June 5, 2007
Rite Aid Becomes Largest Druggist on East Coast
With the completion of its acquisition of 1,854 Brooks and Eckerd drugstores, Rite Aid becomes the largest drugstore chain operating on the East Coast of the U.S. and the third largest overall.
The company, in a press release to announce the completion of the deal with the Jean Coutu Group, said it sees what it called “substantial opportunities to reduce costs, improve operations and grow earnings.”
Mary Sammons, president and CEO of Rite Aid, will also add the title of chairman as a result of this deal. She succeeds Robert Miller, who will remain as a member of the company’s board.
Ms. Sammons, said, “We are ready to hit the ground running with a detailed integration plan that includes significant investments in the Brooks and Eckerd stores and in our new associates. With a much larger Rite Aid, we’re confident we will have substantial opportunities to reduce costs, improve operations and grow earnings per share, which will generate greater value for our shareholders.”
According to the press release, the Brooks Eckerd side of the business will be integrated into Rite Aid in phases. The company will change over Brooks and Eckerd locations to Rite Aid’s systems and it will also integrate six distribution centers acquired in the deal.
All stores will eventually be rebranded as Rite Aid. The company plans minor remodels to each store in the initial phase with more extensive remodels and some relocations taking place over the next five years. The company intends to open 1,000 new or relocated stores over that time period.
“These are good stores in good locations with dedicated associates,” said Ms. Sammons. “We are eager to bring them into Rite Aid, and we’ve got the infrastructure, management team, best practices and plan to do it.”
Seventy percent of the stores acquired by Rite Aid are in 14 states where the drugstore chain currently operates. The company will add stores in Massachusetts, Rhode Island, North Carolina and South Carolina where it previously had no presence.
Discussion Questions: What do you see as the challenges and opportunities for Rite Aid now that is has closed the deal to acquire Brooks and Eckerd? What, if anything, makes you believe that Rite Aid will be successful in making this large merger work when so many others, including Coutu’s acquisition of Eckerd, have failed?
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What does this mean for their in-store clinic plans? They are going to be left in the dust by WAG and CVS….
This is the merger of 3 cultures, systems, procedures, merchandise mix and store look. While all are Rx providers, each has operated differently. Determining what is the best go-to-market positioning will be a challenge due to differences in store location. This is a Walgreens advantage.
In reality they should most likely operate 2 formats based on the size differences in the stores. Are there significant savings? The answer is yes, but it’s not easy.
Based on my experience in the Connecticut Brooks stores over the years, anything that Rite-Aid does will be an improvement. The Brooks that I have visited over the years are dingy, run down, and customer service has been virtually nil. Let’s hope the store-level investment comes soon, as there is much room for improvement.
The challenge Rite Aid faces is integrating the culture of all three companies. Ms. Sammons says they already have a detailed integration plan in place and plans to convert all stores in a reasonable amount of time. But a consideration that has not been made is the consumer. What about those consumers that prefer the Eckerd strategy–the floor layout, advertising, merchandising, colors, pharmacies and culture? Eckerd is very popular in the South and many older consumers and patrons don’t like change. Have the studies shown why Eckerd is a preferred choice? How can the Rite Aid stores adapt some of those pros?
This is another example of an acquisition made without consideration of the values of the acquisition. The politics are alive and well in this group and must be sequestered to achieve the goal.
The challenges and opportunities for Rite Aid now that it has closed the deal to acquire Brooks and Eckerd will be mostly the predictable financial and economic variables that are needed to make it work for the bottom line.
However, in terms of attracting more customers–enough to make it work–Rite Aid, like other retail chains, will need to create some points of difference that make shopping their stores unique in some way vs. shopping one of the other drug stores.
We have gotten to a point in our chain-linked economy where consumers feel that most stores look alike and feel the same, with the only variances being prices and sales, and maybe location.
On a lighter note, I crave for the “olden” days when Walgreens signs were green, had restaurants inside with great roast beef sandwiches, and a very exclusive brand of hard candy mints. Each of the drug chains once had a certain flavor that distinguished itself from the others, all which had wonderful dissimilarities in their own ways. The same was true for so many other segments and industries.
Rite-Aid must be careful not to become the Albertsons of the drugstore business. We have seen what happens when a retailer acquires a mishmash of stores and fails to integrate them into a consistent and effective business model.
