Rite Aid is one of the most fascinating turnaround stories in healthcare. Buried under a pile of debt for years and abandoned by the market, management is pushing the company through some transformative growth opportunities by aligning the company increasingly with a changing healthcare landscape.
But while the back-end pharmacy work is important — 68.8% of the last fiscal year’s revenue, in fact — there’s also some good old-fashioned spadework management is doing to get front-store revenues churning faster as well. Here are three big moves management is making that you need to keep an eye on.
The easy layup
Rite Aid has been redesigning its stores around a new Wellness model for years. The stores have organic and gluten-free foods available, as well as wellness reading materials, nutritional supplements, and a host of other offerings built around enhancing wellness. And while that may all sound rather ho-hum, the results have been impressive: Rite Aid recently reported that Wellness stores remodeled in the last two years showed a 3.32 percentage point bump in front-end comps and a 1.95 percentage point bump in script growth compared to non-Wellness stores.
With a proven, working model like that, it’s no wonder Rite Aid is swiftly converting its stores to the Wellness format. So far, 38% of its roughly 4,566 stores have moved to the Wellness format, and management is allocating over a third of its $665 million in planned FY 2016 capital expenditures toward remodeling another 400 stores.
Growing the web and making it stickier
Rite Aid is also implementing the Plenti rewards program. Yep, it’s another loyalty card. But this one extends beyond just Rite Aid to a coalition of other partners — including AT&T, Macy’s, Enterprise Rent-A-Car, and a host of others. Run byAmerican Express — which knows a thing or two about customer loyalty — Plenti enables customers to earn points on purchases with one partner and then spend them elsewhere. This coalition program only started in May, so it’s early days yet, but Rite Aid is already putting up some impressive numbers: Management reported in mid-June that it had enrolled 10 million customers into Plenti. For Rite Aid, which is competing to offer products very similar to grocery stores and other retail pharmacies, Plenti could be a differentiator. The benefit of people knowing that they can grow their savings by making the easy switch from, say, a Walgreen to the Rite Aid across the street is difficult to measure, but with low barriers to switching, I could see this as a powerful — and sustainable — front-end growth opportunity for Rite Aid.
Rite Aid is also building new stores — a net of 11 new stores are slated for FY 2016 (that’s March 2015 to end of February 2016). It seems obvious: Adding more stores means more sales. But ever since the Eckerd acquisition in 2007, Rite Aid has been net closing stores every year — until now.
|Fiscal Year||Store Count|
SOURCE: RITE AID 10-KS
It’s a great sign when you finally see diminishing store count start to turn around. And given that Rite Aid is only active right now in 31 states and the District of Columbia, I’m sure management’s eyeing a number of different growth opportunities. And don’t forget the RediClinic concept, the retail clinics inside Rite Aid pharmacies that are meant to take walk-in visitors for flu shots, immunizations, and the like. Rite Aid expects to open 50 new RediClinics in 2016 to bring its total to over 100. That’s strong growth and a confirmation that the concept is working to management’s satisfaction. Making Rite Aid a one-stop shop is a smart move that will hopefully help the chain keep growing same-store sales while also expanding its geographic footprint.
What I’m most excited about
The really exciting part is what all of these numbers and initiatives point to: Rite Aid is out of survival mode and firing on all cylinders. It’s great to see a management team that has identified potentially winning strategies and is doubling down on them. Now we’ll want to watch over the next few quarters and see what happens. Personally, I’m happy to keep monitoring Rite Aid’s growth story from the sidelines while I wait to see whether management’s excitement yields success.
Michael Douglass has no position in any stocks mentioned.
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