Rite Aid Corporation

Rite Aid Corporation

30 Hunter Lane
Camp Hill, Pennsylvania 17011
U.S.A.
(717) 761-2633
Fax: (717) 975-5871
Web site: http://www.RiteAid.com

Public Company
Incorporated: 1968
Employees: 73,000
Sales: $6.97 billion
Stock Exchanges: New York Pacific
SICs: 5912 Drug Stores and Proprietary Stores; 8741 Management Services

Rite Aid Corporation, one of the largest retail drugstore chains in the United States, operates over 3,600 drugstores in 27 eastern and western states, and the District of Columbia. Rite Aid’s newer stores average just under 11,000 square feet and offer a professional pharmacy service, a full selection of health and personal care products, and over 1,200 Rite Aid brand products. The company also operates Eagle Managed Care Corp., a wholly-owned subsidiary that markets prescription plans and sells other managed health-care services to large employers and government-sponsored employee benefits programs.

Company Origins

Although Rite Aid was not formally incorporated until 1968, it got its start a few years earlier through Rack Rite Distributors, developed by Alex Grass, Rite Aid’s founder and later chairman and chief executive officer. In 1962 U.S. federal legislation repealed the fair trade laws that fixed minimum retail prices on most products, opening up the door to discount stores, price wars, and vigorous competition. Quick to take advantage of the situation, Rite Aid opened its first discount drugstore in 1962 in Scranton, Pennsylvania. Called the Thrif D Discount Center, this was the forerunner of the modern Rite Aid drugstores.

By Christmas 1962 Thrif D was taking in $25,000 each week. It tripled its first-year projected sales of $250,000, pulling in $750,000. While the company continued to develop Rack Rite distributors, Thrif D’s sales results proved that discount drugstores were truly profitable. In 1963 Rite Aid opened five more drugstores, extending its market area to New York.

By 1964 Rite Aid’s market territory included New Jersey and Virginia. Its store count doubled, bringing the total to 12. The number of employees had grown to 200. Expansion did not stop there; in 1965 Rite Aid penetrated Connecticut, and its store count rose to 25.

In 1966 Rite Aid continued to expand. Its number of stores reached 36. The growth of both the retail chain and the “rack-jobbing” portion of the business, Rack Rite Distributors, generated the need for more space, so Rite Aid began to construct a new corporate headquarters and distribution center. It also opened the first Rite Aid pharmacy in one of its drugstores in New Rochelle, New York. The following year Rite Aid introduced 70 of its own private-label products. The results of the Rite Aid pharmacy’s first year were so positive that the company planned to continue installing pharmacies throughout its drugstore chain.

Acquisitions and Change in the Late 1960s and 1970s

The following years brought many changes and firsts for the company. Rite Aid made its first acquisition when it bought the Philadelphia-centered 11-store Martin’s chain. Its store count rose to 60, and its market share began to grow in Baltimore, Maryland; Newark, New Jersey; and Rochester and Buffalo, New York. Also, Rite Aid made its first public stock offering, issuing 350,000 shares at $25 per share, as well as formally changing its name to Rite Aid Corporation.

In 1969 Rite Aid acquired the 47-store Daw Drug Co. of Rochester, New York, bringing Rite Aid’s store count to 117. The company also acquired Blue Ridge Nursing Homes along with Immuno Serums, Inc., and Sero-Genics, Inc., incorporating them into the company’s medical services division. Offering more than 260 of its own private label products also contributed to Rite Aid’s growth. The company increased its mechanical efficiency, installing material-handling equipment, such as conveyers, in its drug warehouse. It hooked up a telephone-order transmission system between the warehouse and drugstores to move orders swiftly. In addition, Rite Aid installed electronic data-processing equipment to produce price tags. That year expansion was so visible that Rite Aid declared a two-for-one stock split.

On January 20, 1970, Rite Aid was admitted to the New York Stock Exchange and began trading on the big board at $25 per share with 2.8 million shares outstanding. Although the U.S. economy moved into a recession, Rite Aid was among the discount stores that flourished. Also in 1970 Rite Aid acquired the 16-store Fountain Chain in Clarksburg, Virginia. By that time the company offered more than 300 of its own products bearing the Rite Aid logo, prompting the addition of 100,000 square feet to its main distribution center in Shiremanstown, Pennsylvania. In November 1971 Rite Aid sold 250,000 new shares of common stock to the public.

