Building a strong health care image – Pharmacy – Rite Aid Corp – Company Profile

James Frederick

For pharmacy competitors who thought Rite Aid was all but finished as a major power in community pharmacy a few years ago, the company has some bad news. Rite Aid is back on its feet, and its top priority is increasing its pharmacy business.

The 3,400-store company no longer is the growth-obsessed daredevil of chain drug retailing devoted to expansion at any cost and willing to accept relatively low per-store sales volumes as long as it could squeeze profit margins from a low-cost, low-service operating structure. And it no longer is willing to take a backseat to its competitors as a community pharmacy provider–or as a top-of-mind destination for patients, doctors and new pharmacist recruits.

Rite Aid pharmacists filled more than 200 million prescriptions in the fiscal year ended March 1. That $10 billion in prescription revenues provided the chain with 63.2 percent of its total sales, compared with 61.3 percent in fiscal 2002 and 59.5 percent the previous year.

The increasing prescription sales are coming amid a backdrop of retrenchment and refocus. Since 1997, the chain has shed roughly 1,000 drug stores, has changed both its senior management and its competitive strategy and, under duress, has shitted its focus from store expansion to improved execution and store productivity. But the chain also has improved steadily its image and customer-service capabilities as a pharmacy and health retailer.

How? By converting more than half its stores to free-standing locations, by adding drive-through pharmacies to nearly 1,300 of its stores and by boosting its appeal as a health and wellness destination with roughly 970 GNC store-within-a-store nutrition centers adjacent to its pharmacies. What’s more, the chain has sponsored health and beauty expos in major markets and has revamped its marketing efforts to attract and to retain managed care customers–which now account for 92.7 percent of total pharmacy sales–and physician-network partners.

Equally important, Rite Aid has polished its health care image with a series of thoughtful television and print ads that emphasize its commitment to patient care and caring pharmacists. In addition, the chain has branded many of its pharmacy services skillfully. In advertising and on its Web site, for instance, Rite Aid’s LifeCheck Computer tells customers their prescription histories and scans for potential drug interactions, and the printed guides that come with every prescription are part of its Rite Advice service.

The company also markets its satellite linkup, allowing any of its 3,400 pharmacies to bring up a patient’s profile for easy prescription refills anywhere, as well as the special training its pharmacists receive in diabetes care, vitamin supplements and other health topics Rite Aid also promotes On Internet-based “Ask Your Pharmacist” service with a staff of pharmacists on hand to answer patients’ medical questions at its branded Rite Aid Drug Information Center. The service is available Monday through Friday from 9 a.m. to 11 p.m.

In line with its shifting priorities, Rite Aid continues to refine its pharmacy prototype with a roomier work space, additional counter space where needed, more computerized workstations for smoother work flow and other innovations.

The new format, first introduced in late 2001, also entails a reconfigured work flow for pharmacists and technicians designed to enhance patient satisfaction. The work-flow change makes technicians the first point of contact with patients as they drop off prescriptions and puts pharmacists back out in front with patients as they pick up their medicines and seek personal counseling.

‘Growing prescription count is No. 1’

Rite Aid is achieving what its leaders call a dramatic improvement in operating performance, thanks in no small part to sharp cost controls and its aggressive substitution efforts at the pharmacy counter for higher-margin generic drugs. But its officers–including chairman Bob Miller and president and chief executive officer Mary Sammons–readily acknowledge the chain has far to go in its long turnaround strategy. And that strategy–to improve store productivity–depends on getting more of the chain’s front-end customers back into the pharmacy and on competing more effectively by attracting patients who may be dissatisfied with their current pharmacy choices.

“The trends are in our favor,” Sammons and Miller noted in the company’s annual report to shareholders in May. “Every year, more baby boomers move into their nigh prescription usage years. Drug companies continue to spend billions on research and development to create new drug therapies for diseases we know and illnesses we haven’t heard of yet. New drugs have started to move through the Food and Drug Administration approval process faster. And over the next five years, three times as many branded drugs will come off patent as in the last five years, which will … be a boon for higher-margin generics.”

