CAMP HILL, Pa. — Mary Sammons has a lot to feel good about these days at Rite Aid Corp.
After enduring unexpected challenges with the integration of the former Brooks Eckerd Pharmacy stores it acquired, an economic downturn that has stunted sales growth and a meltdown of the financial markets that raised doubts about its ability to refinance debt, Rite Aid recently wrapped up the first quarter of its 2010 fiscal year with improved operating results and a successful refinancing of the major portion of its September 2010 debt. As a result, two major ratings agencies recently upgraded their views of Rite Aid.
“When you think about the last six months, we’re in a whole different place now,” says Sammons, the drug store chain’s chairman and chief executive officer. “The successful refinancing and improved operating results have made everyone feel better, and we can focus on the work at hand. The hardest part still lies ahead, but we’ve got more runway on which to accomplish it.”
Perhaps the top priority facing the company is to make more progress in actually reducing its debt. Rite Aid cannot, Sammons emphasizes, continue to operate with the kind of leverage it now has.
In addition, there are a host of initiatives either being implemented or being tested to further improve the chain’s operational performance. The good news, Sammons says, is that they are not capital-intensive and the Rite Aid people can and will make them happen.
Moreover, with the Brooks Eckerd integration completed, management can now focus on closing the performance gap between the acquired stores and the core Rite Aid locations.
Looking back, Sammons acknowledges that the acquisition was a calculated risk, but has no doubt it was the right thing to do because changes in the chain pharmacy business — including the extreme consolidation that has transformed it from what was once a family business — have made a large scale essential.
“When we look at how pharmacy has become a promotional business and we think about the impact of health care reform, whatever happens, having scale will help,” she says. “There will be pressures, but we will have the capabilities we need.”
Sammons has taken a leading role in a culture initiative launched in the last half of fiscal 2009 to improve the work experience for Rite Aid associates, who have weathered store closings and head count reductions. Throughout last spring and summer she worked with a select group of associates designated as “culture change champions” to gain insight on associates’ needs and desires.
“We knew that if we didn’t do more to improve the associate experience, then we couldn’t hope to improve the customer experience,” says Sammons.
What emerged from the process was an associate value proposition that clarified what associates sought:
• Appreciation and praise for work well done.
• The right tools and competencies to perform well.
• The engagement of the company’s leaders.
• Empowerment to make decisions for the customer.
As the process built up momentum, the initial group of 14 culture change champions was steadily increased, first to 120 and now to over 1,300 associates. Several concrete changes have resulted.
First, associates in Rite Aid’s health plans were given a $3 generic co-payment on their prescriptions, a measure that showed management’s appreciation of their efforts but also enhanced the value of their health benefits. And for the first time, all associates received free flu shots. In addition, the days on which associates can purchase Rite Aid items at a deeper discount than their usual 20% were increased.
Two initiatives that Sammons created soon after her arrival at Rite Aid have also been changed and revitalized. RAPTAR now pertains to associate recognition throughout the company, whereas SMILE is now a program that allows customers to recognize associates.
In addition, the company’s statement of core values, which was initially formulated in complete sentences, has now been simplified and recast in phrases that are easy to remember:
• Passion for our customers.
• Encouragement of associates.
• Winning through teamwork.
• Commitment to diversity and respect for the individual.
• Accountability for our actions and results.
• Integrity in all we do.
• Value for our shareholders.
• Caring neighbors.
Sammons recalls that when she presented management’s critical priorities to the company’s board, one director commented that the culture initiative would probably be the most difficult to achieve.
“I feel good about where we are, but there’s a lot more to do,” she says.
Currently Sammons has committed to reaching out to Rite Aid’s pharmacy associates, who she says are the most difficult to engage because of the nature of their work. She travels to regions and holds roundtables at which she introduces the “big, hairy, audacious goals” she has for the company and where pharmacy associates get to voice their concerns, ask questions and make recommendations to improve the business.
“It all comes down to people,” she says. “We’ll get through the financial issues; it really comes down to our associates and our customers.”
Needless to say, Sammons is actively involved with the chain drug industry’s efforts to achieve favorable outcomes in the health care reform legislation now taking shape in Congress.
She personally led the Rite Aid delegation that participated in the “NACDS Rx Impact on Capitol Hill” campaign in May. Sammons pays tribute to NACDS, which she says is doing a good job of making the industry’s position — particularly on such key issues as Medicaid reimbursement and medication therapy management — known and understood in Congress and the White House.
On her first few trips to Washington, D.C., Sammons recalls, she sometimes wondered whether the politicians with whom she was meeting had ever been in a pharmacy.
“In a broad sense, anything that truly reforms health care should be positive for us,” she says. “But there’s a big qualifier: We have to be properly reimbursed. Reform also has to come out in a form that’s workable. If it destroys more than it builds, it won’t work.”
Despite the uncertainty over the ultimate shape that reform will take, Sammons is optimistic. “If we can stake out a position as delivering health care to our patients and playing a role in prevention, we can as an industry have a tremendous future,” she says.
And Rite Aid will be in the neighborhood, where we can build relationships and become important access points for patients and customers.”
EDITOR’S NOTE: This the first of a two-part series about Rite Aid.
MORE RITE AID NEWS:
Rite Aid’s goal: Be the solution to health concerns
Rite Aid rolls out online Rx refill, store pickup service
July same-store sales tail off at Rite Aid
Rite Aid secures $290 million in financing from GE Capital
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