In 1971 the company acquired Sera-Tec Biologicals, Inc., of New Jersey, which was combined with the company’s prior acquisitions of Immuno Serums and Sero-Genics to comprise the company’s medical services division. Rite Aid also purchased a 50 percent equity in Superdrug Stores Ltd., of the United Kingdom. During this period of rapid growth, Rite Aid pharmacies were filling more than five million prescriptions a year. To consolidate management and increase efficiency of the rapidly growing number of stores, Rite Aid separated its market area into five divisions and 20 supervisory districts.

In 1972 Rite Aid focused on internal efficiency in preparation for additional expansion. Also in 1972, Sera-Tec Biologicals, Biogenics, Inc., and Immuno Blood Services, Inc., were merged to form what would become known in the early 1990s as Sera-Tec. When 1972’s Hurricane Agnes wrought severe damage on the company’s stores in Wilkes-Barre, Pennsylvania, and Elmira, New York, it also damaged the phone and water service at corporate headquarters. Teams worked around the clock to make the necessary repairs, and stores were re-opened fairly rapidly. In fact, Rite Aid handled the disaster so impressively that it still was able to report filling more than 6.25 million prescriptions that year.

In 1973, despite the Middle East oil embargo and ensuing recession, Rite Aid again began making acquisitions. It acquired the 49-store Thomas Holmes Corp. chain and the 50-store Warner chain, both in greater Philadelphia. The company also set about creating distribution centers that could handle the rapidly multiplying number of Rite Aid stores. It expanded its Shiremanstown distribution center by 71,000 square feet, enabling the facility to supply up to 500 stores. The company also built an automated distribution center in Rome, New York, to handle the growing northeastern market. Rite Aid’s accounting and data processing departments moved to a separate building in Shiremanstown, which became the hub of the Rite Aid complex.

Further activity during this time included reducing its holdings in Superdrug PLC, the successor to Superdrug Stores, Ltd., to 42.5 percent, selling a 7.5 percent interest. The number of private label products that appeared bearing the Rite Aid logo climbed to 700. In addition, Rite Aid became one of the first drugstore chains in the United States to implement a senior citizen discount cardholder program.

By 1974 the Rome distribution center was supplying 131 Rite Aid stores. Rite Aid also created a fifth Sera-Tec center in Pittsburgh, just as the Dow Jones Industrial Average was falling to 663—the lowest since 1970—and worldwide inflation set in. Over the next year Rite Aid focused on internal organization and increased its security department in an effort to reduce shoplifting.

By 1976 Rite Aid resumed acquisitions, purchasing the 52-store Keystone Centers, Inc. of Pennsylvania and New Jersey. The following year, it to acquired 99 more stores by buying the Read’s Inc. drug chain in Baltimore. This purchase led to Rite Aid’s garnering the largest market share in Baltimore. In 1977 Rite Aid’s private label products, with almost 900 different items, accounted for nine percent of its retail sales.

Although the value of the dollar plunged in 1978, Rite Aid’s momentum did not. Rite Aid acquired 11 stores from Red Shield in Pittsburgh and the four-store Quality Drugs chain of greater Philadelphia. By focusing on providing value in the most efficient manner possible, Rite Aid gained substantial market share in the major metropolitan markets of Buffalo, Rochester, and Syracuse, New York; Charleston, South Carolina; Baltimore; and Philadelphia. The company also added 11,500 square feet to its executive space in Shiremanstown, where it bought a 79,000-square-foot building to house the growing finance, advertising, store engineering, and construction departments. Then, focusing on its central businesses, Rite Aid sold the Blue Ridge Nursing Homes in Camp Hill and in Harrisburg, Pennsylvania, for an after-tax profit of $1.8 million.

In 1979 Rite Aid acquired six U-Save stores in North Carolina and eastern Tennessee, as well as nine Shop Rite stores in the Hudson Valley. It redesigned its company logo and updated its store interiors, using mirrored canopies and bright colors throughout, while streamlining checkout counters in the process. In order to save time and money on West Virginia store openings and transportation costs among 140 of its existing stores, Rite Aid started up a 210,000-square-foot distribution center in Nitro, West Virginia. Moreover, the company set ambitious goals, such as increasing store count by ten percent every year and continuing to open higher-margin pharmacies throughout its drugstore chain.

