CAMP HILL, Pa. — With responsibility for category management, merchandising, marketing and the supply chain, Ken Martindale is leading several of the most critical of Rite Aid Corp.’s initiatives to improve its operating performance.

His arrival at the drug store chain last December fulfilled a long-delayed wish of chairman and chief executive officer Mary Sammons, who had wanted to recruit Martindale when she came to Rite Aid in 1999. But Martindale, who had worked with Sammons at Fred Meyer Inc. after that company acquired Smith’s Food & Drug Stores in 1998, chose instead to establish his own food retailing company, Orchard Street Inc., in Salt Lake City.

Martindale did join his former colleague at Smith’s and Fred Meyer, John Standley, when the latter left Rite Aid to take the helm at Pathmark Stores Inc. As copresident and chief merchandising and marketing officer, Martindale played a key role in that chain’s turnaround drive before its acquisition by A&P.

At Rite Aid, Martindale’s extensive portfolio reflects his 30-plus years of retail experience, spanning marketing, merchandising and operations. But his key role, perhaps, is as a leader of change at the company.

In marketing, Rite Aid is refining the way it communicates with its customers, both at home and in-store. “We truly believe that to be successful long term, we have to be the solution to our customer’s health and wellness concerns,” he says. “At the same time, we have to talk to her need for value.”

As Martindale acknowledges, drug stores are not typically considered a value channel. To change that perception, the chain has revamped its ad circulars, giving them a more targeted emphasis on value and promotions. In-store signage and displays have also been modified to communicate “Red Hot Specials,” for example.

At the same time the chain is pursuing these initiatives, it is dealing with a changing customer base that wants to be communicated with in very different ways. As a result, the weekly circular is still a vital tool for reaching out to the older consumer that has always been a critical customer for Rite Aid, but the company is also exploring mobile communications to reach the young shopper who lives in a world of wireless connectivity.

“We need a dual strategy that takes in the seniors who still wait for their circulars and the emerging younger consumer,” Martindale says. “We can’t ignore either one.”

One major initiative still in the works is a shopper loyalty program that will revolve around the pharmacy but encompass the entire store. The system will enter testing during the current 2010 fiscal year before it is launched, likely in fiscal 2011.

While Rite Aid’s marketing efforts are aimed primarily at building sales, much of the work being done in merchandising is intended to grow profitability as well as revenue, and much of it is centered on the company’s segmentation effort.

“Segmentation gives us the ability to go out and look at customers in different geographies and different types of stores,” says Martindale. “It’s a challenge, because with 4,800 stores, we have to generalize to some degree.”

In its metro markets Rite Aid is currently testing pricing technology that gives the chain the ability to fine-tune its pricing, which had been uniform. “Urban stores operate very differently from suburban stores,” comments Martindale. “A customer who walks to a store shops very differently from one who drives to it. What we’re trying to do with our pricing technology is get closer to the customer and find out what’s important to her.”

What the company has discovered thus far is that with a single pricing structure, some prices will be too high and some too low, depending on the store. The pricing initiative is enabling Rite Aid to sharpen its price image and, in some cases, even improve its margins.

Like nearly every other major mass market retail chain, Rite Aid is expanding its private brand offerings, an effort that should enhance profitability while reinforcing the company’s value offer to customers.

Martindale’s merchandising team has evaluated the retailer’s portfolio of private brands and assessed their varying strengths. During the current fiscal year 250 new store-brand items are being launched, supported by redesigned packaging and increased promotional backing.

“We’ve designed a long-term brand architecture that gives us a framework,” says Martindale. “And that gives us the opportunity to make our own brand more customer-friendly.”

While Rite Aid is not pursuing a multitier strategy with its store brands, certain targeted items are developed to be best-in-class. He points to the M5 Magnum five-blade razor that has proven to be extremely competitive with the leading branded item, as well as the new Rite Aid Rx Sun Care brand, which has received “tremendous positive feedback.”

While challenges still lie ahead, Martindale is upbeat about Rite Aid’s prospects. “I feel great about where we’re headed,” he says. “People are trying different things, and we’re getting some base hits.

“Basically, we’re trying to understand our customers better and deliver to them.”

EDITOR’S NOTE: This is the second in a two-part series about Rite Aid.

MORE RITE AID COVERAGE:

Rite Aid finds itself ‘in a whole different place’

Rite Aid rolls out online Rx refill, store pickup service

Rite Aid launches online video savings program

July same-store sales tail off at Rite Aid

Rite Aid secures $290 million in financing from GE Capital

Rite Aid’s outlook gets upgraded