Rite Aid 2014 Annual Report Download - page 10

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In fiscal 2014, 97.0% 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
2014, the top five third party payors accounted for approximately 65.8% of our pharmacy sales. The
largest third party payor, Express Scripts, represented 31.6% of our pharmacy sales.
During fiscal 2014, Medicaid and related managed care Medicaid payors sales were approximately
13.7% of our pharmacy sales, of which the largest single Medicaid payor was approximately 1.1% of
our pharmacy sales. During fiscal 2014, approximately 30.6% 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,
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.
Marketing and Advertising
In fiscal 2014, marketing and advertising expense was approximately $322.8 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;
• 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.
Under the umbrella of our ‘‘With Us It’s Personal’’ brand positioning, we promote educational
programs focusing on specific health conditions and incentives for patients to transfer their
prescriptions to Rite Aid. We are also emphasizing our automated courtesy refill service. We believe all
of these programs will help us improve customer satisfaction and grow profitable sales.
Associates
We believe that our relationships with our associates are good. As of March 1, 2014, we had
approximately 89,000 associates: 11% were pharmacists, 44% were part-time and 27% were represented
by unions. Associate satisfaction is critical to our success. Annually we survey our associates to obtain
feedback on various employment-related topics, including job satisfaction and their understanding of
our core values and mission.
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