execs to sharpen Pathmark's Rx focus

Drug Store News,  Sept 12, 2005  by Antoinette Alexander

• E-mail
• Print
• Link

CARTERET, N.J. -- With a former Rite Aid executive at the helm and a new pharmacy vice president in place, one could surmise that Northeastern supermarket chain Pathmark Stores is stepping up its focus on pharmacy.

The grocer currently operates 142 stores primarily in the New York, New Jersey and Philadelphia metro areas, of which 130 include in-store pharmacies.

While newly appointed chief executive officer John Standley has yet to disclose details of the steps he will take to return the ailing grocer to profitability, what is known is that the former Rite Aid senior executive vice president, chief administrative officer and chief financial officer played a key role in Rite Aid's financial and operational turnaround, and industry observers are optimistic about his new role at Pathmark.

He succeeds Eileen Scott, who spent more than three decades with Pathmark and was appointed chief executive officer in 2002.

"I think this [Standley's appointment] is exactly what they [Pathmark] need. You kept hearing that it was external factors impacting sales, but the bottom line is that they were just not executing," said Karen Short, an analyst for Fulcrum Global Partners. "They have someone who can execute."

Sales for the fiscal year ended Jan. 29 slipped 0.3 percent to $3.98 billion, while same-store sales dropped 0.8 percent. Including charges, Pathmark s net loss for the year was $269.3 million, or $8.96 per share, compared with a gain in the year-ago period of $16.5 million, or 54 cents per share.

Prior to joining Rite Aid in December 1999, Standley held executive roles at Fleming Cos., Fred Meyer, Ralphs Grocery, Smitty's Supervalu, Smith's Food & Drug and Food 4 Less Supermarkets. In addition, he worked with investment firm Yucaipa to combine several regional grocery companies with Fred Meyer.

Standley's Yucaipa connection is important because it recently agreed to invest $150 million in Pathmark for store refurbishment and growth, and his familiarity with Yucaipa's style is a point in his favor that has not gone unnoticed.

Pathmark also hired from rival A&P Jim Finocchi as its new vice president of pharmacy operations, overseeing all aspects of Pathmark's pharmacy business, including operations, systems and procurement. Finocchi spent 19 years with A&P in a similar capacity.

During a conference call last month with analysts, Standley said he will meet with the management team to develop "a comprehensive strategy for growing the business." He did say that areas of focus would be store execution, merchandising opportunities, customer service, refurbishing existing locations, adding new stores, making the stores easier to shop with better departmental adjacencies and reducing store clutter.

"I think Pathmark is a tremendous platform for growth. ... At the same time, Yucaipa's recent investment in Pathmark is an important element for unlocking the value of the company by giving it increased resources," Standley told analysts.

The pharmacy was top of mind with at least one analyst, Jonathan Ziegler of JM Dutton & Associates, who inquired about Pathmark possibly stepping further into the pharmacy business.

"In terms of branching out into the drug store business, I wouldn't say that is at the top of the list at this point. I like the drug store business, but I think the food business is a very exciting business, and I think we have an opportunity to do better with the pharmacies we have and better incorporate them into the stores," said Standley.

According to Short, who noted that 20 percent of Pathmark's business is pharmacy, Ziegler's question stemmed from industry speculation that Pathmark was interested in snapping up New York-based drug chain Duane Reade.

While it is unclear what Pathmark has specifically planned for its pharmacy business, Standley does see some similarities between the Rite Aid and Pathmark businesses and will draw upon his experiences from Rite Aid's turnaround to get Pathmark on track.

"Rite Aid had a lot of infrastructure in place and had a lot of stores, but really needed to grow its volume. Pathmark has great volumes and needs to work to maximize the returns on those volumes and to grow some," said Standley. At Rite Aid, I was deeply involved in restarting the real estate program and was involved in the development of a prototype. ... I think a lot of the experience I have had there [at Rite Aid] is applicable to the Pathmark situation."

COPYRIGHT 2005 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.
COPYRIGHT 2008 Gale, Cengage Learning