Rite Aid 2014 Annual Report Download - page 5

In terms of our traditional drug dispensing business, generic prescription drugs continue to help
lower overall costs for customers and third party payors. We believe the utilization of existing generic
pharmaceuticals will continue to increase. After a slowdown of new generic introductions in fiscal 2014,
the next wave of generic introductions will begin in the second half of fiscal 2015 as additional popular
branded drugs are scheduled to lose patent protection. The gross profit from a generic drug
prescription in the retail drugstore industry is generally greater than the gross profit from a brand drug
prescription. However, the sale amount can be substantially less and can impact our overall revenues
and same store sales.
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 and mail order 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 continued to be highly 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 and related managed care 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 lowering our product cost, controlling expenses, dispensing more higher margin generics and
dispensing more prescriptions overall.
Strategy
Our strategy for fiscal 2015 is to accelerate the transformation of Rite Aid into a neighborhood
destination for health and wellness. This strategic objective will not only allow us to better meet the
needs of our customers and patients in a rapidly changing healthcare environment, but will also help us
to continue the positive financial momentum we have generated over the past several years.
Financially, our primary goal for fiscal 2015, consistent with fiscal 2014, is to continue growing
same stores sales while expanding EBITDA margins, both of which are critical to achieving long-term
financial success. By growing same-store sales, we can take full advantage of our recent cost control
improvements, including the refinancing transactions we completed in fiscal 2014.
In order to drive our financial performance and sustainable sales growth, we will continue to
increase the level of capital investment in our store base through initiatives such as the Wellness store
remodel program and prescription file purchases. We will also continue to build upon key initiatives we
have implemented in recent years such as our highly successful wellness+ customer loyalty program
and expanded pharmacy services, including immunizations. At the same time, we will focus on
developing new programs that meet the evolving needs of our customers as we enter a period of rapid
change in the U.S. healthcare industry. We expect that these continued investments and our focus on
key initiatives will generate long-term value for our shareholders.
Below are descriptions of our key initiatives:
wellness+—Since its launch in April of 2010, our free wellness+ program has provided customers
and patients with the opportunity to earn significant discounts and wellness rewards in return for being
loyal Rite Aid shoppers. Enrolled members earn rewards based on the accumulation of points for
certain front-end and prescription purchases. The program has been well received by Rite Aid
customers and continues to provide significant value to members earning enough points to reach the
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