Is the Time Right for Rite Aids?

By Stanley B. Wyrwicz,
Senior Managing Director, Calkain Cos.

Rite Aid is one of the most recognized net-lease tenants in the market. Recently, Rite Aid has been selling corporate-owned sites through sale-leaseback transactions, and in the process has been willing to provide more favorable lease terms than its competitors. Rite Aid has been offering triple-net leases with a 20-year primary term with 10 percent rent increases every 10 years, often agreeing to lease rates that are in-line with the local market rather than paying significant premiums.

Within the last year, Rite Aid has named a new president and CEO, John Standley, as well as a new COO and CFO. Standley, formerly Rite Aid’s CFO, returned after a successful turnaround stint at Pathmark. The new senior management team has introduced a number of initiatives which although still new, have been favorably received by Rite Aid’s customers. The Wellness Plus Rewards program has 40 million members. Membership is free. Members are spending substantially more at Rite Aid than non-members.

Rite Aid has started experimenting with three different store-segmentation strategies to increase sales. The South Carolina Save-A-Lot/Rite Aid combo stores, which introduce full-service grocery products including perishables to Rite Aid stores, have experienced strong sales increases. The company is converting some stores to a value-plus format, which is designed to generate front-end sales in lower volume stores. Finally, Rite Aid has recently begun experimenting with a wellness-format store which will feature a Wellness Ambassador, a specialized customer-care in-store representative, as well as more products and services targeted to individual wellness. Although these initiatives are all still in their infancy — fewer than 100 stores in the aggre¬gate have been converted — and their ultimate success cannot be guaranteed, it is clear that the company is being creative in its approach to increasing sales and ultimately the value of the company.