Rite Aid 2016 Annual Report Download - page 12

Sources and Availability of Raw Materials
During fiscal 2014, we purchased brand pharmaceuticals and some generic pharmaceuticals from
McKesson Corporation (‘‘McKesson’’). Beginning in fiscal 2015, in connection with our pharmaceutical
purchasing and delivery arrangement (‘‘Purchasing and Delivery Arrangement’’) with limited exceptions,
we purchased all of our branded pharmaceutical products and almost all of our generic (non-brand
name) pharmaceutical products from McKesson. If our relationship with McKesson were disrupted, we
could temporarily have difficulty filling prescriptions for branded and generic drugs until we executed a
replacement wholesaler agreement or developed and implemented self-distribution processes.
We purchase our non-pharmaceutical merchandise from numerous manufacturers and wholesalers.
We believe that competitive sources are readily available for substantially all of the non-pharmaceutical
merchandise we carry and that the loss of any one supplier would not have a material effect on our
business.
We sell private brand and co-branded products that generally are supplied by numerous
competitive sources. The Rite Aid and GNC co-branded PharmAssure vitamin and mineral supplement
products and the GNC branded vitamin and mineral supplement products that we sell in our stores are
developed by GNC, and along with our Rite Aid brand vitamin and mineral supplements, are
manufactured by GNC.
Customers and Third Party Payors
During fiscal 2016, our stores filled approximately 305 million prescriptions and served an average
of 2.0 million customers per day. The loss of any one customer would not have a material adverse
impact on our results of operations.
In fiscal 2016, 97.8% of our pharmacy sales were to customers covered by third party payors (such
as insurance companies, prescription benefit management companies, government agencies, private
employers or other managed care providers) that agree to pay for all or a portion of a customer’s
eligible prescription purchases based on negotiated and contracted reimbursement rates. During fiscal
2016, the top five third party payors accounted for approximately 70.4% of our pharmacy sales. The
largest third party payor, Express Scripts, represented 25.3% of our pharmacy sales.
During fiscal 2016, Medicaid and related managed care Medicaid payors sales were approximately
19.9% of our pharmacy sales, of which the largest single Medicaid payor was approximately 1.5% of
our pharmacy sales. During fiscal 2016, approximately 31.9% of our pharmacy sales were to customers
covered by Medicare Part D.
Through our new Pharmacy Services segment we provide innovative pharmaceutical solutions for
our clients which are primarily employers, insurance companies, unions, government employee groups,
health plans, Managed Medicaid plans, Medicare plans, and other sponsors of health benefit plans, and
individuals throughout the United States.
Competition
The retail drugstore industry is highly competitive. We compete with, among others, retail
drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores,
wellness offerings, dollar stores and mail order pharmacies. We compete on the basis of store location
and convenient access, customer service, product selection and price. We believe continued
consolidation of the drugstore industry, the aggressive discounting of generic drugs by supermarkets
and mass merchandisers and the increase of promotional incentives to drive prescription sales will
further increase competitive pressures in the industry.
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