Rite Aid shifts growth strategy

Drug Store News, July 8, 1996 by Lisa I. Fried

CAMP HILL, Pa.--In a major shift of its acquisition strategy, Rite Aid, which operates stores in 21 states and the District of Columbia, will no longer solely focus on building market share in its existing markets.

Having been pushed by the Federal Trade Commission to abort their plan to buy Revco D.S., Rite Aid executives have decided to broaden their acquisition strategy, explained chairman and chief executive Martin Grass at the company's annual meeting June 26. "We are really focused on [building] market share because 't is very important in terms of prescription delivery with pharmacy benefit management companies. Our future acquisition strategy will be to continue to look for chains both in our trading area and, now, outside our trading area--provided there is enough mass to make it worth our while."

Rite Aid's strategy has long been focused on expanding in existing markets. But, now that the FTC seems concerned about the dominance of a chain in its existing markets, Grass feels he has little choice but to also explore new markets. "If this is the FTC's game, we have to start looking outside our trading areas," Grass said, adding that no particular sites have been identified for development.

Given that the attempt to buy Revo cost Rite Aid $16 million and dragged down first-quarter earnings (see related story in this issue), one shareholder questioned Rite Aid's thinking in attempting it in the first place. "With hindsight, we can say it was a no-win situation," said Grass, "but there was not an antitrust lawyer or antitrust professor in the country who did not think this deal would be done when it was proposed."

The problem, Grass asserted, was, "The FTC did not deal with us in good faith."

In other announcements, Grass detailed plans to streamline pharmacy by rolling out autoreplenishment for pharmaceuticals this year, as well as phone-based systems in the pharmacy department to speed up refills.

In terms of new stores, Rite Aid plans to open 125 this year.

Spitting out a poison pill

In an unusual move, Grass announced that he would recommend that the board of the company agree to remove its poison pill provision, which had been in place since 1989.That suggestion had been proposed by shareholders and approved by two thirds of the shareholders.

Grass conceded that he wanted to please shareholders but was concerned about the move. "Obviously, the shareholders have voted overwhelmingly to remove the poison pill. I am not sure it's the right thing to do, because the whole idea of it was to give the company and the board the ability to fight very hard, especially in a hostile tender offer, to get the highest price for the shareholders."

Said Grass to the shareholders: "You obviously think differently and we will cede to [your] wishes."