Since Rite Aid Corp. opened its first store in September 1962 — a Thrif D Discount Center in Scranton, Pa. — the company has ridden a steady wave of growth. Entering its 46th year of operation this year — and celebrating the 40-year anniversary of its corporate name — Camp Hill, Pa.-based Rite Aid now is a major national force in the drugstore arena, with approximately 5,000 retail stores in 31 states and the District of Columbia.
Much of Rite Aid’s growth has occurred through a series of large strategic acquisitions, the likes of which include Perry Drug Stores of Pontiac, Mich.; Thrifty Payless Holdings of Wilsonville, Ore.; and, most recently (2007), the U.S. Brooks and Eckerd drugstores (from Quebec’s Jean Coutu Group). Rite Aid now is the third-largest drugstore chain in the United States, and the company enjoys a particularly strong presence on the East Coast.
Although the timing and pace of Rite Aid’s acquisitions have been “rite on,” the company also owes much of its recent success (and shopper loyalty) to the timing and pace of its private label launches. During the past decade, the company has launched a steady stream of national-brand-equivalent items on which it is truly proud to display the Rite Aid name.
Mary Sammons, Rite Aid’s chairman, president and CEO, has made it clear that a strong private label program is a critical component in the company’s game plan going forward. During a fourth-quarter fiscal 2008 earnings conference call on April 10, she noted that core Rite Aid private brand penetration reached 12.9 percent for the year and “increased significantly” in the acquired Brooks-Eckerd stores.
“Increasing private brand penetration in all of our stores is an important goal again this year,” Sammons said.

Eye on Quality

Observers of Rite Aid’s impressive, high-quality assortment and lofty penetration goals in the store brand arena might find it hard to imagine that the company’s private label program was ever less than first-rate. But just a decade or so ago, Rite Aid faced some quality issues with its own products, according to Greg Axtman, category manager, Rite Aid Brand.
With help from its suppliers, Rite Aid focused on improving product quality substantially, and the company then embarked on a mission to win back customer trust.
Today, Rite Aid’s private label program is all about quality, stresses Bill Bergin, vice president, Health Care & Private Label. Like Axtman, Bergin began his career with Rite Aid approximately 10 years ago.
“We think our Rite Aid brand is a great way to differentiate ourselves, but quality as a component is first and foremost,” he says. “We also think it’s a great way to deliver value. It’s national brand equivalent, in all instances, with a value component that we think is critical.”
Bergin makes it clear that Rite Aid has an extremely stringent testing policy in place.
“We won’t even enter into discussion with suppliers unless we know they’re reputable, quality suppliers,” he adds. “I think that’s the foundation of our program. There is accountability for suppliers that don’t produce product up to our standards.”
Quality no longer is an issue, Axtman notes.
“Our quality is there,” he emphasizes. “When we partner with suppliers, we test — everybody tests.”