Rite-Aid certainly has more going for it including the natural growth of the pharmacy business and a dominant position in some East Coast markets. Still, they are in competition with two top performing retailers in Walgreens and CVS.
They must move quickly to consolidate and integrate their operations or they will find themselves in the difficult position of trying to defend their share while they struggle with multiple formats and banners.
I was just in my local Eckerds drugstore yesterday, stocking up on Bayer PM. They are the only chain, drug or otherwise, that carries this product in my area.
You always know when you are in an Eckerds, and that is positive. The smell of the store is minty, I don’t know any other way to describe it.
The layout is somewhat different, and they like to use the back wall more effectively than Rite Aid. And their shopping carts are way better than the mini’s found in Rite Aid.
I agree that Rite Aid should pick up these positives, and not redo the stores, just for the sake of forcing their sometimes, messy and disorganized layout as a way of integrating these former Eckerds.
Assimilating nearly 1900 stores is difficult work. This is particularly true when the 1900 stores are an amalgamation of various formats, shapes, sizes and configurations. Additionally, the consumers for the acquired stores have been through a lot of change the last few years. In several of the markets where the 1900 stores reside, Rite Aid was there then they were out. Thrift was there and then Thrift was out. Still others became Kerr Drug stores. The big player was Eckerd Drug Stores. They were a fixture for years, now completely gone. With all these changes of banners, consumers needed to figure out how all of it affected them. This is a thought worth considering if you are Rite Aid management reading this.
From the operational perspective there are issues to deal with like fixtures, signing, distribution, seasonal purchasing, and tailored offering at the individual neighborhood. While these seem like daunting task, they are not likely to be for Rite Aid. These folks have done this before. They are skilled and professional at making such changes. They have also become quite adept at keeping the consumer in the loop so that they somehow feel part of the process. The idea is to have the consumer feel that the building that they may have known as “my store” continues to be “my store” albeit with a new name.
Rite Aid mentions that there are many cost savings associated with the acquisition. They are correct. Outsiders may not have considered that the savings come in more than the traditional ways. While most immediately think of the pressure that suppliers will feel to provide assistance, other savings outside the traditional manufacturer contribution are present. To name a few; supply cost, construction, real estate negotiation, distribution consolidation and import purchases will all experience reduced savings based on the new store count. In short there are many ways for Rite Aid to reap the rewards of this acquisition. Organization and dogged follow through are required to allow this opportunity to be realized.
In terms of “watch outs” there are just two areas that I hope the senior management of Rite Aid will pay close attention to. These are areas where it appears the management of Brooks/Eckerd might have taken an adjusted approach. Although adjustments were made later, initially it did not appear so.
1. There are many complicated nuisances in the various markets and communities that Rite will now operate. Consumers have been through a great deal of change and are probably somewhat confused and perhaps conflicted by it all. Rite Aid will do well to be sure that it maintains some of the knowledge equity of the key personnel from the Brooks/Eckerd chain. In some of those key people lies a wealth of relationships, timing, trade tricks and experience that would be well worth fully understanding prior to the departure of those individuals.
2. It is also recommended that Rite Aid spend the necessary money to gain the correct market intelligence on the newly acquired stores. Doing so will provide valuable insight into what to keep and what to discard. Without the analysis, one might make choices based on past experience. While this may work, I say that it is not likely. Invest to learn about those new consumers and those new stores even if they happen to be in markets where Rite Aid has already been playing.
Lastly, having the nearly 1900 stores remain a part of America’s landscape is a very good thing. Rite Aid is to be applauded for there effort in this regard. The American Druggist is a very important part of our economy and our history. It must be protected and nourished so that it is also a very important part of our future.
In such deals the accountants and bankers always appear to do a thorough job of understanding and presenting the financial synergies and best case scenarios of these mergers/takeovers. Seldom does serious intelligence and analysis regarding synergies of marketing, culture, customer impact, and the honest costs of competent execution appear to get the same attention. (And by costs, I mean both dollar and human.)
I truly think we are at or near a tipping point in what consumers will tolerate in terms of bigness at the expense of familiar regional retailing names being obliterated. The press release stated that Rite Aid will gain a “significant opportunity to reduce costs, improve operations and grow earnings.” Did you notice that the customer was not mentioned?
