Segmentation strategies add up
The 19th century British writer William Hickson may have written, “If at first you don’t succeed, try, try, try again,” but he only had half the story. By all means, try again, but don’t do the same thing over and over and expect different results.
For the past couple of years, Rite Aid has made that a fundamental element of the way it does business with its store-segmentation efforts. The 4,700-store chain has abandoned the cookie-cutter model that chain retailers have long used and created innovative new formats designed to turn the requisite trip to the drug store into a more convenient and rewarding experience.
Last September, the chain inked a deal with Supervalu’s Save-A-Lot Food Stores chain of discount supermarkets to create co-branded Save-A-Lot/Rite Aid stores in South Carolina. The segmentation effort started as a 10-store test, whereby existing Rite Aid stores would be converted to combine Rite Aid’s pharmacy and its usual mix of front-end products with fresh meats and produce.
Rite Aid president and CEO John Standley said during Rite Aid’s first quarter 2012 conference call with investors on June 23, front-end sales at the stores were up 68% year-over-year, while sales at the chain’s small-format Value stores were up 140 basis points.
More importantly, despite being confined to a small area of the country, the stores have allowed Rite Aid to latch on to the growing trend of retail pharmacies offering fresh foods to customers. “We believe this new co-branded concept meets the needs of today’s consumers, who continue to search for value, quality and convenience, and we’re excited about the chance to offer our customers high-quality grocery products, including fresh meats and farm-fresh produce at great prices,” COO Ken Martindale said when the Save-A-Lot/Rite Aid deal was announced.
But the new wellness store format offers a glimpse of the Rite Aid of the future. The company opened six remodeled stores in New Jersey and Pennsylvania earlier this year, followed by additional stores in Newport Beach, Calif., and Harrisburg, Pa. The stores offer an airier interior with lower shelves, brighter lighting and wider aisles, as well as new products like all-natural and organic foods, a special men’s grooming section and a staff of iPad-wielding Wellness Ambassadors to assist customers, in addition to long-standing features like the GNC LiveWell store-within-a-store, which dates back to 1999. As of June 23, the stores were trending about 100 to 200 basis points better than the rest of the chain, Standley said.
But the lower shelf heights aren’t just to make things look nice; they also help increase visibility for the stores’ most important element: the pharmacy. “I’m a big fan of the clean-store policy,” Rite Aid group VP category management Bill Bergin said at Drug Store News’ 11th Industry Issues Summit in November 2010. “It never really made sense to me to have ... toys stacked within 6 in. of the ceiling so when a woman comes into the store, she can’t see the pharmacy and can’t see the aisle markers to navigate her way around.”
“This is positioning us for future opportunities down the road,” Martindale told Drug Store News during a tour of a wellness store in Harrisburg on June 21. Indeed, as CFO Frank Vitrano said during the conference call two days later, the company plans to renovate 500 stores this year with components of various new formats, including the wellness, Save-A-Lot/Rite Aid and Value stores.