Rite Aid's new chief executive buoyed by successes - Martin Grass

HERSHEY, Pa.--Presiding over his first annual meeting as Rite Aid Corp.'s chairman and chief executive, Martin Grass was buoyed by the conclusion of a standout year for the nation's most heavily stored drug chain. Among the highlights Grass touched on in remarks to shareholders: solid first-quarter results, several sizable acquisitions and the rapid rollout of a new-prototype store.

Revenues surge

In the first quarter ended June 3, revenue jumped 28.9 percent to $1.35 billion, with same-store sales up a solid 7.6 percent. Net income rose 13 percent to $38.4 million. Those results came on top of a year in which Rite Aid's net income rose to a record $141.3 million and the chain absorbed two major acquisitions, Perry Drug Stores in Michigan and LaVerdiere's in Maine, Vermont and New Hampshire. In another bold stroke, Rite Aid bought 44 leases from Red Apple Supermarkets in New York and added another 30 leases from other operators in the Big Apple in a bid to become New York, s leading drug chain within the next two years.

In recent months, Rite Aid also implemented a top-to-bottom restructure of its field operations; rolled its new, larger prototype into new markets; expanded its one-hour photo labs, Rite Express service centers and drive-through pharmacy windows; and shifted to a more aggressive strategy on pricing and advertising.

Though much of the monumental change at Rite Aid has occurred since he took the helm, Grass praised his father, company founder and recently retired chairman Alex Grass, for his "unprecedented record of achievement," and said he was left with "very big shoes to fill."

Rite Aid's top executives promised that the current year will continue to be active for the chain, as it opens 97 new stores, relocates 130 stores to larger, freestanding sites and expands 99 other units.

The company announced impressive results from its new 10,000-square-foot prototype store. Specifically, Tim Noonan, Rite Aid president and chief operating officer, said that a prototype store is ringing up on average $3 million in annual sales compared to $1.8 million in a traditional store. The new enhanced cosmetics/bath/fragrance department is yielding more than $68,000 in annual revenue, compared to $18,000 for the conventional format. The addition of one-hour photo processing has increased annual revenue in the photo department by $84,000 per store, he said.

In the coming year, the chain will also implement category management, extend automatic replenishment to cigarettes and pharmaceuticals, enhance pricing capabilities by item and zone by leveraging its information technology and satellite links with stores, and upgrade its pharmacy and POS systems.

System upgrade

Upgrading the chain's systems is an important consideration once Rite Aid's store count grows beyond 3,500 stores, said Dennis Bowman, senior vice president of information services. "Three to four years down the road, we need to position ourselves for accelerated sales growth."

Added Noonan, "We are not just implementing systems that everyone else may soon have. We want to leapfrog our industry in creating business value through intelligent technology leadership."

The company will finalize plans for a new pharmacy system in 60 days and an enhanced POS system in three months.

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