That fits well with Rite Aid’s traditional strength as a generic drug switchmaker, they added. “We remained an industry leader in the dispensing of generic prescriptions, which is good for us because of higher margins and good for the customer because of lower prices.”

Rite Aid’s most critical priority this year, Sammons and Miller noted, is bringing its prescription drug business up to par with chain drug industry standards–and with its own strong growth in same-store front-end sales. “Growing prescription count is No. 1 [in priority] because pharmacy represents 63 percent of our business and has the most potential for natural growth,” they told shareholders.

Some 1.8 million consumers now shop at Rite Aid every day, but far fewer than one-third of them are filling prescriptions when they come in. Company leaders want to improve those numbers, and they’re putting resources behind the effort.

“Imagine the potential for growth if we could attract more of the shoppers who come in just to pick up a gift or buy basic supplies to shop the pharmacy,” Sammons noted in her first address as chairman of the National Association of Chain Drug Stores in April.

In fiscal 2003 ended March 31, Rite Aid’s same-store pharmacy sales rose 9.7 percent, compared with 11.4 percent the previous year. The company attributed the pharmacy gains in recent years to “increases in both prescriptions filled and sales price per prescription.” Other factors behind the improving prescription sales picture, noted a company report, included “inflation, improved attraction and retention of managed care customers, our increased focus on such pharmacy initiatives as predictive refill and favorable industry trends,” including the aging population, increased drug utilization and advances in drug therapy.

Although respectable, the pharmacy sales growth leaves plenty of room for improvement, Rite Aides leaders say, and much of it is tied to drug price inflation. Research analyst Mark Husson of Merrill Lynch agrees. “For Rite Aid’s stock price to start on its next leg of outperformance … it needs to start to show superior pharmacy comp-store sales,” Husson noted in mid-May. That means “showing that its recent hires in clinical marketing [selling its skills to physician groups and managed care organizations] have addressed this strategic weakness now that it no longer has an in-house PBM,” he added.

File acquisition funds, new technology

Rite Aid has launched a range of initiatives and has focused its limited capital spending budget–which this year will total some $170 million–on growing its prescription business and making it more profitable.

“We have doubled our capital budget for acquiring prescription files because they provide a quick return on investment,” Rite Aid’s top executives noted. Money also will go into new prescription processing and communications technology to reduce paperwork and to speed medicines into patients hands, making me chain a more compelling pharmacy destination. This “new and-improved technology,” Sammons noted, “also will deliver results as we continue to roll out our next generation pharmacy system, expand e-prescribing so more doctors can send prescriptions electronically and market our enhanced automated refill system. These will make it even easier for both patients and doctors to use Rite Aid.”

As part of its strategy to boost productivity, “We have begun the installation of our next-generation pharmacy system,” the company noted in its annual report. In addition, “We are piloting several e-prescription applications that will further enable our pharmacists to work directly with customers and adjudicate and fill prescriptions in a more efficient manner. We also drive prescription growth via our automatic refill program, prescription file buys and several initiatives aimed at managed care providers and doctors.”

Fueling dispensing efficiency in the Rite Aid stores with the highest prescription volumes has been the installation of ScriptPro robotic dispensing machines in more than 870 pharmacies. Rite Aid was an early believer in robotic dispensing–which it has branded as the RapidScript system–and asserts that the system “allows our pharmacists to spend an increased amount of time consulting with our customers.”

This year, Rite Aid’s pharmacy leaders also will focus on “increasing recruitment of pharmacists in hard-to-staff areas, a new program for reacquisition of former customers, a focus on seniors and improvements to our managed care and clinical services product lines,” Sammons and Miller added. Those efforts now are being led by Jerry Mark de Bruin, a veteran of chain drug retailing and managed care who joined Rite Aid as senior vice president of pharmacy services earlier this year. As the company’s top pharmacy executive, de Bruin heads up pharmacy marketing, managed care, clinical services and pharmacy purchasing. He reports to Jim Mastrian, senior executive vice president of marketing, logistics and pharmacy services.

COPYRIGHT 2003 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

COPYRIGHT 2003 Gale Group

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