Rite Aid to add up to 1,000 stores by 2010

Drug Store News,  July 11, 2005  

• E-mail
• Print
• Link

HARRISBURG, Pa. -- After several years of extremely conservative store-growth plans, Rite Aid plans to add anywhere from 800 to 1,000 new stores between now and 2010. That was the big news to come out of the company's annual shareholders meeting held here last month. The company will concentrate on five key markets: Baltimore, Los Angeles, New York, Philadelphia and Pittsburgh--all markets where Rite Aid already has significant market share and is facing sharper competition.

"We've had a lot of competitors that over the past several years have opened a lot of new stores in markets that we operate in, Mary Sammons, Rite Aid president and chief executive officer, told analysts during the June 23 meeting. That's why it was important for us to restart our growth engine and improve our density in those markets," she said.

In addition to organic store growth, Rite Aid also has its eyes on growth through acquisition in those markets. Last month, Rite Aid completed the purchase of the Shelly's drug store chain in Philadelphia. Of the six stores, Rite Aid will keep two open and will transfer prescription files from the other four.

The new-store program may provide a much-needed lift to Rite Aid's comparable sales numbers in about three years, when those new stores truly begin to impact the company's same-store sales numbers. Until then the move will create some pressure on the company's margins. "The first couple of years of a [growth] program like we're doing, it puts a little bit of pressure on our numbers," commented John Standley, senior executive vice president, chief administrative officer and chief financial officer.

In recent years, Rite Aid's challenge has been to match the comp sales numbers of its two biggest rivals, Walgreens and CVS--and without the benefit of a new-store growth program to drive comps. And in some ways, the pressure has only intensified in recent months given the United Auto Workers decision to move its members to mandatory mail order in 2004, a move that affected Rite Aid disproportionately. "We had approximately 1,100 of our stores that were patronized by UAW members," Sammons said.

The impact is possibly more profound, Sammons explained, because Rite Aid did not decrease its level of service in those areas--whether by reducing labor costs or cutting back hours of operation--or reduce the chain's promotional spends.

Regarding the impact of the UAW's decision, Sammons said she expects that event to be completely cycled through by July, suggesting that Rite Aid's pharmacy comps may get a much needed lift later this summer. But Rite Aid is embarking on a number of initiatives designed not only to drive foot traffic to its pharmacy counters, but to keep those patients coming back--programs such as the Medicare-Part-D-friendly Rite Care, which officially kicked off last month, and the chain's senior discount program, Living More, which has attracted 1.4 million seniors in the four months that the program has been available.

Rite Aid's recent move into pharmacy benefit management also is expected to help drive pharmacy traffic moving forward. "We should have our own [PBM] national sales and marketing team in place by the fall," Sammons said.

Other initiatives at Rite Aid: expanded digital processing where customers can upload pictures to Rite Aid online and pick them up at the store and the introduction of one-time-use digital cameras in its West Coast stores.

One thing Rite Aid is not doing is placing its store base on the sales block--a question on the minds of investors at the company's annual meeting.

Despite positive fiscal 2005 year-end results, however, Rite Aid's first quarter earnings, announced the same day, fell to $4.2 billion for the 13-week period ended May 28, a decline of 0.5 percent. Same-store sales decreased 0.3 percent during the period, consisting of a 1.2 percent drop in pharmacy same-store sales and a 1.4 percent increase in front-end same-store sales.

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