The pending purchase of Bartell Drugs by Rite Aid reflects the intensification of two significant long-term trends in retail pharmacy and health care. The $95 million transaction, which still must pass muster with government regulators, will add the 67 stores that Bartell operates in Seattle and surrounding King, Snohomish and Pierce counties to the 69 outlets that Rite Aid has there.
That concentration of stores, together with the $550 million in annual sales that Bartell generates, will more than double Rite Aid’s market share in greater Seattle, giving it a commanding 40% to 24% advantage over current leader Walgreens. It’s a given in business that scale matters, and the added muscle that Rite Aid is acquiring in Washington state will facilitate implementation of its revitalization efforts.
“The acquisition of Bartell fits perfectly into and accelerates our RxEvolution strategy, as our companies share a commitment to total health and wellness, the importance of the pharmacist as a trusted health advisor and the critical role neighborhood pharmacy plays,” said Rite Aid president and chief executive officer Heyward Donigan while announcing the deal. “Expansion within the growing Seattle area will allow Rite Aid to better serve customers, health plans and health care providers.”
The inclusion of health plans and providers in Donigan’s comment is particularly noteworthy. Although the newly acquired stores will continue to operate under the Bartell Drugs banner, it can be expected that Rite Aid will leverage all of its assets in the Seattle market as a single entity in dealings with health systems and third-party payers. One pillar of the company’s master plan is to make its Elixir subsidiary — the pharmacy benefits management business, which until recently was known as EnvisionRxOptions — a preferred choice for regional health plans and companies that employ between 150 and 20,000 people.
Seattle will provide an ideal testing ground for the strategy. Following the acquisition, the concentration of pharmacies, together with Rite Aid’s efforts to more closely align Elixir’s offerings — which include Medicare Part D insurance, network and rebate administration, and mail-order and specialty pharmacy — will make the company a desirable partner for health care payers and providers.
Not to be overlooked in the emergence of Rite Aid as a more robust competitor in pharmacy and health care, are the stores it operates. Donigan has said that the company intends to position its frontline pharmacists as extenders of health care in the community, giving consumers unmatched access to vital expertise in the places where they live and work.
In addition, Rite Aid has adopted a holistic approach to wellness, one concerned with the mind and spirit as well as the body, and it is harnessing the power of digital technology to increase personalization. The full scope of the company’s vision will be on view when it takes the wraps off its Store of the Future this month. Under the guidance of Donigan, chief operating officer Jim Peters and their management team, Rite Aid appears to have charted a course that will elevate its standing, a process accelerated by the addition of Bartell.
The sale of the family-owned company, which was founded in 1890 and is said to be the nation’s oldest drug chain, raises anew questions about the long-term viability of regional players and independents. Over the course of the last generation many once iconic regional chains have fallen by the wayside — Fay’s in upstate New York, Happy Harry’s in Delaware, Arbor and Perry in Michigan, May’s in Oklahoma and K&B in the Gulf Coast states, to name just a few.
Bartell was able to succeed in the face of competition from Walgreens, Rite Aid and other national retail chains because of its deep roots in the Seattle community, commitment to service and ability to tailor offerings to the changing needs of consumers (a knack that in recent years was evident when it became the first drug chain in the U.S. to sell products containing CBD). If, despite those strengths, Bartell decided it was best to sell the business, one has to wonder how its peers in the industry will fare.
Conditions for small and mid-size pharmacy operators are tougher than ever. Exacerbating the chronic difficulty of competing against much larger rivals are structural problems in health care reimbursement, none more pressing than direct and indirect remuneration fees under Medicare Part D. DIR fees enable third-party payers to claw back some of the money paid to pharmacies for dispensing medications based on criteria that are often ill-defined and inconsistently applied. Until that issue and other reimbursement inequities are corrected, more regional drug chains are likely to follow Bartell’s example and look for an exit strategy.