Customers have figured out that whether it’s airline consolidation, banking consolidation or retail consolidation it rarely results in an improvement for them. Perhaps Rite Aid will be an exception but I am not holding my breath.
Rite Aid will face some of the problems they’ve had over the years when acquiring other chains, however, Rite Aid now has the experience and management to minimize the integration pains of such a large acquisition. Rite Aid understands the areas they serve and will be able to minimize expenses while growing revenues.
Biggest problem for Rite Aid is finding a way to reduce the bloated inventories in the Eckerds Chain. Rite Aid seems to run lean and mean (compared to Eckerds). Eckerds must have had purchasing incentives in place for all its buyers because the number of SKUs in each store may have exceeded that of Wal-Mart. Rite Aid will have to clean ’em up before they will be able to start to fix them.
There are 4 states who have no Rite-Aid locations with newly acquired Eckerd and Brooks stores: Massachusetts, Rhode Island, and the Carolinas. Rite-Aid should consider swapping those locations with CVS and Walgreens (for stores in Rite-Aid core markets). Greater market share and less competition in each market = better profits.
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What does this mean for their in-store clinic plans? They are going to be left in the dust by WAG and CVS….
This is the merger of 3 cultures, systems, procedures, merchandise mix and store look. While all are Rx providers, each has operated differently. Determining what is the best go-to-market positioning will be a challenge due to differences in store location. This is a Walgreens advantage.
In reality they should most likely operate 2 formats based on the size differences in the stores. Are there significant savings? The answer is yes, but it’s not easy.
Based on my experience in the Connecticut Brooks stores over the years, anything that Rite-Aid does will be an improvement. The Brooks that I have visited over the years are dingy, run down, and customer service has been virtually nil. Let’s hope the store-level investment comes soon, as there is much room for improvement.
The challenge Rite Aid faces is integrating the culture of all three companies. Ms. Sammons says they already have a detailed integration plan in place and plans to convert all stores in a reasonable amount of time. But a consideration that has not been made is the consumer. What about those consumers that prefer the Eckerd strategy–the floor layout, advertising, merchandising, colors, pharmacies and culture? Eckerd is very popular in the South and many older consumers and patrons don’t like change. Have the studies shown why Eckerd is a preferred choice? How can the Rite Aid stores adapt some of those pros?
This is another example of an acquisition made without consideration of the values of the acquisition. The politics are alive and well in this group and must be sequestered to achieve the goal.
The challenges and opportunities for Rite Aid now that it has closed the deal to acquire Brooks and Eckerd will be mostly the predictable financial and economic variables that are needed to make it work for the bottom line.
However, in terms of attracting more customers–enough to make it work–Rite Aid, like other retail chains, will need to create some points of difference that make shopping their stores unique in some way vs. shopping one of the other drug stores.
We have gotten to a point in our chain-linked economy where consumers feel that most stores look alike and feel the same, with the only variances being prices and sales, and maybe location.
On a lighter note, I crave for the “olden” days when Walgreens signs were green, had restaurants inside with great roast beef sandwiches, and a very exclusive brand of hard candy mints. Each of the drug chains once had a certain flavor that distinguished itself from the others, all which had wonderful dissimilarities in their own ways. The same was true for so many other segments and industries.
Rite-Aid must be careful not to become the Albertsons of the drugstore business. We have seen what happens when a retailer acquires a mishmash of stores and fails to integrate them into a consistent and effective business model.
Rite-Aid certainly has more going for it including the natural growth of the pharmacy business and a dominant position in some East Coast markets. Still, they are in competition with two top performing retailers in Walgreens and CVS.
They must move quickly to consolidate and integrate their operations or they will find themselves in the difficult position of trying to defend their share while they struggle with multiple formats and banners.
I was just in my local Eckerds drugstore yesterday, stocking up on Bayer PM. They are the only chain, drug or otherwise, that carries this product in my area.
You always know when you are in an Eckerds, and that is positive. The smell of the store is minty, I don’t know any other way to describe it.
The layout is somewhat different, and they like to use the back wall more effectively than Rite Aid. And their shopping carts are way better than the mini’s found in Rite Aid.
I agree that Rite Aid should pick up these positives, and not redo the stores, just for the sake of forcing their sometimes, messy and disorganized layout as a way of integrating these former Eckerds.