OTC Comes First

As a drugstore chain, Rite Aid naturally looks to the over-the-counter (OTC) drug market to find the most significant private label opportunities. And Bergin says today’s customers are very comfortable buying store brands in the OTC arena, which typically retail at about 30 percent below the national brand.
“The product can be tested to be national brand equivalent, whether it’s ibuprofen or vitamin C,” he says. “And I think most customers get that. I think customers truly get that what they’re buying is the exact same active ingredient as the national brand.”
One recent OTC launch Bergin proudly points out is Rite Aid brand cetirizine, an allergy med-icine that compares directly to McNeill Consumer Healthcare’s Zyrtec brand. The reason it’s so newsworthy? Rite Aid’s national brand equivalent actually beat the brand to the shelves.
“It’s been a great success with customers, even with them not really understanding what cetirizine is,” Axtman adds. “We did that by creating a strong partnership with our pharmacists. They helped obviously to comm-unicate [product infor-mation] with customers as well.”
It’s that solid partnership with its pharmacists that makes Rite Aid so strong in the OTC arena, Axtman stresses. Because customers believe and trust their pharmacists, these professionals make wonderful store brand advocates.
But other areas of the store also are getting Rite Aid’s attention in terms of private label. Bryan Shirtliff, senior vice president, Category Manage-ment, says food is one of the areas outside OTC that’s realizing a “really nice expansion.”
The company has had great success recently with private label items such as beef jerky, nuts and soup.
Convenience is the primary driver behind food sales gains in the drugstore sector, Bergin notes.
“People are more time challenged than ever,” he says, “and I think that’s somewhat of a competitive advantage of a drugstore and the way we’re located for ease and a conven-ient shopping experience.”
Still, the biggest news in the food arena, Shirtliff says, is the repackaging and redevelopment of the Thrifty ice cream program — a program Rite Aid “inherited” with the Thrifty Payless acquisition.
Although Rite Aid relies on outside suppliers to produce its store brand items, the Thrifty ice cream line, sold only in the company’s West Coast stores, is an exception. Rite Aid owns and operates the ice cream production facility, and Shirtliff points to some pretty strong loyalty around the Thrifty brand in California.
“It’s a big business for us,” he says. “It’s really gone through a total repackaging — from the old cubes to what they call scrounds, the oval packaging.”
Rite Aid has expanded its private label portfolio in the personal care sector, too. This year, the company relaunched Rite Aid Pure Spring bath and body products with a total of 61 products. The relaunch enables Rite Aid to capitalize on current health and beauty trends, the company says.
The Pure Spring bath and body lineup currently features four on-trend scents: Juicy Apple, Cherry Blossom, Jasmine Tuberose and Vanilla Cream. All fragrances are available in shower gel, hand cream, body lotion and body mist formats — sampler/travel, large gift box and large travel tote renditions also are offered.
“Consumers are always looking for the latest trends in bath and body,” Shirtliff says of the launch. “At Rite Aid, we’re giving them the best of the new trends and product lines they won’t find anywhere else, along with the convenience of their neighborhood drugstore.”
Like many of Rite Aid’s other store brand products, the new personal care items flaunt attractive packaging designed to appeal to the category’s core shoppers. Although packaging for other Rite Aid items (such as OTC products) often features some elements of the national brand — to make it clear to consumers the products have similar features and benefits — Bergin says the company also boasts some “really exciting” packaging.
“There are some packages that look very different than the national brand,” he says. “Really we think the decision, in many instances, is made right at the shelf, so if you can have exciting packaging that differentiates you right at the point of decision, that’s a big win and a big opportunity to convert a national brand shopper to private label.”
Bergin says Rite Aid routinely refreshes its private label packaging, a process that often works to reinvigorate sales of long-standing products.
Shirtliff adds that the store brand packaging must have relevance in terms of appearance to the category in which it’s presented. Factors such as package size and coloring must be tied somewhat to the national brand item.
“But it’s got to stand out on the shelf in terms of distinction, in terms of presence,” he stresses. “I don’t think you can really judge it until you judge it in the store on the shelf in a mix of 400 other SKUs.”
With sustainability issues gaining steam among the North American consumer base, Rite Aid also is looking at steps it can take to make its store brand packaging more environmentally friendly, Shirtliff notes. He sees near-term opportunities to green up pack-aging, and says the initiative is close to the top of the Rite Aid brand “to-do” list.
Axtman adds: ”The conversation I usually have with suppliers is, ‘absolutely — anywhere we can use [eco-friendly packaging], without jeopardizing appearance or quality or increasing our customers’ cost, that’s great. If they can do it, we do it.”

Moving Rite Along

Rite Aid’s private label team realizes that high quality, new products and attractive packaging might not be enough to make its store brand products fly off the shelves. That’s why the company’s merchandising and promotion efforts are so important to private label program success.
Store brand product placement is key. The Rite Aid brand always sits to the right of its national brand equivalent, Bergin explains.
“We try to make sure its presence is at least equal to or greater than the national brand’s,” he says. “But most importantly, it’s for ease of shopping and for consistency.”
In addition, the company does the math for consumers, Shirtliff says, using “compare and save” shelf flags that clearly show the
savings achieved with a store brand purchase. And Rite Aid ties in ancillary purchases on off-shelf displays whenever possible — combining on an end cap display, for example, a national brand coffee with store brand coffee filters.
“We develop numerous promotions during the year that have bonus offerings or temporary price reductions, feature products in two locations and offer impulse products at the right price,” Bergin adds. “We do that every month.”
These merchandising and promotion efforts also are designed to add value and distinguish Rite Aid from its competition — with an emphasis on the front of the store.
“That includes more effective promotions and additional Rite Aid brand offerings — including the exclusive bath and body lines we recently introduced, which save money for our customers and provide greater profit for us,” Sammons noted in Rite Aid’s 2008 letter to shareholders.
Meanwhile, some Rite Aid store planograms have been getting a whole new look and feel. Under the new “Customer World” store format, select Rite Aid stores feature more linear footage and a shopper-centric design (see sidebar on p. 36).
“There’s more linear footage, so everything gets displayed better, and it architecturally looks better,” Axtman explains. “It exudes the brand well — the presence of our Rite Aid brand becomes stronger in that design.”
Perhaps an even greater accomplishment, however, is Rite Aid’s rebranding of the Brooks-Eckerd stores — stores in which private label was significantly less well-developed.
“We have integrated every planogram — whether it’s analgesics or shampoo, it’s a Rite Aid category manager who’s made those assortments,” Bergin notes. “We were swift in trying to get the Rite Aid name in front of those Brooks-Eckerd consumers. Immediately after announcing the completion of the acquisition, we went in with the Rite Aid brand.”