New Strategies in the 1980s

In 1980 Rite Aid adopted some new tactics in its growth plan. Its board of directors agreed tentatively to buy back as many as one million shares of Rite Aid common stock. These shares would be retained as treasury shares to provide liquid assets that could be quickly translated into cash for acquisitions, funds for the employees’ stock option plan, or any other corporate purposes. That year Rite Aid acquired the six-store Schuman Drug of Landsdale, Pennsylvania, and the four-store Lane drugstores in Youngstown, Ohio, establishing a new prescription division for Ohio and western Pennsylvania. To expedite the processing of third-party claims, Rite Aid installed a scanning system in its data processing department. The company opened a 43,000-square foot addition to its finance and accounting building. Also in 1980 Rite Aid became one of the nation’s largest suppliers of plasma with the opening of its ninth plasmapheresis center.

By 1981 Rite Aid had become the third-largest retail drug chain. It acquired the 31-store South Carolina division of Fays Drug and made its third stock split since its initial public offering in 1968, issuing additional common stock contingent on the four-for-three stock split. The company also set up a new division to handle its business in West Virginia and western Pennsylvania.

In 1982 Rite Aid became the largest U.S. drug chain as measured by the number of stores and market share in New York, Pennsylvania, New Jersey, Maryland, and West Virginia. Rite Aid continued to expand its market area westward, acquiring the four-store Cochran Drugs in Columbus, Ohio; the 16-store Lomark Discount Drug Stores Inc., in Cincinnati, Ohio; and the 26-store Mann Drugs of High Point, North Carolina. In addition to these drugstores, Rite Aid acquired the fifth-largest toy store in the nation, the 128-store Circus World Toy Stores, Inc. Rite Aid also expanded its Nitro, West Virginia, distribution center. The company now had total distribution capacity for 1,200 stores, which was essential and timely; Rite Aid opened its 1,000th store in Durham, North Carolina.

Rite Aid’s sales exceeded $1 billion in 1983. It was listed among Forbes magazine’s top 500 companies in both sales volume and number of employees. It issued a three-for-two stock split, its fourth stock split since it became listed and its second in two years. The value of Rite Aid’s holdings in Superdrug PLC increased when that company went public and began trading its shares on the London Stock Exchange—at which point Rite Aid sold one-third of its interest in Superdrug, bringing its holdings down to 28.2 percent of the company’s outstanding shares. Partially because of this, Rite Aid was able to offer a new employee stock purchase plan; to acquire the four-store Beagle chain in West Virginia and Ohio; to open its first Heaven novelty shop; and to integrate a point-of-purchase and pharmacy computer system. All of this helped to establish Rite Aid as the largest drugstore chain in the Northeast.

Expansion beyond Core Business

By 1984 Rite Aid started expanding beyond its core business. It bought American Discount Auto Parts (ADAP), a 32-store chain based in Avon, Massachusetts. It also purchased Encore Books, Inc., a 19-store deep discount bookstore chain in Philadelphia. In addition to these departures from the company’s core business, Rite Aid acquired the three-store Nifty Norm’s, Inc. of Philadelphia, the 24-store Muir Drug, the six-store Herrlich Drugstores, the five-store Remes Drug Stores, the 13-store Lippert Pharmacies, three State Vitamin stores of Michigan, and the three-store Jay’s Drugstores in western New York. In 1984 Rite Aid also spun off its subsidiary wholesale and grocery division, Super Rite, as an autonomous public company, selling a partial interest in its holdings for $22 million.

In 1985 Rite Aid focused less on acquisitions than on internally generated growth. While Rite Aid that year acquired four Midland Valley Drug stores in Midland, Michigan, and eight State Vitamin discount stores in Lansing, Michigan, it opened five stores of its own, moving into the deep discount drug market with the company’s Drug Palace. Rite Aid further penetrated new markets by opening video rental departments in more that 160 of its drugstores. It also installed point-of-purchase scanning registers and more computerized pharmacy equipment. The newly spun-off Super Rite took its first step into retail grocery with its purchase of the 47-store Food-A-Rama supermarket chain in Baltimore and Washington, D.C. Rite Aid’s subsidiary, Sera-Tec, opened two new plasma centers, bringing the count to 11. That year, Rite Aid sold Circus World Toy Stores, Inc., for $35 million cash and 185,000 common shares. In addition, Rite Aid bought 1.1 million shares of its own common stock at $19 per share.

