Rite Aid – chain drugstore – Chain Profile

Lisa I. Fried

Camp Hill, Pa. – Mention Rite Aid to anyone in the chain drug industry these days and the conversation will likely center on the chain’s proposal to buy Revco D.S. or its legal battles with Merck/Medco. But inside Rite Aid’s Camp Hill, Pa., headquarters, a series of monumental changes have occurred in the past year that has truly redirected the industry’s second largest chain. And they have nothing to do with Revco or Merck/Medco.

In February, Martin Grass assumed the top post at the chain from his father, Alex. Almost immediately he set into place a number of steps designed to fundamentally transform the chain. These included reorganizing the field operation, developing and rolling out a larger prototype, shifting the operating strategy from a lean and mean approach to one focused on higher sales volume, implementing category management and launching a national advertising campaign.

The foundation for many of the changes was laid while Alex Grass was still running the company. Before he retired, Grass sold most of the chain’s ancillary businesses and refocused Rite Aid on the drug store business. Since taking over as chairman and chief executive officer, Martin Grass has seized innumerable opportunities to ignite the drug store division, grow the chain’s market share and lead Rite Aid into the future.

Early in 1995, Grass refined his management team as a precursor to making major shifts in the sales and buying operations. Timothy Noonan, formerly executive vice president of drug store operations, was named president and chief operating officer. Kevin Mann, formerly senior vice president of purchasing, was named executive vice president of marketing. Frank Bergonzi was promoted from senior vice president of finance to executive vice president and chief financial officer. Chuck Kibler, vice president of drug store operations, was promoted to senior vice president of drug store operations.

Operationally Rite Aid broke down the walls between pharmacy and the front-end in April 1995. Instead of operating two, separate management structures for pharmacy and the front-end, Rite Aid created a new integrated approach that provides incentives for pharmacy and front-end managers to work together to grow total store sales. The new structure has empowered staff to make more decisions and saved the company millions of dollars. It has also brought the market managers, who are responsible for at least 150 stores, closer to the merchandising operation, which was completely reorganized this past year.

The decreased profitability of the pharmacy forced Rite Aid, like many other chains, to focus on the front-end of the store. To accomplish that, Grass charged Mann with creating a new marketing/merchandising approach for the chain and developing a national ad campaign.

Category management has played a major role in that process. Rite Aid spent months developing a category management strategy and hired the Partnering Group as its consultant. Mann overhauled the purchasing department and appointed category managers to oversee health, beauty and cosmetics, personal care, stationery and household, candy and tobacco, entertainment and leisure, seasonal, and food and beverage.

“Category management has created a much higher level of thinking in the organization about the business,” said Mary Verbryke, vice president for category management purchasing. “With more information available to them than ever before, the category managers understand how Rite Aid is performing in the marketplace, not just how Rite Aid is performing by itself. It’s a more global perspective.”

The chain will have category management plans created for all of its categories by the end of this year. “We have been pleased with the initial results in 1995, and we are hoping we will see improvement in the categories we plan to bring on board later this year,” Grass said.

The chain’s $8 million ad/marketing campaign, launched in November, was also a major departure for the company. The campaign carries the tagline, “For Your Life, Rite Aid’s Got It,” and showcases many different women with busy lifestyles. “It aims to position Rite Aid as the most convenient place for busy women to find knowledgeable and helpful pharmacists, as well as value-priced health and beauty products, and time-saving services,” Grass said.

The campaign, which includes television, radio spots, print ads, messages in circulars and in-store signage, is affecting consumers, according to Grass. “We have done surveys of females ages 20-55, who said they are aware of the campaign and more aware of Rite Aid than they were before.”

A key message in the campaign is convenience, a feature the chain has been emphasizing in its new prototype. In 1995, Rite Aid created a prototype designed to generate higher front-end sales. It spans 10,000 square feet and includes one-hour photo, convenience food, larger cosmetics and fragrance departments, a greater commitment to upscale bath and body products, Rite Express (shipping, copying and faxing), and health/diagnostic centers.

Category management has prompted the chain to test another prototype this year. It’s 11,000 square feet and has a drive-through pharmacy. It is in place in a handful of stores, but this year will be rolled out to 450 stores. Of those 450, 150 will be new stores, 250 will be relocations and 50 will be expansions.

Rite Aid had a terrific year in 1995. Total sales increased 20.1 percent to $5.45 billion for the fiscal year ended March 2, 1996. Sales gains were fueled largely by an aggressive store renovation program, and the contribution of the 224 Perry Drug stores and 30 Pathmark stores, which were acquired in January and August, respectively.

In the fiscal year ended March 2, 1996, Rite Aid expanded 102 stores, relocated 121 stores, remodeled 136 stores and opened 107 stores.

The acquisition of Perry placed Rite Aid in Detroit, a large drug store market, for the first time. The chain has been fully integrated into the Rite Aid operation, the stores converted to the Rite Aid banner, and most of the new planograms put in place. Perry’s POS system was replaced with Rite Aid’s POS system, and the pharmacy system was modified to include the best components of both chains’ systems.

The acquisition of Pathmark’s freestanding drug stores enhanced the chain’s commitment to the metro New York area. Rite Aid currently operates more than 65 stores in New York City and plans to open at least 44 more stores in the market by the end of this year. “We are opening more stores here than anywhere else,” said Grass.

In terms of real estate, the chain focused on increasing market share in existing markets and departing markets where it had a weak presence. It strengthened its position in Maine by purchasing 18 stores from Brooks Pharmacy and dramatically reduced its presence in Florida by selling 37 stores and the assets and prescription files of 72 stores in southern and central Florida to Eckerd Corp. in July. (Rite Aid still operates stores in northern Florida.) The chain also left the states of Massachusetts and Rhode Island by selling 30 stores to Brooks Pharmacy and 17 stores to CVS.

Rite Aid at a glance

Company: Rite Aid Corp.

Headquarters: Camp Hill, Pa.

Officers: Martin Grass, chairman and chief executive officer; Tim Noonan, president and chief operating officer; Frank Bergonzi, executive vice president, chief financial officer; Kevin Mann, executive vice president of marketing; Joel Feldman, executive vice president of Eagle Managed Care

1995 sales: $5.45 billion. Fiscal year ended March 2, 1996.

Store count: 2,759

Average store size: 7,500 square feet

Markets: Alabama, Connecticut, Delaware, District of Columbia, Florida, Georgia Indiana, Kentucky, Maine, Maryland, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Vermont, Virginia and West Virginia

Highlights: Martin Grass promoted from president to chairman and chief executive officer; Perry Drug and Pathmark drug stores acquired; field management, purchasing structures reorganized; category management rolled out; first national ad campaign released; proposal made to purchase Revco D.S.

COPYRIGHT 1996 Reproduced with permission of the copyright holder. Further reproduction or distribution is prohibited without permission.

COPYRIGHT 2004 Gale Group

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