Case Analysis

Presented By: Hannah Muegge

Rebecca Quinones

Emmanuel Rodriguez

Ross Rotwein

Presentation Overview

• History

• Internal Mismanagement

• Unionization

• SWOT Analysis

• Proposed Solution

• Conclusion

RITE AID Corporation - History

Mission Statement

To be a successful chain of friendly, neighborhood drugstores. Our knowledgeable, caring associates work

together to provide a superior pharmacy experience, and offer everyday products and services that help our valued customers lead

healthier, happier lives.

History (continued)

• Began in 1958 when Alex Grass incorporated Rack Rite Distributors, Inc

• 1962: Thrift D Discount Center opened in Scranton, Pennsylvania

• 1962: U.S. federal legislation repealed the fair trade laws that fixed minimum retail prices on most products

• 1963-1983: Acquisitions and growth across the US bringing sales in excess of over $1 Billion

THE PROBLEM:

INTERNAL MISMANAGEMENT &LACK OF COMMUNICATION

• 1999: Internal investigation reveals undisclosed holdings between the Corporation and original founders, the Grass Family.

• 1998-1999: Accounting errors and discrepancies reveal losses of $1.06 billion

• 2003: Martin Grass pleads guilty, and six other former executives are charged with accounting fraud. A civil lawsuit is still pending.

Unionization of Rite Aid

• Closures of over 250 Rite Aid stores nation-wide

• Company loses money and leading to poor working conditions

• Formations of unions begin in search of fair contracts and better lifestyle

Employee Free Choice Act

• Employees say Rite Aid is trying to undermine the formation of new Unions.

• EFCA would allow people to freely join a union and give them the freedom to bargain.

• Employees state Rite Aid engages in “illegal firing.”

• EFCA gives employees the right petition without intimidation.

ILWU Riots

• The International Warehouse and Water Union founded in 19th century along the pacific coast by the longshoremen

• Riots of unfair treatment in Lancaster, California.

• Strengthen “alliances with other unions for collective bargaining.”

“Day of Action”

• December 15,2010: day of protest to raise awareness of unfair treatment of workers.

• Protests conducted at 40 different stores through-out 13 states.

• Lancaster, California center of protests.

• Revolted that “28 times over the increases of their insurers.”

• 400 employees in New York left without jobs due to store closures.

SWOT Analysis

Strengths

• Ranked number 100 in the Fortune 500– 3rd largest pharmacy in the nation.

– About 4,800 stores

– $221 million Revenue increase from 2009 to 2010 (View revenue chart next slide)

– 67.9% sales from pharmaceutical products and 32.1 % from other over the counter products.

– Great employee benefits and over 97,000 associates.

– E Business: www.riteaid.com

Revenue Chart

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Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

Revenue (In millions)

Revenue

Weaknesses

• Lost over $130 million 2010

• Has closed about 229 stores.– Still plans to close 117

as losses double.

– Darren Beckom:Former –Rite Aid Employee

• What’s next?

Weaknesses (continued)

• Credibility. Bad reputation after:– Rite Aid corporate bust.

– Accounting scandal revealed.

– Corporate officers arrested, including CEO Martin Grass.

– Will stockholders and investors forgive Rite Aidcorporate?

– Rite Aid has improvedand focused more onbusiness ethics.

Weaknesses (continued)

• Financial weaknesses

– Rite Aid has lost $79.07 million in the last quarter of 2010.

– The 3rd largest pharmacy has been reporting losses since 2007.

– Results that shareholders have no more equity.

– Rite Aid has a $6.2 billion in long-term debt.

Opportunities

• Advertising and Credibility recognition:

– Non-for-profit organizations

– Rite Aid Foundation:

• Donated $4.9 million to Children’s Miracle Network

• Donated $50 Thousand to American Red Cross to assist relief efforts in Japan.

• Awarded grants totaling more than $11 million to about 820 organizations and 488 communities.

Opportunities (continued)

• Financial side:

– Successfully refinanced around $343 million in loans.

– Back in the game with NYSE:

• More potential for prospective Rite Aid investors, and current stockholders/investors.

• Assessed by consulting companies to improve management.

• Rite Aid still remains one of the top pharmacies in the nation, being the 3rd largest drugstore.

Threats

• Two types of threats:1) Internal Threats

Dangers that can affect business internally, such as employees, employee turnover, union strikes, debt, management, and so on.

2) External ThreatsDangers that the company can encounter from the outside (externally). Examples can include: competition, demand, economy, tax increases, inflation, and so on.

Internal Threats (continued)

• Pharmaceutical products are not the only ones with expiration dates…

• Unfortunately, union contracts expire as well…– Rite Aid’s contract with

United Food and Commercial Workers (UFCW) Local 880.

– Contract expired April 2010, still trying to negotiate.

– UFCW is on strike againstRite Aid Pharmacies.

– Union strike is telling customers to stop supporting Rite Aid

– This is has created more negative credibility towards Rite Aid.

– More than 60% of sales come from pharmaceutical products!

Internal Threats (continued)

• Rite aid is at a $79.04 million loss in last quarter of 2010. (Income statement)

• Rite Aid Income StatementQuarterly-11/27/2010

Total Revenue: $6.20 BillionGross Profit: $1.64 BillionOperating Income: $63.01 MillionNet Loss: $(79.07) Million

External Threats

• Competitors: None of them have net losses!

• WalgreensQuarterly Income Statement-2/28/2011

Total Revenue $18.50 BillionGross Profit $5.32 BillionOperating Income $1.21 BillionNet Income $739.00 Million

• PublixQuarterly Income Statement-12/25/2010

Total Revenue $6.43 BillionGross Profit $1.80 BillionOperating Income $488.93 MillionNet Income $342.10 Million

• CVSQuarterly Income Statement-12/31/2010

Total Revenue $24.77 BillionGross Profit $5.09 BillionOperating Income $1.77 BillionNet Income $1.03 Billion

Proposed Solution

• Negotiate an agreement that will suit Rite Aid, their employees, their investors, and the union.

• Rite Aid employees need instruction regarding unions.

• Improvement in Rite Aid communication towards their employees.

Action vs. Reaction

• Action is faster than reaction!

• Rite Aid needs to act as soon as possible in order to overcome the obstacles that face Rite Aid with such threats!

• Rite Aid is still ranked the 3rd

largest pharmacy in the nation! Rite Aid still has potential to act before reaction hits!

Conclusion

• Rite Aid Corporation and other unionized drug stores in the New York area have been offered an agreement by the National Health and Human Services Employees Union.

• . Rite Aid’s part would be to recognize Union 1199 as the collective bargaining agent if more than half of their employees sign cards expressing their interest to join Union 1199

• Rite Aid stands to gain at least $40 million through pharmaceutical sales.