Rite Aid did not experience major expansion in 1986. It acquired only two Revco stores in Buffalo and opened six more Drug Palaces, bringing its deep discount drugstore total to 11. The year was nevertheless notable in that two of Rite Aid’s corporate officers received prestigious positions. Preston Robert Tisch of Rite Aid’s board of directors was appointed Postmaster General of the United States, and company President Alex Grass was named chairman of the board and president of the National Association of Chain Drug Stores.

In 1987 Rite Aid acquired the nine-store Harris Drug in Charleston, South Carolina; 113 SupeRx stores in Florida, Georgia, and Alabama; a 200,000 square-foot distribution center in Florida from the Kroger Co.; and 94 Gray Drug Fair, Inc., stores in Florida and Maryland, from the Sherwin-Williams Company. These acquisitions substantially expanded Rite Aid’s southern market area. Because of the success of its pilot video departments in 1986, Rite Aid added 429 more video departments to its drugstores in 1987, bringing the total to 971. Rite Aid also continued to install pharmacy and point-of-purchase automated systems throughout the chain. That year Dun’s Business Month ranked Rite Aid 25th among all publicly traded companies for consistent dividend advances. In 1987 Rite Aid was the largest employer in the retail drug industry.

The following year Rite Aid purchased from Sherwin-Williams the balance of Gray Drug Fair, consisting of 356 stores in Delaware, District of Columbia, Indiana, Maryland, New York, Ohio, Virginia, West Virginia, North Carolina, and Pennsylvania. This purchase brought Rite Aid’s store count to more than 2,100 and greatly expanded the company’s market penetration in these states. That year, in Winnsboro, South Carolina, Rite Aid opened its fifth distribution center. This 265,000 square-foot distribution center enabled Rite Aid to supply up to 450 more stores in the Southeast. In April 1988 Rite Aid acquired the Begley Company, consisting of 39 drugstores in Kentucky and 140 dry cleaners in ten states.

In 1989 the company continued to expand and enhance the technology available to its stores. Moreover, Rite Aid finalized a deal with Super Rite Foods Holding Corporation in March 1989 to sell its 46 percent interest in Super Rite Foods, Inc. Rite Aid also acquired 99 People’s Drug Stores and 18 Lane Drug units. In September of that year, it disposed of its 46.8 percent equity in Super Rite Foods for $18.37 million, with a positive cash flow in excess of $40 million. That same year showed record sales for Rite Aid; its revenues of $2.87 billion for this 53-week fiscal year represented a 15.4 percent increase from the previous 52-week fiscal year. Company earnings, however, continued to absorb the cost of the enormous acquisitions the company made in 1987.

The company in 1990 continued to focus on the integration of both its past and present acquisitions. Rite Aid added 1,754 store computer systems, and it enhanced 2,279 pharmacy terminals. The pharmacy terminals enabled drug interaction analysis and cumulative tax information, all of which resulted in speedier prescription service. Prescription sales for 1990 advanced 17.8 percent from the previous year, and then represented a full 43 percent of store revenues. Rite Aid’s computerization also propelled the company toward greater efficiency, enabling it to cut back on unnecessary corporate staffing in spite of the fact that the company’s store count had continued to grow.

From 1987 to 1991, Rite Aid acquired more than 800 drugstores and opened 276 new stores, closing only 103 units. Within this period, Rite Aid’s store count grew by nearly 60 percent. In 1991 Rite Aid added 68 stores and bought prescription records from 65 drugstores in Washington, D.C.

While some organizations viewed the recession of the early 1990s as a bleak period, Alex and Martin Grass, the father-and-son team then running Rite Aid, said it was a good time to buy, according to a January 13, 1992, Business Week article. The recession brought opportunities to acquire vulnerable companies, and Rite Aid bid for the bankrupt Revco D.S. chain in early 1992. Although the deal later fell through, Rite Aid had demonstrated its ability to move decisively and quickly. Significant acquisitions included 34 Whelby Super Drug Stores in Maine and New Hampshire in 1993; 72 La Verdiere Enterprises, Inc. drugstores and 16 Revco drugstores in 1994; and all Perry drugstores in 1995.

