In this feature from PLMALive! Len Lewis reports on the merger of Walgreens and Rite-Aid.
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Walgreens and Rite-Aid: A Marriage That Could Change the Landscape
The ink was hardly dry on the massive merger of Walgreen’s with its European cousin Alliance Boots, when the company struck a deal to acquire Rite-Aid, bringing its store count to 13,000 and revenues to $150 billion—making it the first national drug store chain.
The merger is not without challenges, not the least of which is intense scrutiny by federal antitrust regulators.
Meantime, Walgreens is pushing ahead with plans to absorb Rite-Aid. Its strategy is to integrate, consolidate and develop.
If all goes according to plan, Walgreens will become what management calls a “mass specialist” introducing consumers to a unique store model, focusing on pharmacy, beauty products, health and wellness.
To reach this goal, Walgreen has a number of long-range plans, including an important role for private label.
- Eventual phase-out of the Rite Aid name.
- Using its leverage to negotiate lower drug prices.
- Further retail acquisitions in the U.S., Mexico and South America.
- Expansion of in-store clinics.
- Continued expansion of items like vitamins and supplements to serve the health needs of an aging baby boom population.
- Development of premium private labels, including the Boots brand.
- And buying brands or developing partnerships with entrepreneurs for exclusive beauty products.
One example is Soap and Glory, which Walgreen developed with an entrepreneur and is now launching in the U.S.
Another is a natural line called Botanics that is already a top seller.
Walgreens also plans to utilize Boots Alliance’s European experience to develop a more efficient omni-channel strategy within three years.
It also plans to revamp its supply chain for quicker deliveries from distribution centers.
At the same time, the chain will offer fewer brand choices in food, beverages and health and beauty products.
Regulators will have something to say about the proposed deal.
But there are large areas of the country where the two chains don’t compete at all including New England, Florida, much of the Midwest and the Pacific Northwest.
Overall, Walgreens’ strength is in the center of the country. Rite Aid gives it access to underserved markets in Eastern and Western states. In areas where they overlap Walgreens could sell some stores to CVS or Walmart.
One study argues that Walgreens only controls 31 percent of the drug store market in the U.S. and Rite Aid would give it another 10 percent. This compares with 58 percent for CVS, which purchased Target’s pharmacy operations in June.
Walgreens is also trying to diffuse criticism of the merger by noting that it is not just a drug store but is also competing with discounters, club stores and supermarkets like Walmart, Target and Kroger.
The Walgreens/Rite Aid merger would only account for an estimated 23 percent of the total drug store market, compared with 19 percent for CVS, the number two chain in the U.S.
Total chain drug store sales, including pharmacy and health and beauty care, account for nearly $300 billion annually.
In addition, there are over 20,000 independent drug stores in the U.S. — half of them in rural or underserved areas that won’t support larger chain stores.
If the deal goes through, it will be the latest milestone in what’s become a blue chip year for healthcare-related mergers and acquisitions and the way US consumers shop for health.