Rite Aid aims to be more than sum of its parts

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PHILADELPHIA — At the time of Heyward Donigan’s appointment as chief executive officer, Rite Aid was beset by uncertainties. In the wake of two failed merger attempts — first with Walgreens Boots Alliance, then Albertsons Cos. — and the subsequent sale of 1,942 drug stores to WBA, the company was saddled with a heavy debt load and lacked clear direction. Now, almost three years after Donigan took the helm, the financial picture has improved, and Rite Aid is focused, motivated and hard at work on implementation of the next phase of a growth strategy designed to augment its standing in pharmacy, health care and retailing.

Heyward Donigan

Heyward Donigan

Donigan and her colleagues are currently reimagining how Rite Aid functions and what it represents to consumers, patients and other health care stakeholders. This next stage of its evolution is to bring together all of the drug chain’s capabilities (which, in addition to the eponymous drug chain include a PBM; mail-order and specialty pharmacies; a leading prescription adjudication platform; HealthDialog; and a pharmacy cash-card savings program), making the whole greater than the sum of its parts. The stories in this special section examine the company’s ongoing ­transformation.

“We’re just trying to reorient ourselves, our customers and our shareholders to the fact that we have all these assets that can and will be leveraged in ways that are different from the way people think about Rite Aid traditionally,” Donigan says, adding that Rite Aid already has what it needs to match the services offered by the likes of Amazon Pharmacy, GoodRx, and hims and hers. “Elixir, Rite Aid’s PBM, serves mid-sized employers across the country. It already fills prescriptions in all 50 states through its mail-service and specialty pharmacy operations.

“Given that we have these assets, our challenge is to develop a best-in-class digital interface as well as in-store experience allowing us to broaden our footprint as a national company. That allows us to compete with all of these different emerging organizations, but with a much greater scale.”

“We can meet our customers, many of whom know us and trust us, where they choose,” says Donigan. “If you’re in a Rite Aid market, we can consult and engage with you in-store. We can provide you with other clinical services, but for the purposes of fulfilling maintenance medications, we can do that for you anywhere in America; the same goes for specialty medications.

“We’re building out that digital experience, so you can get your prescription digitally, you can chat with a pharmacist digitally, get a medical consultation on our app and clinical services.

Equipping customers with new and improved ways to connect with Rite Aid will increase interaction with pharmacists, reduce the cost of health care and improve health outcomes, according to Donigan.

“When we do engage with our customers about getting the right medication, the lowest-cost medication, and staying on the medication, we reduce hospitalizations and emergency room visits by 8%,” she says. “And we really drive 12% fewer physician office visits. Pharmacists’ vast knowledge about pharmaceutical products and how they interact make them uniquely effective in helping you manage your medications.”

Donigan, who has suffered from high blood pressure since she was in her twenties, speaks from personal experience. She worked closely with her pharmacist and physician to find the right mixture of high blood pressure medications that caused fewer side effects.

“I’ve been on this journey for almost 40 years to try to find the right mixture of high blood pressure medications that works and doesn’t create all these horrible side effects,” she says.

“I ended up, with my pharmacist’s assistance, taking myself off a couple medications and regulating the doses. “My pharmacist and I figured this out over the last five years. It’s just been an amazing experience for me in terms of understanding the benefits of pharmacy.”

Greater connectivity between prescribing physicians and pharmacists could be a turning point in health care.

“This is really a big opportunity,” Donigan says. “A lot of people that I’ve been talking to recently who are trying to transform health care propose putting a pharmacist in doctors’ offices, which makes all the sense in the world because almost every patient they see is leaving with a prescription. So health systems are incenting the providers, and therefore they’re really welcoming this change.

The challenge at hand for Rite Aid is to integrate assets in a way that fosters innovations in health care. At the same time, the company needs to do a better job getting the word out about what it brings to the marketplace.

“We’re focused on creating solutions — direct to consumer, direct to employer, direct to health system, direct to health plan — that integrate these assets in ways that are easily packaged and delivered to our customers,” says Donigan. “That’s in addition to the RxEvolution around transforming our retail pharmacy business, Elixir and Health Dialog, which we’ve completely converted from a population health company to a medication adherence and therapeutic management provider.

“While the COVID-19 pandemic shifted some of our focus over the last two years, in another sense, it really accelerated our purpose, our mission, our vision for the company, and gave us the opportunity to win over new customers who came to us for COVID tests and immunizations. Now two years into the pandemic, as a country we are learning to live with COVID-19 with the tools and treatments we have on hand, so we’ve been able to step back and say, ‘OK, how do we keep delivering on what we said we were going to do?’ ”

One of Rite Aid’s top priorities is to position itself as the last-mile connector in health care. The company’s brick-and-mortar stores, coupled with enhanced digital capabilities, and PBM business will be vital to that effort.