Beginning in 1994 Rite Aid opened 50 state-of-the-art drug-stores in New York City, boosting the total to 67 within the city. Rite Aid planned to bring more stores into all of New York’s boroughs later in the decade. In fiscal 1994 Rite Aid acquired Pharmacy Car, Inc. and Intell Rx Inc., a drug review company with proprietary software that reviewed physicians prescription patterns. From these two purchases emerged the subsidiary. Eagle Managed Care Corp.

Martin Grass succeeded his father, Alex Grass, as Rite Aid’s chairman and CEO in 1995. At the same time, the company shed four unrelated businesses in order to focus on its pharmaceutical operations: Encore Books, Concord Custom Cleaners, Sera-Tech Biologicals, and ADAP, the auto parts dealer. By mid-year Rite Aid appeared well positioned. Market value, once $1.3 billion in 1993, reached about $2.5 billion. Rite Aid set out to open, renovate, or expand 1,000 more stores over a three-year period.

In 1996 Rite Aid continued to restructure its business to operate larger, higher volume, and more profitable drugstores. In June the company purchased Taylor Drugs, a chain of 34 stores operating in Louisville, Kentucky. Rite Aid, already the largest drugstore operator in the state, entered Louisville with a major share of the market.

In November 1996 the company entered into a joint venture to provide mail order pharmacy services with Smith Kline Beecham’s Diversified Pharmaceutical Services, a leading pharmacy benefit manager. This move was seen as another channel of distribution to offer prescriptions to select managed care customers.

Another attempt was made by the company in 1996 to its rival, Revco, but when the Federal Trade Commission rejected the plan, Rite Aid moved on to other prospects. December marked the largest acquisition in Rite Aid history—a merger with Thrifty PayLess, Inc., which had sales of $4.4 billion in 1,007 stores in the western United States. It was the largest chain drugstore operator in California, Oregon, Washington, and Idaho.

In 1997 Rite Aid integrated this West Coast operation into the chain, installing new computer hardware in all Thrifty PayLess stores. Rite Aid operated more than 3,600 stores, with revenues for fiscal 1998 expected to exceed $11 billion. In addition, in 1997 Rite Aid opened 369 new, 10,500 square foot prototype stores, which seemed to pay off. These new stores generated more than $3 million compared with the $2 million average of older, smaller stores, thanks to added space and innovative design.

Looking toward the year 2000, Rite Aid planned to seek opportunities to expand through mergers and acquisitions—but with a disciplined strategy. Not all drugstore chains fit the company’s strategic plan, according to company executives. A primary goal was to achieve dominance in the markets Rite Aid served and in the new markets it chose to enter. The Thrifty PayLess addition was seen as a great opportunity to enhance earnings at a faster rate.

Improving return on assets was key. One goal was to achieve better working capital utilization over the next two years. To achieve a fast growth rate, Rite Aid planned on relocating or enlarging about 250 stores annually, expanding square footage on the East Coast by seven to eight percent per year. Technology was set to be another player in driving down costs along with productivity improvements.

Principal Subsidiaries

Eagle Managed Care Corp.; GDF, Inc.; Gray Drug Fair, Inc.; Keystone Centers, Inc.

Further Reading

“Bar Codes and RFDC Fill the Information Gap at Rite Aid,” Modern Materials Handling, October 1993.

“Eagle Managed Care: A Wrong Way and a Rite Way,” Drug Topics, September 5, 1994.

Gerber, Cheryl, “High Tech Pain Killer,” Forbes ASAP, December 4, 1995, pp. 108–110.

“Lost in Space,” Financial World, November 21, 1995, pp. 46–47. “Groomed for Success,” Chain Store Age Executive, April 1995, pp. 25–28.

“Rite Aid Sees a Future in Capitated Managed Care,” Drug Topics, November 1993, p. 52.

“Rite Aid’s Softer Side,” Chain Store Age Executive, April 1995, p. 28.

Weber, Joseph, et. al., “Seizing the Dark Day,” Business Week, January 13, 1992, pp. 26–28.

—Maya Sahafi

—updated by Catherine Hamrick