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Rite Aid

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Rite Aid

  1. 1. Rite Aid Case Analysis
  2. 2. Recommendations • Focus on same store sales growth, not market share • Private Label BrandsIntegrated • New services Strategy • Customer -focused loyalty programs • Narrow footprint through the divestment of unprofitable stores • Invest in image upgrades of new store baseRestructure • Reduce management overhead • Create scholarship programs for pharmacists • Implement new training & retention program • Implement employee incentives programs Culture • Invest in employee facilities and wellness
  3. 3. Mission “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.” – Riteaid.com Wellness+, Employee loyalty, Investments in online tie into the Superior Pharmacy Experience. Investments into on-site healthcare clinics ties into healthier, happier lives.
  4. 4. Core Values Passion for customers. Encouragement for employees. Winning through teamwork. Commitment to diversity and respect for the individual. Accountability for actions and results. Integrity in all Rite Aid does. Value for shareholders. Caring neighbors.
  5. 5. Business Model Growth  Through acquisition of other pharmacy retailers.  Diversified growth  Purchasing of PCS Health System. Create strategic partnerships  Increase market presence and reach across various distribution channels.  Ex: GNC & drugstore.com partnerships. Strong focus on customer loyalty.
  6. 6. Strategy: The Pharmaceutical Retail Industry. High bargaining power for wholesalers (Control 85% of all drugs sold). High bargaining power for buyers due to Pharmacy Benefit Managers and legislation. Strong rivalries between existing three major players. Substitutes to high margin brand names by generics.
  7. 7. Analysis / Assessment – Industry Types of pharmacies: independent, chain, mass merchants, supermarkets, and mail-order. Key Players: Walgreens, CVS, Medco, and Rite-Aid. Large customer base and opportunity for growth.  Growing population of older consumers.  Health care laws (40M previously uninsured). Highly competitive. Average profit margin for pharmacy-related sales is 2-4%. Over $4.5B prescriptions were filled in US, accounting for $300B in total sales. Average # of prescriptions filled per person = 12.6.
  8. 8. Overall Strategy - Past Competition based on low cost. Create economies of scale through acquisitions of other chains. Smallest of three major retailers (Rite-Aid, Walgreens, CVS). Cannot sustain strategy – over–leveraged.
  9. 9. Strategic Shifts & Future Strategies Differentiate – cannot compete on economies of scale. Create products and services that offer an advantage over competitors. Provide higher levels of service and a better customer experience. Move from store - key to customer-centric approach
  10. 10. Industry Trends Consumers search for low-cost alternatives.  Internet-based.  Mail-order.  Economies of scale, lower overhead  discounts.  Automated.  Generic drugs (80% of FDA-approved drugs have generic equivalent). Increased demand for:  Prescription drugs.  Pharmacists to spend more time on patient counseling.  Walk-in clinics.
  11. 11. Portfolio Analysis Retail pharmacy services. Over-the-counter drugs. Household and personal care items. Convenience foods. Nutritional supplements. Photofinishing services.
  12. 12. SWOT AnalysisStrengths Weaknesses3rd largest pharmaceutical chain Overly aggressive acquisitionOnline website (convenience) strategyImplemented front-end Substantial amount of debtmerchandising to ↑ profits Employee unions issues(pharmacy, foods, supplements) Poor credibility (Medicare fraud,Loyalty programs (Wellness+) executive malfeasance)Opportunities ThreatsMail-order sales Competitors’ position and plansWalk-in clinics Prices dictated by US pharmacyTest marketing new grocery distribution & reimbursement systemstore/pharmacy concept in SC PBMs provide pharmacies with Full scale implementation of lower reimbursementsprivate brand (Simplify) Economic downturns (↑ # of unfilled prescriptions)
  13. 13. FinancialsFinancial Ratios Comparison (NASDAQ) Rite-Aid Walgreen Co CVS (as of 2/27/10) (as of 8/31/09) (as of 12/31/09)Current Ratio 207% 178% 143%Quick Ratio 58% 78% 58%Cash Ratio 5% 38% 9%Gross Margin 27% 28% 21%Oper. Margin 0% 5% 7%Pre-Tax Margin 2% 5% 6%Profit Margin 2% 3% 4%Pre-Tax ROE 29% 22% 16%After-Tax ROE 30% 14% 10%Gross Profit $6,824,090 $17,613,000 $20,358,000NI Applicable to ($515,585) $2,006,000 $3,696,000Common S/H
  14. 14. FinancialsRanking by Rx Sales(Retail Pharmacy Annual Report: 2010)
  15. 15. Proposed Sources of Same Store Sales Growth Increase front-end economical products’ sales.  Private label branding.  Zone pricing.  Immunizations.  Specialty services. Patient counseling services.  On-site healthcare clinic services. Mail-order pharmacies. Grocery store/Pharmacy model. Customer loyalty programs.
  16. 16. Conclusion • Focus on same store sales growth not market share • Private Label BrandsIntegrated • New services Strategy • Customer- Focused Loyalty Programs • Narrow footprint through the divestment of unprofitable Stores • Invest in image upgrades of new store baseRestructure • Reduce management overhead • Create scholarship programs for pharmacists • Implement new training & retention program • Implement employee incentives programs Culture • Invest in employee facilities and wellness
  17. 17. Questions?

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