April is here — and still no resolution on the pending acquisition of Rite Aid Corp. by Walgreens Boots Alliance Inc.
As time stretches out, this indecision bodes ill for an acquisition that was until recently viewed as an agreement with benefits for both parties. Now, confusion is apparently overtaking certainty — and there is little agreement as to whom this acquisition might help and whom it may hinder.
This little drama is perhaps indicative of the state of chain drug retailing at present. There appears little room to maneuver, and that state of the industry today is perhaps a preview of the industry’s makeup going forward.
It’s no longer news that chain drug retailing has become a consolidated retailing sector. At its core are Walgreens and CVS Health, two world-class retailers that dominate the sector and increasingly encroach on the broader mass retailing industry of which they are major components.
At the other end of the industry are the regional drug chains, a group growing in stature and performance to the point where, in many markets, they are challenging the leaders for leadership.
In the middle are some major pharmacy retailers that have managed to survive and, in some cases, thrive by adapting to the current retail environment and finding niches in that environment where they can effectively compete against both larger and smaller rivals.
That, briefly, is the state of the industry at present. In that environment, Rite Aid has emerged as one of the very few chain drug retailers at play. Put another way, the industry, once so volatile and fast-changing, has reached middle age, a point where acquisition is disappearing as a method of growth.
With that disappearance has vanished those growth spikes which once marked the industry, a form of overnight gain in size and stature that could at once catapult a chain drug retailer to the front of the industry, bypassing along the way retailers with more impressive organic growth.
To say that this has changed the industry is to state the obvious. Less obvious is the fact that the disappearance of the acquisition as a growth vehicle has put increased pressure of a different nature on chain drug retailing: the pressure to
This pressure comes at a time when mass retailing is facing a unique set of challenges. Foremost among them is the challenge of coping with increased competition at a time of serious changes in America. Foremost among these is the rise of new retailing formats, foremost among them the emergence of online retailing, which is resulting in a decline in customer traffic at conventional brick-and-mortar stores.
Make no mistake: Shopping trips are declining. This is especially true at chain drug stores, where one or two weekly visits, once the norm, have been replaced by two or three visits a month. This decline has, naturally, hurt sales — and drug chains are currently grappling with programs to replace that lost volume with business thus far untapped by the current merchandise assortment.
Into this mix of issues must be added the Walgreens-Rite Aid situation, or rather the larger issue of the increasingly stable chain drug industry, an industry where no major merger possibilities exist. This situation already exists in the discount segment of the mass retailing industry, where both Walmart and Target Corp. have no merger options. And while the merger option still exists in grocery retailing, it is not as plentiful as it once was, nor as potentially lucrative.
Thus, it can accurately be concluded that chain drug retailing is at a turning point, an historical juncture where it must relearn traditional ways of doing business while concurrently learning to operate successfully without the option of acquiring its way to growth.
Under these circumstances, the final verdict on the Walgreens-Rite Aid deal is significant for reasons that go beyond the immediate disposition of that issue. Whichever way it ends up, it will signal the end of merger-mania, the ultimate growth vehicle for chain drug retailing in America.