Superior front-end experience, improved patient outcomes will define Rite Aid's success
Revising year-end guidance on account of reimbursement rate headwinds, Rite Aid's stock took a hit after reporting second-quarter earnings, even though the company beat analysts' consensus estimates for the quarter. The retail pharmacy operation recorded second-quarter profit of $127.8 million, or 13 cents per share, more than doubling the FactSet consensus analyst estimate of 6 cents a share, according to a MarketWatch report. And while revenue of $6.5 billion was in line with analyst expectations, Rite Aid topped expected same-store sales growth of 3.3% by recording 4.1% in same-store sales growth.
Rite Aid is still on the right track.
Rite Aid's Wellness store format has reached the 1,433 store mark, comprising 31% of the chain. It's a significant front-end same-store sales booster. "For the second quarter, front-end, same-store sales in our Wellness stores were approximately 250 basis points higher than our non-Wellness stores, and script growth was 85 basis points higher," reported Darren Karst, Rite Aid EVP and CFO, during the second quarter conference call.
"Our Wellness store program is perhaps the most visible component of our ongoing transformation and these stores continued to deliver strong results in the second quarter, once again outperforming the rest of the chain in terms of same-store front-end sales and script count," Ken Martindale, Rite Aid president and COO, told analysts during the second-quarter conference call. "We remain highly focused on leveraging our Wellness store program to launch innovative merchandising concepts that significantly enhance the shopping experience," he said. "A great example is our new OTC presentation. This unique research-based consumer solution was developed and tested in conjunction with several key suppliers during the past year. The new design makes shopping navigation much easier and incorporates consumer education and product cross-selling to deliver a much better customer experience."
That's one of the chief reasons Rite Aid's Wellness store format works — it is predicated on the consumer experience. "As we continue to spend more time with the customers and our associates, listening to the needs that our customers have, we are continuing to evolve [the Wellness store format]," Martindale told DSN in an exclusive store tour of their new Beverly Hills, Calif. location opened earlier this summer. Rite Aid's Wellness format features Wellness Ambassadors in the OTC aisles and beauty advisors in the beauty department. And Rite Aid is piloting its Fresh Day Cafe offering at that particular location, extending its consumer experience to gourmet coffees and Thrifty White ice cream.
Differentiating the in-store experience will be the key to front-end success going forward. That is fast becoming the reality of brick-and-mortar retailing. "There are experiences within traditional retail that are going to have to be different," commented Brett Goffin, industry head of retail at Google, during an exclusive one-day summit co-hosted by Mack Elevation Forum and Drug Store News. "The value proposition to the end user has to bear out, so you have to ask what is the value proposition of the customer coming into the store?" he asked. "If it’s just, you have a wide selection. That’s somewhat of a challenge because the wider selection is actually somewhere else. But if it’s we have category expertise ... people aren’t necessarily experts, they do need category expertise, they do need positive great experiences, something that you can’t get [online]."
And that is what Rite Aid is delivering with its Wellness format. It's not just a streamlined, more natural look and feel that the format conveys to the consumer, it's the expertise in the beauty department, in the OTC aisle and behind the pharmacy bench that the consumer can take advantage of. And it's the fun experiences to be had with initiatives like Fresh Day Cafe.
Beyond Rite Aid's Wellness store format, Rite Aid has a new offering that will help drive foot traffic and generate another revenue stream in its own right that hasn't really been put into play yet but will be very soon: the Rite Aid Rediclinic.
"We're tracking right on target and we are going to start opening them in several months. So you are going to see them aggressively rolling out and we are very excited about the opportunity that lies ahead of us here," Martindale told analysts during that second-quarter conference call. That additional foot traffic not only gives Rite Aid the opportunity to showcase their superior front-end offering, but also generates incremental prescription business.
And Rite Aid's Rediclinic offering will only augment Rite Aid's Health Alliance proposition. The Rite Aid Health Alliance employs a team approach with pharmacists, physicians and specially-trained in-store health coaches — all endeavoring to help patients with polychronic and chronic conditions meet certain health-related goals central to improving outcomes. Rite Aid most recently signed a sixth partnership under its Health Alliance umbrella with Physician Direct ACO of Detroit.
The combination of Rite Aid's Rediclinics and Health Alliance partnerships positions Rite Aid well in improving health outcomes. And improving health outcomes will be the name of the pharmacy game going forward. "At the end of the day we do bring value to the equation in terms of what we do," John Standley, Rite Aid chairman and CEO, told analysts. "We are increasing that value every day with the various initiatives that we are working on in terms of things we're doing for chronic care and polychronic care," he said. "Ultimately, I think the marketplace will recognize us for the value that we bring in patient care. That's not something that's going to happen overnight [but] from a strategic perspective over time, that's where the real value in this relationship [with PBMs] is created."
Rite Aid is still on the right track toward future success. The Pennsylvania chain is leading with a strong front-end engine defined by a superior consumer experience and bringing up the rear with a pharmacy/retail clinic operation that will measure its success in improved patient outcomes.