Although Rite Aid’s top line number looks impressive, most of this increase is down to the EnvisionRx acquisition which completed during the quarter and has boosted total revenue. Unfortunately, the acquisition has, so far, done little to bolster the retail numbers which, on a comparable basis, are still looking soft.
For the quarter, overall same store drugstore sales rose by 2.1%, a sequentially worse performance than during Q1 when they increased by 2.9%. Underlying this are the weaker performances from pharmacy which increased 2.8% (versus 3.9% last quarter) and front end retail which only just nudged into positive territory with a 0.3% uplift (versus 0.6% last quarter).
To be fair to Rite Aid, some of this slowdown is due to the tougher comparatives from last year, when pharmacy sales rose by 5.6% and front end retail by 1.1% (a relatively robust performance by historic standards). As such, there is a sense that today’s relative softness is the result of growth normalizing. The introduction of more generic prescription drugs, which are cheaper, has also dragged down sales (although has been less harmful to margins). Despite these factors, it is nevertheless disappointing that Rite Aid has not been able to keep the momentum going – especially in a market where its two rivals continue to build scale.
Unlike its main rivals, Rite Aid’s physical expansion strategy has been lackluster. Indeed, over the second quarter it opened 4 new stores (2 new outlets and 2 acquisitions) but closed 9 others, thereby reducing its store fleet by five. This reduction follows a trend that has seen store numbers fall by 489 over the past 7 years since the acquisition of the Brooks Eckerd chain.
While there is nothing inherently wrong with such a strategy, especially if it involves pruning the less profitable locations, it does make Rite Aid more reliant on increasing the productivity of its existing stores to drive growth.
This is one of the things the company is hoping that its acquisition of Pharmacy Benefit Management firm EnvisionRx will do. With its customer base of over 21 million members across the US, it should help drive retail traffic through Rite Aid’s pharmacy network as well as increasing its share of the market. That the impact has been lackluster to date is excusable given that the acquisition only just completed; however, it is something that should accrue benefits over the longer term.
Less excusable is the fact that many of Rite Aid’s other initiatives do not seem to have boosted productivity much during the quarter. Foremost among these is the Genuine Wellbeing format refresh which creates a more engaging and enticing shopping experience with enhanced levels of customer service. Across this quarter, some 119 stores were remodeled; this is in addition to the 326 remodeled over the past year, which brings the total number of wellness stores to 1,859. In our view, this level of activity should be helping to push same store numbers, especially for the front end retail division, far higher than they are. That they are not raises some concerns over the return on the investment Rite Aid is making.
The hope is that as Rite Aid creates a more integrated healthcare offering that caters for a wider variety of its customers’, and potential customers’, needs customer traffic and spend will grow. This more integrated approach is one that has been successfully pursued by a number of rivals, including CVS, and is one that Rite Aid is correct to emulate. EnvisionRx plays a part in this vision as does the RediClinic concept, which is slowly being rolled out – including to 5 more locations over this quarter. Some 50 new openings are planned for the current fiscal year, bringing the total to over 100. This is some way below the clinic numbers of rivals CVS and Walgreens (around 975 and 430 respectively) but it is a solid step in the right direction.
Overall, we believe that Rite Aid is making many of the right moves. However, with the EnvisionRx now completed, it needs to up the pace of activity if it is to grow. This is now especially important in light of the enlargement of its two already larger rivals – first Walgreens and its merger with Alliance Boots and the more recent acquisition of Target’s pharmacy network by CVS. Rite Aid is now a company competing to maintain scale.
Neil Saunders is CEO of Conlumino, a retail research agency and consulting firm.
About the Author
Posted by members of the Shop! Team and editorial staff of Retail Environments magazine.
Notice: This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. To view Cookie Policy, CLICK HERE
Rite Aid retail numbers soft, despite acquisition of EvisionRx
By Neil Saunders
Although Rite Aid’s top line number looks impressive, most of this increase is down to the EnvisionRx acquisition which completed during the quarter and has boosted total revenue. Unfortunately, the acquisition has, so far, done little to bolster the retail numbers which, on a comparable basis, are still looking soft.
