A new phase in Rite Aid’s two-decade-long quest to fully recover from the criminal financial irregularities that pushed it to the brink of bankruptcy in the late 1990s began last month with top-level management changes and an organizational realignment designed to, in the words of Bruce Bodaken, chairman of the drug chain’s board of directors, “more closely align the structure and leadership of the company with our present scale.”
The moves will include the departure of John Standley, who has served as Rite Aid’s chief executive officer since June 2010, and in recent years tried to resolve the dilemma the debt-ridden company has grappled with for so long via merger, first with Walgreens Boots Alliance, which runs the largest drug chain in the U.S., and then with food/drug combination store operator Albertsons Cos. After federal regulators blocked the former deal, Rite Aid sold 1,932 stores, about half the total in the chain, to WBA for $4.38 billion.
The truncated company subsequently agreed to merge with Albertsons Cos. in a move that would have created an organization with the scale, resources and expertise to develop a new retail model capitalizing on synergies between health, wellness and nutrition. The deal collapsed when Rite Aid wasn’t able to convince a majority of its shareholders, who apparently viewed the transaction as a straight sale and not a combination of two entities that would be greater than the sum of their parts, to support the move.
The lack of a successful merger put Rite Aid in an awkward position — too small to compete on a national level with Walgreens and CVS Pharmacy, too big to respond as quickly as regional chains do to shifts in consumer preferences in individual markets. The company is likely to find that, given the current state of the retail pharmacy market, the middle ground is a difficult place to be.
Standley will remain Rite Aid’s CEO until a successor is named. Other significant changes in management have already occurred. President and chief operating officer Kermit Crawford has left the company and been succeeded in the latter role by Bryan Everett, who had been COO of Rite Aid stores. Matt Schroeder has been promoted from chief accounting officer and treasurer to chief financial officer, succeeding Darren Karst, and Jocelyn Konrad, who had been executive vice president of pharmacy, is now executive vice president of retail and pharmacy operations.
The drive to consolidate roles and eliminate layers of management evident in Rite Aid’s top ranks is under way throughout the company. In all, some 400 full-time jobs, more than 20% of the positions at Rite Aid’s Camp Hill, Pa., headquarters, will be eliminated. When complete, the realignment will yield cost savings of approximately $55 million a year, according to the company, and help offset declining revenue from the transaction services agreement that Rite Aid and WBA entered into as part of the store sale.
Rite Aid needs to be bold as it looks to the future. Everett, Schroeder, Konrad and many other executives at the drug chain have proven their worth and can be counted on to contribute as Rite Aid looks for the best path forward. But the key will be the new CEO. Bodaken said that the board “will be focused on recruiting a leader who will best position Rite Aid to create long-term value for shareholders.”
There are, of course, different ways to go about that assignment. The man or woman the board chooses might be an expert at mergers and acquisitions, and look for another opportunity to sell Rite Aid, either as a whole or piecemeal. The hope here is that the new CEO will be a retailer at heart, one convinced of the central role of chain pharmacy in health care delivery and its continued relevance in a range of consumer packaged goods categories, beginning with over-the-counter medications, beauty and personal care, and consumables.
Rite Aid was at its best under Standley when it focused on improving the customer experience, finding better ways to serve pharmacy patients and delight front-end shoppers. The introduction of an innovative loyalty program played a big role in the resurgence of the drug chain; that was followed by implementation of compelling new ideas in store design, product mix, merchandise presentation and the use of technology. The customer-first mindset enabled Rite Aid to reclaim its place in the top tier of the nation’s pharmacy retailers.
With the intense focus on mergers in recent years and the speculation that inevitably accompanies it, some of the entrepreneurial edge has been lost. The first, and perhaps most important, thing that Standley’s successor should do is remind people at every level of the company why Rite Aid exists and make sure their focus remains on the customer.