Rite Aid 2011 Annual Report Download - page 8

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 2011, our stores filled approximately 290 million prescriptions and served an average
of 2.1 million customers per day. The loss of any one customer would not have a material adverse
impact on our results of operations.
In fiscal 2011, 96.2% 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
2011, the top five third party payors accounted for approximately 60.9% of our pharmacy sales, the
largest of which represented 23.8% of our pharmacy sales. During fiscal 2011, Medicaid related sales
were approximately 11.5% of our pharmacy sales, of which the largest single Medicaid payor was
approximately 3.1% of our pharmacy sales. During fiscal 2011, approximately 27.0% of our pharmacy
sales were to customers covered by Medicare Part D.
Competition
The retail drugstore industry is highly competitive. We compete with, among others, retail
drugstore chains, independently owned drugstores, supermarkets, mass merchandisers, discount stores,
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.
Marketing and Advertising
In fiscal 2011, marketing and advertising expense was approximately $367 million, which was spent
primarily on weekly circular advertising. Our marketing and advertising activities centered primarily on
the following:
• Product price promotions to draw customers to our stores;
• Our wellness+ loyalty program, which benefits members based on accumulating points for
certain front end and prescription purchases, and offers + UP rewards to provide members
additional savings;
• Our value plus concept pilot stores and our Save-A-Lot Rite Aid combination pilot stores offer
our customers specific shopping experiences and products in addition to those found in a
traditional drug store;
• Emphasis on the value of our private brand products;
• Support of specific initiatives and stores, including competitor market intrusion and prescription
file buys; and
• Our vision to be the customer’s first choice for health and wellness products, services and
information.
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