For the quarter, overall same store drugstore sales rose by 2.1%, a sequentially worse performance than during Q1 when they increased by 2.9%. Underlying this are the weaker performances from pharmacy which increased 2.8% (versus 3.9% last quarter) and front end retail which only just nudged into positive territory with a 0.3% uplift (versus 0.6% last quarter).
To be fair to Rite Aid, some of this slowdown is due to the tougher comparatives from last year, when pharmacy sales rose by 5.6% and front end retail by 1.1% (a relatively robust performance by historic standards). As such, there is a sense that today’s relative softness is the result of growth normalizing. The introduction of more generic prescription drugs, which are cheaper, has also dragged down sales (although has been less harmful to margins). Despite these factors, it is nevertheless disappointing that Rite Aid has not been able to keep the momentum going – especially in a market where its two rivals continue to build scale.
Unlike its main rivals, Rite Aid’s physical expansion strategy has been lackluster. Indeed, over the second quarter it opened 4 new stores (2 new outlets and 2 acquisitions) but closed 9 others, thereby reducing its store fleet by five. This reduction follows a trend that has seen store numbers fall by 489 over the past 7 years since the acquisition of the Brooks Eckerd chain.
While there is nothing inherently wrong with such a strategy, especially if it involves pruning the less profitable locations, it does make Rite Aid more reliant on increasing the productivity of its existing stores to drive growth.
This is one of the things the company is hoping that its acquisition of Pharmacy Benefit Management firm EnvisionRx will do. With its customer base of over 21 million members across the US, it should help drive retail traffic through Rite Aid’s pharmacy network as well as increasing its share of the market. That the impact has been lackluster to date is excusable given that the acquisition only just completed; however, it is something that should accrue benefits over the longer term.
Less excusable is the fact that many of Rite Aid’s other initiatives do not seem to have boosted productivity much during the quarter. Foremost among these is the Genuine Wellbeing format refresh which creates a more engaging and enticing shopping experience with enhanced levels of customer service. Across this quarter, some 119 stores were remodeled; this is in addition to the 326 remodeled over the past year, which brings the total number of wellness stores to 1,859. In our view, this level of activity should be helping to push same store numbers, especially for the front end retail division, far higher than they are. That they are not raises some concerns over the return on the investment Rite Aid is making.
The hope is that as Rite Aid creates a more integrated healthcare offering that caters for a wider variety of its customers’, and potential customers’, needs customer traffic and spend will grow. This more integrated approach is one that has been successfully pursued by a number of rivals, including CVS, and is one that Rite Aid is correct to emulate. EnvisionRx plays a part in this vision as does the RediClinic concept, which is slowly being rolled out – including to 5 more locations over this quarter. Some 50 new openings are planned for the current fiscal year, bringing the total to over 100. This is some way below the clinic numbers of rivals CVS and Walgreens (around 975 and 430 respectively) but it is a solid step in the right direction.
Overall, we believe that Rite Aid is making many of the right moves. However, with the EnvisionRx now completed, it needs to up the pace of activity if it is to grow. This is now especially important in light of the enlargement of its two already larger rivals – first Walgreens and its merger with Alliance Boots and the more recent acquisition of Target’s pharmacy network by CVS. Rite Aid is now a company competing to maintain scale.
Neil Saunders is CEO of Conlumino, a retail research agency and consulting firm.
About the Author
Posted by members of the Shop! Team and editorial staff of Retail Environments magazine.August retail sales up, as trends continue to play out
See why Met’s China exhibit is breaking records
Related Posts
CVS makes pretty good move, puts beauty up front
Red Ahead
Opinion: Walgreens should focus on retail
Nixing of Albertsons-Rite Aid deal not surprising
5 Trends in Japanese Retail
Amazon needs to get physical with pharmacy service