1. Rite Aid Case Analysis

2. Recommendations
• Focus on same store sales growth, not market share
• Private Label Brands
Integrated • New services
Strategy • Customer -focused loyalty programs
• Narrow footprint through the divestment of unprofitable stores
• Invest in image upgrades of new store base
Restructure • 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. 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. 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. 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. 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. 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. 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. 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. 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. Portfolio Analysis
 Retail pharmacy services.
 Over-the-counter drugs.
 Household and personal care items.
 Convenience foods.
 Nutritional supplements.
 Photofinishing services.

12. SWOT Analysis
Strengths Weaknesses
3rd largest pharmaceutical chain Overly aggressive acquisition
Online website (convenience) strategy
Implemented front-end Substantial amount of debt
merchandising 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 system
store/pharmacy concept in SC PBMs provide pharmacies with
 Full scale implementation of lower reimbursements
private brand (Simplify) Economic downturns (↑ # of
unfilled prescriptions)

13. Financials
Financial 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 $20,358,000
NI Applicable to ($515,585) $2,006,000 $3,696,000
Common S/H

14. Financials
Ranking by Rx Sales
(Retail Pharmacy Annual Report: 2010)

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. Conclusion
• Focus on same store sales growth not market share
• Private Label Brands
Integrated • New services
Strategy • Customer- Focused Loyalty Programs
• Narrow footprint through the divestment of unprofitable Stores
• Invest in image upgrades of new store base
Restructure • 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. Questions?