Business description of RITE-AID-CORP from last 10-k form


 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        This report, as well as our other public filings or public statements, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will" and similar expressions and include references to assumptions and relate to our future prospects, developments and business strategies.

        Factors that could cause actual results to differ materially from those expressed or implied in such forward-looking statements include, but are not limited to:

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    our high level of indebtedness;

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    our ability to make interest and principal payments on our debt and satisfy the other covenants contained in our senior secured credit facility and other debt agreements;

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    general economic conditions (including the impact of continued high unemployment and changing consumer behavior), inflation and interest rate movements;

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    our ability to improve the operating performance of our stores in accordance with our long term strategy;

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    our ability to realize same store sales growth;

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    our ability to hire and retain qualified personnel;

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    the efforts of private and public third party payors to reduce prescription drug reimbursement and encourage mail order;

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    competitive pricing pressures, including aggressive promotional activity from our competitors;

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    decisions to close additional stores and distribution centers, which could result in further charges to our operating statement;

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    our ability to manage expenses;

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    our ability to realize the benefits from actions to further reduce costs and investment in working capital;

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    continued consolidation of the drugstore and the pharmacy benefit management industries;

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    changes in state or federal legislation or regulations, and the impact of healthcare reform;

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    the outcome of lawsuits and governmental investigations;

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    our ability to maintain the listing of our common stock on the New York Stock Exchange (the "NYSE"), and the resulting impact on our indebtedness, results of operations and financial condition; and

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    other risks and uncertainties described from time to time in our filings with the Securities and Exchange Commission ("the SEC").

        We undertake no obligation to update or revise the forward-looking statements included in this report, whether as a result of new information, future events or otherwise, after the date of this report. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences are discussed in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Overview and Factors Affecting Our Future Prospects" included in this annual report on Form 10-K.


PART I

Item 1.    Business

Overview

        We are the third largest retail drugstore chain in the United States based on revenues and number of stores. We operate our drugstores in 31 states across the country and in the District of Columbia. As of February 26, 2011, we operated 4,714 stores.

        In our stores, we sell prescription drugs and a wide assortment of other merchandise, which we call "front end" products. In fiscal 2011, prescription drug sales accounted for 67.8% of our total sales. We believe that our pharmacy operations will continue to represent a significant part of our business due to favorable industry trends, including an aging population, increased life expectancy, anticipated growth in the federally funded Medicare Part D prescription program as "baby boomers" start to enroll, expanded coverage for uninsured Americans as the result of the Patient Protection and Affordable Care Act and the discovery of new and better drug therapies. We carry a full assortment of front end products, which accounted for the remaining 32.2% of our total sales in fiscal 2011. Front end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise and numerous other everyday and convenience products, as well as photo processing. We attempt to distinguish our stores from other national chain drugstores, in part, through our wellness+ loyalty program, private brands and our strategic alliance with GNC, a leading retailer of vitamin and mineral supplements. We offer a wide variety of products under our private brands, which contributed approximately 16.0% and 15.0% of our front end sales in the categories where private brand products were offered in fiscal 2011 and fiscal 2010, respectively.

        The overall average size of each store in our chain is approximately 12,500 square feet. The average size of our stores is larger in the western United States. As of February 26, 2011, 59% of our stores are freestanding; 51% of our stores include a drive-thru pharmacy; 35% include one-hour photo shops; and 43% include a GNC store-within-Rite Aid-store.

        Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and our telephone number is (717) 761-2633. Our common stock is listed on the New York Stock Exchange under the trading symbol of "RAD." We were incorporated in 1968 and are a Delaware corporation.

Industry Trends

        The rate of pharmacy sales growth in the United States in recent years has slowed driven by the decline in new blockbuster drugs, a longer FDA approval process, drug safety concerns, higher copays, the loss of individual health insurance with the rise of unemployment and an increase in the use of generic (non-brand name) drugs, which are less expensive but generate higher gross margins. However, we expect prescription sales to grow in the coming years due to the aging population, increased life expectancy, "baby boomers" becoming eligible for the federally funded Medicare prescription program and new drug therapies. Furthermore, we expect the estimated additional 32 million people who will be covered by health insurance in 2014, and the closing of the "donut hole" in Medicare Part D to be good for our business.

        Generic prescription drugs help lower overall costs for customers and third party payors. We believe the utilization of existing generic pharmaceuticals will continue to increase. Further, a significant number of new generics are expected to be introduced in the next few years as many popular branded drugs are scheduled to lose patent protection. The gross profit from a generic drug prescription in the retail drugstore industry is greater than the gross profit from a brand drug prescription.

        The retail drugstore industry is highly competitive and has been experiencing consolidation. We believe that the continued consolidation of the drugstore industry, continued new store openings, increased competition from internet based providers and aggressive generic pricing programs at competitors such as Wal-Mart and various supermarket chains will further increase competitive pressures in the industry. The pharmacy business has become increasingly promotional, which contributes to additional competitive pressures.

        The retail drugstore industry relies significantly on third party payors. Third party payors, including the Medicare Part D plans and the state sponsored Medicaid agencies, at times change the eligibility requirements of participants or reduce certain reimbursement rates. These changes and reductions are expected to continue. When third party payors, including the Medicare Part D program and state sponsored Medicaid agencies, reduce the number of participants and/or reduce their reimbursement rates, sales and margins in the industry could be reduced, and profitability of the industry adversely affected. These possible adverse effects can be partially or entirely offset by controlling expenses, dispensing more higher margin generics and dispensing more prescriptions overall.

Strategy

        Our primary goal for fiscal 2012 is to grow same stores sales, which is critical for our future financial success. Same store sales growth will enable us to take full advantage of the improvements that we have made in the areas of cost control and working capital management. We have several initiatives that are either already in place or planned to be implemented in fiscal 2012 that we expect to drive same store sales growth and long term shareholder value. Following is a description of these initiatives:

        wellness +—We rolled out our wellness + loyalty program in April of 2010. We made a substantial initial investment in launching this program in Fiscal 2011. Wellness + is a card based loyalty program that provides benefits to cardholders based on the accumulation of points for certain front end and prescription purchases. This program provides significant value to customers who achieve Gold and Silver tier levels in the program and has been very well received by our customers. As of April 2011, we had over 36 million members enrolled in the wellness + program. At the end of our fiscal year, wellness + members accounted for 67% of front end sales and 58% of prescriptions filled. Wellness + members have higher basket sizes than non-members and also have a much higher rate of prescription retention. Wellness + members also are eligible to receive plus-up rewards, which are discounts on certain items featured in our weekly circular and provide members with additional savings for return shopping trips. We believe that the wellness + program has contributed to the improvement in our sales trends in the fourth quarter of fiscal 2011. We plan on making additional incremental investments in wellness + in fiscal 2012, both in terms of additional discounts and advertising dollars, as we believe that this program is a key element of building a loyal customer base.

        Script file purchases—We intend to significantly increase the amount of capital allocated to the purchase of prescription files from $24.2 million in fiscal 2011 to $75.0 million in fiscal 2012.