“If there was ever a time for pharmacists to provide more services, it was the last two years,” Donigan says. “We’re still pushing hard to be able to do flu tests and other testing in more than just a couple ­geographies.

“So, for example, post-pandemic, our pharmacists are going to have enough freedom, capacity and trained technicians at their disposal to be able to deliver A1c testing kits that health plans want us to deliver to their diabetes patients in-store, and then to counsel them. It is important to make full use of that trusted pharmacist, who can really help produce meaningful results in terms of total health care outcomes.”

One area where Rite Aid departs from other major pharmacy chains is its commitment to alternative medicine. The company has trained its professional staff to advise patients on the fusion of traditional western approaches to health care and alterative remedies.

“Our pharmacists embraced the idea and became certified integrative specialists,” says Donigan. “Then the pandemic hit and we didn’t have enough time to execute on it the way that we wanted to. But we still have been showcasing alternative remedies, providing them in the consultation rooms and up by the counter. We’re excited to be able to go back to our original concept, because this is really what our pharmacists want to do, and they have to have the capacity to do it.”

Brick-and-mortar pharmacies remain a central pillar of Rite Aid’s strategy. The flagship store format, unveiled by the company in 2020, is designed to facilitate interaction between pharmacists and customers in an environment focused on whole health and the interplay between mind, body and spirit. Many of the prototype’s features, including an enhanced merchandise assortment and beauty experience, are being rolled out across the chain.

Like other drug store operators, Rite Aid faces the challenge of reinvigorating the front-end business, including over-the-counter medications and beauty and personal care. Competition in those core drug store categories is fierce, with a growing array of brick-and-mortar retailers — not to mention Amazon and other e-commerce companies — staking a claim.

“If I had to do it all over again, I would certainly have a front end,” Donigan says, “I just wouldn’t have as much rent tied to it as we to today. Our team has been able to reduce our working capital tied to inventory by $250 million over the last two years, because we stopped just trying to fill shelves and moved toward merchandise that is appealing to our target growth customer.

“We have our highest-ever level of inventory turns now. And if it weren’t for supply chain disruptions and the out-of-stock situation, we’d be seeing even stronger growth. So we’ll always be in the front-end business, but we may have a different view of what it should look like.”

The company’s in-store and online businesses should get a lift from a customer loyalty plan introduced at the end of February. Simpler to use than its predecessor, Rite Aid Rewards enables participants to earn points through everyday purchases, prescription orders, personalized challenges and special members-only promotions. Early indicators show strong engagement in the new program.

By utilizing the digital-first platform, customers will track and convert points into Rite Aid Rewards BonusCash. For every $1 spent, participants earn 10 points, subject to certain limitations. With as few as 1,000 points, members can convert their points into $2 Rite Aid Rewards BonusCash for redemption at checkout.

Rite Aid is pursuing its ambitious agenda in a highly disciplined manner. Long an advocate of Lean business practices, Donigan has made the idea of improving processes across the organization to maximize value an integral part of Rite Aid’s DNA.

“Lean is one of the best investments we’ve made,” she says. “I mentioned the $250 million in working capital we’ve saved — that was a Lean initiative. We reduced our deleted and obsolete costs by $5 million just this year. And, most importantly, if it hadn’t been for the Lean work in our pharmacies, we would not have had trained technicians in place during the pandemic, and our pharmacists would have a lot less time to spend with their patients.

“If you add up all of our Lean work and then you take the cost of the program out, we had a seven times return. And we are just getting started; I believe there are hundreds of millions of dollars left to go.”

Rite Aid moved earlier last month to further streamline operations, doing away with the role of chief operating officer and consolidating its pharmacy management team. As a result, Karen Staniforth, who had been senior vice president of clinical pharmacy services, has become chief pharmacy officer, and executive vice president and chief retail officer Andre Persaud has expanded his duties to include field operations for pharmacy. “The changes are part of our ongoing efforts to reduce costs and remove layers,” explains Donigan, to whom Persaud, Staniforth and Erik Keptner, senior vice president and chief marketing and merchandising officer, now report.

Amid all the changes, Donigan is eager to test Rite Aid’s evolving business model in a post-pandemic environment. “I believe we’re on track, but the proof will be in the pudding,” she says. “I’m very excited because we have the right to win in all of these different spaces ­— pharmacy benefits management, specialty pharmacy, direct to consumer and retail pharmacy. Are we going to be the biggest? No. But all you have to take is a fraction of share in each of those areas and we become a bigger and higher-growth enterprise.”


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