Profit Motive

Going forward, Rite Aid’s own brands — and innovations here — will continue to be a key part of the company’s competitive strategy.
“I think it’s going to be, in a word, ‘significant,’” Bergin emphasizes. “I think we have strategies and tactics in place to truly attempt to be a leader in the store brand arena. We know to do so, private label has to play a significant role in our sales and marketing initiatives and be supported by everyone in our organization.”
Speaking of support, Rite Aid calls on each and every one of its store associates to spread store brand goodwill. And Axtman stresses the importance private label plays in returning profit to Rite Aid shareholders.
“That’s our brand,” he maintains. “If we sell it, we make more profit, and that delivers EBITDA (earnings before interest, taxes, depreciation and amortization).”
Rite Aid does face a few obstacles, however, in its quest to increase private label penetration. One is the high cost of fuel, Bergin says, which is forcing suppliers’ raw material costs up. Another is the “extremely aggressive” promotions and price points some national brand owners are running.
“From a promotional stand-point, we have a program we call shadowing,” Bergin says. “Even when there is an extremely aggressive promotion, we try to shadow that promotion. So we try to ensure that there is always a Rite Aid brand alternative that’s a better cost alternative to our customers.”
Another challenge is service levels from suppliers. Axtman contends service, as an issue, is what quality was 10 years ago.
“If a supplier agrees to sell me 10 items and then, on the purchase order, scratches an item — saying ‘just forget about those, we’ve given you all the rest’ — that’s a problem,” he says. “I need that other item. I’ve got a spot on my shelves that I put in six months ago and it’s still sitting empty waiting for products.”
Shirtliff agrees there’s room for improvement, but stresses that only 20 percent of the suppliers create 80 percent of the issues.
“Certainly that is a key opportunity for us,” he says. “The other huge opportunity is with our recent acquisition of the Brooks-Eckerd stores. Although we have seen some very significant increases in terms of Rite Aid brand business in those stores, I would say we still have some potential to make further inroads there.”
Based on Rite Aid’s expert handling of its quality issues a decade ago, we’re betting the company will find a way to overcome these challenges as well — making strategic improvements at the “rite” time and “rite” pace. PLB

Sidebar: Rite Aid Snapshot

Headquarters: Camp Hill, Pa.
Chief Executive: Mary Sammons, chairman, president and CEO
No. of Retail Stores: Approx. 5,000 in 31 states and Washington, D.C.
No. of Employees: Approx. 113,000
Private Label Brands: Rite Aid-Shield, Big FIZZ, Crystal Lake, Garden Rite, PharmAssure, Pure Spring, Salon Plus, Thrifty (ice cream)
No. of Private Label SKUs: More than 3,300

Sidebar: Strategic Partnering

It’s not exactly private label, but Rite Aid’s partnership with General Nutrition Companies (GNC) of Pittsburgh is something that definitely sets Rite Aid apart from its competitors. Back in December 1998, Rite Aid and GNC agreed to become partners on a multi-tiered deal under which Rite Aid operates a GNC LiveWell store-within-a-store inside a number of Rite Aid stores.
In late 2007, Rite Aid announced it would extend and expand the partnership by adding 1,125 GNC store-within-a-store locations to its existing 1,300 by 2014. The partnership is a logical fit for a drugstore, explains Greg Axtman, category manager, Rite Aid Brand.
“Our partnership with GNC is an exclusive,” he says. “We do very well with it and reap great rewards.”
In Rite Aid’s 2008 letter to shareholders, Chairman, President and CEO Mary Sammons also made it clear that the partnership is a great competitive strategy going forward.
“We will continue to add GNC vitamin departments, which keep us ahead of the competition in this core health and wellness category and draw customers to Rite Aid because of GNC brand recognition.”

Sidebar: Shopper-Friendly Design

Rite Aid’s new easy-to-shop “Customer World” store format was designed with drugstore shoppers in mind. The design, featured in more than 300 new and relocated stores, is based on feedback from customers.
In addition to more linear feet and wider aisles, Rite Aid says the stores feature a clearer view of — and improved access to — the all-important pharmacy from the front entrance. In addition, shoppers are able to easily navigate the perimeter of the store, which showcases a greater selection of products — including Rite Aid’s own brands. Also noteworthy are department signs that guide shoppers to specific merchandise.
“It’s a beautiful store, and we’re producing great results,” says Greg Axtman, category manager, Rite Aid Brand. “Our private label merchandising standard is equal facings or more, so because of the extra linear footage, we generally get more facings.”