Rite Aid 2011 Annual Report Download - page 4

PART I
Item 1. Business
Overview
We are the third largest retail drugstore chain in the United States based on revenues and number
of stores. We operate our drugstores in 31 states across the country and in the District of Columbia. As
of February 26, 2011, we operated 4,714 stores.
In our stores, we sell prescription drugs and a wide assortment of other merchandise, which we call
‘‘front end’’ products. In fiscal 2011, prescription drug sales accounted for 67.8% of our total sales. We
believe that our pharmacy operations will continue to represent a significant part of our business due to
favorable industry trends, including an aging population, increased life expectancy, anticipated growth
in the federally funded Medicare Part D prescription program as ‘‘baby boomers’’ start to enroll,
expanded coverage for uninsured Americans as the result of the Patient Protection and Affordable
Care Act and the discovery of new and better drug therapies. We carry a full assortment of front end
products, which accounted for the remaining 32.2% of our total sales in fiscal 2011. Front end products
include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household
items, beverages, convenience foods, greeting cards, seasonal merchandise and numerous other
everyday and convenience products, as well as photo processing. We attempt to distinguish our stores
from other national chain drugstores, in part, through our wellness+ loyalty program, private brands
and our strategic alliance with GNC, a leading retailer of vitamin and mineral supplements. We offer a
wide variety of products under our private brands, which contributed approximately 16.0% and 15.0%
of our front end sales in the categories where private brand products were offered in fiscal 2011 and
fiscal 2010, respectively.
The overall average size of each store in our chain is approximately 12,500 square feet. The
average size of our stores is larger in the western United States. As of February 26, 2011, 59% of our
stores are freestanding; 51% of our stores include a drive-thru pharmacy; 35% include one-hour photo
shops; and 43% include a GNC store-within-Rite Aid-store.
Our headquarters are located at 30 Hunter Lane, Camp Hill, Pennsylvania 17011, and our
telephone number is [phone]. Our common stock is listed on the New York Stock Exchange
under the trading symbol of ‘‘RAD.’’ We were incorporated in 1968 and are a Delaware corporation.
Industry Trends
The rate of pharmacy sales growth in the United States in recent years has slowed driven by the
decline in new blockbuster drugs, a longer FDA approval process, drug safety concerns, higher copays,
the loss of individual health insurance with the rise of unemployment and an increase in the use of
generic (non-brand name) drugs, which are less expensive but generate higher gross margins. However,
we expect prescription sales to grow in the coming years due to the aging population, increased life
expectancy, ‘‘baby boomers’’ becoming eligible for the federally funded Medicare prescription program
and new drug therapies. Furthermore, we expect the estimated additional 32 million people who will be
covered by health insurance in 2014, and the closing of the ‘‘donut hole’’ in Medicare Part D to be
good for our business.
Generic prescription drugs help lower overall costs for customers and third party payors. We
believe the utilization of existing generic pharmaceuticals will continue to increase. Further, a
significant number of new generics are expected to be introduced in the next few years as many
popular branded drugs are scheduled to lose patent protection. The gross profit from a generic drug
prescription in the retail drugstore industry is greater than the gross profit from a brand drug
prescription.
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