CAMP HILL, Pa. — The editors of Chain Drug Review have chosen John Standley, Ken Martindale and Frank Vitrano, Rite Aid Corp.’s senior management triumvirate, as the publication’s Chain Drug Retailers of the Year for 2013.

From the left: Rite Aid president and COO Ken Martindale; chairman and CEO John Standley; senior executive VP, CFO and chief administrative officer Frank Vitrano.

During a year of surprising accomplishments, record performances and stunning milestones in the chain drug industry, Rite Aid distinguished itself by reinventing its business and so rejoining the ranks of first-tier U.S. drug chains. It was the result of a multiyear transformation that was, in many ways, among the most dramatic in chain drug history.

The decisions made by the Rite Aid management team worked to discard the company’s old retail model and replace it with a shiny new presence as a health- and wellness-focused drug store, which has emerged as a formidable competitor to any retail health care provider in the country.

Years of hard work by Rite Aid to revive its fortunes and position in the chain drug marketplace bore fruit in 2013. That fiscal year marked the 4,595-store chain’s return to profitability, as it reported its first annual earnings in five years, in addition to setting a new company record for full-year adjusted EBITDA.

And as Rite Aid confirmed its reemergence with a strong performance, the company also kept its eye on the future. Its efforts to drive innovation and collaboration with suppliers triggered a dialogue within the vendor community that put the nation’s No. 3 drug chain on par with its two larger competitors. In short, it was the year that Rite Aid’s return to respectability reached its culmination.

As with most success stories, reasons abound for Rite Aid’s remarkable turnaround. Primary among them, as is generally the case, is the strength and diversity of the company’s ­management.

“There’s no doubt that we have a special team here at Rite Aid,” says president and chief operating officer Ken Martindale. “We’ve worked very hard to turn our company around, and I think we’ve created a great strategy to make that happen. But beyond that we have the right people in the right jobs, and we’ve given them the tools they need to do those jobs.”

Chairman and chief executive officer John Standley, while also citing the talent of the retailer’s executives, points to the management team’s disciplined approach during the early stages of the company’s turnaround. “One of the first things we focused on was stabilizing our business,” he says. “We succeeded in controlling costs more effectively, and we also worked on reorganizing some of our disciplines.

“A good example is the work we did with the pharmacy, which is obviously a key part of our business. We saw an opportunity to take the various initiatives we had in place and create a more integrated and comprehensive pharmacy experience. Our success with that really helped set the stage for how we built and strengthened our brand over the next few years.”

Rite Aid’s ability to accurately gauge the changes afoot in the chain drug marketplace and seize on the emerging opportunities — particularly in health care — has been a linchpin of its turnaround, notes senior executive vice president and chief financial officer Frank Vitrano.

“We recognized that the industry was changing because of trends like the aging U.S. population,” says Vitrano, who is also chief administrative officer. “Those changing demographics were creating a stronger demand for health care, so we responded by shifting our primary focus from the retail side of the business to the pharmacy, and our stores today reflect that emphasis.”

The trajectory of the chain’s recent success can be dated to 2008, when Standley, Vitrano and Martindale joined Rite Aid (for Standley, it was a return to the company). That was two years after the chain announced plans to purchase 1,858 Brooks and Eckerd drug stores from the Jean Coutu Group for $3.4 billion. The acquisition was intended to give the company the scale it needed to compete with Walgreen Co. and CVS Caremark Corp., but results were hindered by a challenging integration process.

As Rite Aid’s new executives joined the team, they saw an immediate need to address selling, general and administrative expenses and find operational efficiencies throughout what was now a much larger chain. Problems were compounded by the global financial crisis of 2008, but the team’s efforts to boost liquidity and pare costs positioned the company to begin turning around.

Another issue was the company’s debt, which had grown significantly after the acquisition of the Brooks-Eckerd stores. As Rite Aid team made progress with managing expenses and pushing same-store sales into positive territory, the company completed key refinancing transactions, giving the chain the flexibility it needed to execute its turnaround plan.

On the retail front, the launch of the wellness+ customer loyalty program in April 2010 rewarded core customers and broke new ground by centering a loyalty program on prescription purchases. That, in turn, opened the door to Rite Aid’s next move, the debut of the wellness store format in 2011. Together, wellness+ and the wellness store represent key factors behind the company’s remarkable recovery.

“We believe we’ve become what consumers are looking for,” says Vitrano. “Specifically, they’re looking for ways to stay healthy, and that’s what our wellness concept offers.”
The chain’s recovery, fueled by the decision to emphasize health care, has led to other, more basic changes in the way Rite Aid runs its business.

“We were playing defense most of the time — thinking control, control, control,” says Martindale. “We still work to control expenses. But now our primary focus is on growth. In other words, we’ve gone from defense to offense — and replaced negative momentum with positive momentum.”

That momentum is beginning to carry over into the company’s ongoing store renovation program. Today, Rite Aid has converted more than 1,100 stores to the wellness format, and nearly a quarter of all Rite Aid locations are now wellness stores.

Over the next few years Rite Aid will continue to focus on renovations in an effort to convert the vast majority of its stores to the wellness format. As this unfolds, the chain will also begin shifting its attention toward relocations and net new stores.

“The exciting part is that, as we continue to gain momentum with our remodels, we’ll also be laying the foundation for a more traditional growth strategy to help take our performance to the next level,” Standley says.

But even as Rite Aid’s senior managers plan ahead, they are also taking time to recognize the recent accomplishments of their entire Rite Aid team.

“I’m extremely proud of our team,” says Martindale. “We pulled through, and now we’re really excited about the future. We feel good about where we are — and where we’re going.”

“It took some time, but now we’re in a much better position as a company,” adds Vitrano, “and that’s a good feeling.”