Rite Aid 2016 Annual Report Download - page 18

Risks Related to our Operations
We need to improve our operations in order to improve our financial condition, but our operations will not
improve if we cannot effectively implement our business strategy or if our strategy is negatively affected by
worsening economic conditions.
We have not yet achieved the sales productivity level of our major competitors. We believe that
improving the sales of existing stores is important to improving profitability and operating cash flow. If
we are not successful in implementing our strategies, including our efforts to increase sales and further
reduce costs, or if our strategies are not effective, we may not be able to improve our operations. In
addition, any further adverse change or continued weakness in general economic conditions or major
industries can adversely affect drug benefit plans and reduce our pharmacy sales. Adverse changes in
general economic conditions could affect consumer buying practices and consequently reduce our sales
of front end products, and cause a decrease in our profitability. Failure to improve operations or a
continued weakness in major industries or general economic conditions would adversely affect our
results of operations, financial condition and cash flows and our ability to make principal or interest
payments on our debt.
We purchase all of our brand and generic drugs from a single wholesaler. A disruption in this relationship
may have a negative effect on us.
We purchase all of our brand prescription and, with limited exceptions, all of our generic drugs
from a single wholesaler, McKesson. Because McKesson acts as a wholesaler for drugs purchased from
ultimate manufacturers worldwide, any disruption in the supply of a given drug, including supply
shortages of key ingredients, or regulatory actions by domestic or foreign governmental agencies, or
specific actions taken by drug manufacturers, could adversely impact McKesson’s ability to fulfill our
demands, which could adversely affect us. Pharmacy sales represented approximately 69.1% of our total
drugstore sales during fiscal 2016. While we believe that alternative sources of supply for most generic
and brand name pharmaceuticals are readily available, a significant disruption in our relationship with
McKesson could make it difficult for us to continue to operate our business on a regular basis until we
executed a replacement wholesaler agreement or developed and implemented self-distribution
processes. We believe we could obtain and qualify alternative sources, including through
self-distribution, for substantially all of the prescription drugs we sell on an acceptable basis, and
accordingly that the impact of any disruption would be temporary.
A significant disruption in our computer systems or a cyber security breach could adversely affect our
operations.
We rely extensively on our computer systems, including those used by EnvisionRx, RediClinic, and
Health Dialog, to manage our ordering, pricing, point-of-sale, inventory replenishment and other
processes. Our systems are subject to damage or interruption from power outages, computer and
telecommunications failures, computer viruses, cyber security breaches, vandalism, severe weather
conditions, catastrophic events and human error, and our disaster recovery planning cannot account for
all eventualities. Although we deploy an information security program that is developed with a multi-
layered approach to address information security threats and vulnerabilities, including ones from a
cyber security standpoint, designed to protect confidential information against data security breaches, a
compromise of our information security controls or of those businesses with whom we interact, which
results in confidential information being accessed, obtained, damaged or used by unauthorized or
improper persons, could harm our reputation and expose us to regulatory actions and claims from
customers and clients, financial institutions, payment card associations and other persons, any of which
could adversely affect our business, financial position and results of operations. Moreover, a data
security breach could require that we expend significant resources related to our information systems
and infrastructure, and could distract management and other key personnel from performing their
18