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CAMP HILL, Pa. — It’s evident that John Standley is confident in Rite Aid’s strategic game plan, which has reinvigorated the company financially and in the marketplace.
When asked in an interview where Rite Aid goes from here, the chairman and chief executive officer said, “We stay focused on growing our business by meeting the health and wellness needs of our customers and the communities we serve.”
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John Standley: "The goal would be that, over the long run, the vast majority of our stores will be wellness stores." |
“We still have lots of opportunity in our existing stores to grow,” Standley said. “We’ve certainly shown that on the script side over the last 12 months and, to some extent on the front end as well. But if you look over a longer period of time, three years or so, you’ll see some fairly decent front-end comps as well.”
Along with the wellness+ loyalty program, Rite Aid’s wellness store format is behind much of the improved results. Standley and other company executives have said front-end same-store sales are more than 3% higher and script count is almost 1% higher in the wellness stores compared with the non-wellness stores.
The retailer closed out its 2013 fiscal year with 797 wellness stores in operation and boosted that total to 1,019 by the close of the fiscal 2014 second quarter on August 31, at which time the drug chain had 4,604 stores overall. The company aims to have 1,200 wellness stores by the fiscal 2014 year-end.
Rite Aid has made steady progress rolling out the wellness store concept since its debut in the spring of 2011. The chain unveiled a second generation of the format, called “Genuine Well-Being,” in October 2012. And in May, the company completed its first marketwide conversion to the wellness store concept in the Buffalo, N.Y., area.
“As our remodeling efforts gain momentum, I’m hopeful that we can begin shifting toward building a pipeline for relocations and new stores that will take us to the next stage of growth,” Standley said.
At the same time, the wellness format will keep evolving, he added. “We continue to modify and improve the wellness store concept as we go. So in the next generation you’ll see additional merchandising changes and maybe some additional services.”
Rite Aid’s fiscal 2014 capital expenditures budget of $400 million includes $175 million for remodels, and the company plans to open one new store, relocate 14 stores and complete 400 wellness store remodels during the period.
“The goal would be that, over the long run, the vast majority of our stores will be wellness stores,” Standley said. “As we’re working our way through the real estate, it’s going in a fairly logical order. The immediate need is that we have a bunch of good real estate that has to get renovated. That’s where the focus has been. We started with our best stores, and we continue to look at real estate that we think we’re going to be in for the long term.”
He estimated that Rite Aid will be deeply engaged in remodels over at least the next two years. The company also will be assessing its current locations and other sites for relocations and new stores.
“Behind the scenes our real estate team is shifting gears from sort of maintenance mode to growth mode,” Standley explained. “The real estate department is trying to take that next step toward rebuilding our pipeline in terms of where we’re going to invest, with a primary focus on relocations. And net new stores will take up the balance of that capital as we look forward.
“That’s the path we’re headed down. We still have a couple of years of renovations in front of us. And during that time we’ll focus on building up that pipeline and returning to a more traditional growth trajectory with the real estate.”
Geographically, Rite Aid’s 31-state base of stores is concentrated in the East Coast and West Coast regions, with strong market shares in the Northeast and Southern California, in particular.
According to the company, more than 25% of the U.S. population visits its stores at least once a year, and it has the No. 1 or No. 2 market share in 56% of eastern U.S. metropolitan statistic areas (MSAs).
Besides the middle of the country, Rite Aid sees opportunities for expansion in the South and the Northwest. “We do have certain markets where we underperform and do not have enough density,” Standley said. “So we definitely have fill-in opportunities.”
Capital constraints have largely prevented Rite Aid from going the acquisition route to gain market share, as its bigger and deeper-pocketed competitors — notably Walgreens — have done in recent years.
Standley declined to comment on whether Rite Aid was now in a position to consider acquisitions, but he said the company will continue to invest in file buys to add prescription market share. The chain completed $24 million in prescription file buys during the second quarter and plans to spend $65 million for the year.
“It’s growing. As we free up capital, and depending on what’s available in the marketplace, we’ll continue to allocate more capital to it,” he said of file buys. “I think it will continue to grow as part of our budget.”
At the same time, the chain has continued to close underperforming stores and locations coming off lease. For fiscal 2014, it expects to shut 50 stores, including a store lease closing provision for 10 to 15 stores and the balance closing upon lease expiration.
Editor’s Note: To read more about Rite Aid’s turnaround, including exclusive interviews with the company’s top executives, please see the 18-page special report "Rite Aid: Shifting Into Growth Mode" in the Dec. 16, 2013, print issue of Chain Drug Review.