Assimilating nearly 1900 stores is difficult work. This is particularly true when the 1900 stores are an amalgamation of various formats, shapes, sizes and configurations. Additionally, the consumers for the acquired stores have been through a lot of change the last few years. In several of the markets where the 1900 stores reside, Rite Aid was there then they were out. Thrift was there and then Thrift was out. Still others became Kerr Drug stores. The big player was Eckerd Drug Stores. They were a fixture for years, now completely gone. With all these changes of banners, consumers needed to figure out how all of it affected them. This is a thought worth considering if you are Rite Aid management reading this.
From the operational perspective there are issues to deal with like fixtures, signing, distribution, seasonal purchasing, and tailored offering at the individual neighborhood. While these seem like daunting task, they are not likely to be for Rite Aid. These folks have done this before. They are skilled and professional at making such changes. They have also become quite adept at keeping the consumer in the loop so that they somehow feel part of the process. The idea is to have the consumer feel that the building that they may have known as “my store” continues to be “my store” albeit with a new name.
Rite Aid mentions that there are many cost savings associated with the acquisition. They are correct. Outsiders may not have considered that the savings come in more than the traditional ways. While most immediately think of the pressure that suppliers will feel to provide assistance, other savings outside the traditional manufacturer contribution are present. To name a few; supply cost, construction, real estate negotiation, distribution consolidation and import purchases will all experience reduced savings based on the new store count. In short there are many ways for Rite Aid to reap the rewards of this acquisition. Organization and dogged follow through are required to allow this opportunity to be realized.
In terms of “watch outs” there are just two areas that I hope the senior management of Rite Aid will pay close attention to. These are areas where it appears the management of Brooks/Eckerd might have taken an adjusted approach. Although adjustments were made later, initially it did not appear so.
1. There are many complicated nuisances in the various markets and communities that Rite will now operate. Consumers have been through a great deal of change and are probably somewhat confused and perhaps conflicted by it all. Rite Aid will do well to be sure that it maintains some of the knowledge equity of the key personnel from the Brooks/Eckerd chain. In some of those key people lies a wealth of relationships, timing, trade tricks and experience that would be well worth fully understanding prior to the departure of those individuals.
2. It is also recommended that Rite Aid spend the necessary money to gain the correct market intelligence on the newly acquired stores. Doing so will provide valuable insight into what to keep and what to discard. Without the analysis, one might make choices based on past experience. While this may work, I say that it is not likely. Invest to learn about those new consumers and those new stores even if they happen to be in markets where Rite Aid has already been playing.
Lastly, having the nearly 1900 stores remain a part of America’s landscape is a very good thing. Rite Aid is to be applauded for there effort in this regard. The American Druggist is a very important part of our economy and our history. It must be protected and nourished so that it is also a very important part of our future.
In such deals the accountants and bankers always appear to do a thorough job of understanding and presenting the financial synergies and best case scenarios of these mergers/takeovers. Seldom does serious intelligence and analysis regarding synergies of marketing, culture, customer impact, and the honest costs of competent execution appear to get the same attention. (And by costs, I mean both dollar and human.)
I truly think we are at or near a tipping point in what consumers will tolerate in terms of bigness at the expense of familiar regional retailing names being obliterated. The press release stated that Rite Aid will gain a “significant opportunity to reduce costs, improve operations and grow earnings.” Did you notice that the customer was not mentioned?
Customers have figured out that whether it’s airline consolidation, banking consolidation or retail consolidation it rarely results in an improvement for them. Perhaps Rite Aid will be an exception but I am not holding my breath.
Rite Aid will face some of the problems they’ve had over the years when acquiring other chains, however, Rite Aid now has the experience and management to minimize the integration pains of such a large acquisition. Rite Aid understands the areas they serve and will be able to minimize expenses while growing revenues.
Biggest problem for Rite Aid is finding a way to reduce the bloated inventories in the Eckerds Chain. Rite Aid seems to run lean and mean (compared to Eckerds). Eckerds must have had purchasing incentives in place for all its buyers because the number of SKUs in each store may have exceeded that of Wal-Mart. Rite Aid will have to clean ’em up before they will be able to start to fix them.
There are 4 states who have no Rite-Aid locations with newly acquired Eckerd and Brooks stores: Massachusetts, Rhode Island, and the Carolinas. Rite-Aid should consider swapping those locations with CVS and Walgreens (for stores in Rite-Aid core markets). Greater market share and less competition in each market = better profits.