Rite Aid 2011 Annual Report Download - page 15

Group of its interests in us and the exercise by Jean Coutu Group of its influence over our
management and affairs.
A number of the directors on our board of directors are persons who are also officers or directors
of Jean Coutu Group or its subsidiaries. Service as a director or officer of both Rite Aid and Jean
Coutu Group or its other subsidiaries could create conflicts of interest if such directors or officers are
faced with decisions that could have materially different implications for Rite Aid and for Jean Coutu
Group. Apart from the conflicts of interest policy contained in our Code of Ethics and Business
Conduct and applicable to our directors, we and Jean Coutu Group have not established any formal
procedures for us and Jean Coutu Group to resolve potential or actual conflicts of interest between us.
There can be no assurance that any of the foregoing conflicts will be resolved in a manner that does
not adversely affect our business, financial condition or results of operations.
We are dependent on our management team, and the loss of their services could have a material adverse effect
on our business and the results of our operations or financial condition.
The success of our business is materially dependent upon the continued services of our executive
management team. The loss of key personnel could have a material adverse effect on the results of our
operations, financial condition or cash flows. Additionally, we cannot assure you that we will be able to
attract or retain other skilled personnel in the future.
We are substantially dependent on a single wholesaler of branded pharmaceutical products to sell products to
us on satisfactory terms. A disruption in this relationship may have a negative effect on our results of
operations, financial condition and cash flow.
We purchase all of our brand prescription drugs from a single wholesaler, McKesson, pursuant to a
contract that runs through April 1, 2013. Pharmacy sales represented approximately 67.8% of our total
sales during fiscal 2011, and, therefore, our relationship with McKesson is important to us. Any
significant disruptions in our relationship with McKesson would make it difficult for us to continue to
operate our business until we executed a replacement wholesaler agreement or developed and
implemented self-distribution processes. There can be no assurance that we would be able to find a
replacement wholesaler on a timely basis or that such a wholesaler would be able to fulfill our demands
on similar terms, which would have a material adverse effect on our results of operations, financial
condition and cash flows.
Risks Related to Our Industry
The markets in which we operate are very competitive and further increases in competition could adversely
affect us.
We face intense competition with local, regional and national companies, including other drugstore
chains, independently owned drugstores, supermarkets, mass merchandisers, dollar stores and internet
pharmacies. Competition from discount stores and mail order has significantly increased during the past
few years. Our industry also faces growing competition from companies who import drugs directly from
other countries, such as Canada, as well as from large-scale retailers that offer generic drugs at a
substantial discount. Some of our competitors have or may merge with or acquire pharmaceutical
services companies or pharmacy benefit managers, which may further increase competition. We may not
be able to effectively compete against them because our existing or potential competitors may have
financial and other resources that are superior to ours. In addition, we may be at a competitive
disadvantage because we are more highly leveraged than our competitors. The ability of our stores to
achieve profitability depends on their ability to achieve a critical mass of loyal, repeat customers. We
believe that the continued consolidation of the drugstore industry will further increase competitive
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