Inside This Issue - Opinion
Walmart-Rite Aid tie-up unlikely
October 29th, 2012
by David Pinto, Editor
One of the most frequently asked questions in the retail community these days is this one: When will — or why doesn’t — Walmart buy Rite Aid?
And indeed there is some logic behind the question, especially given the recent remarks of Bill Simon, Walmart’s U.S. president, to the effect that Walmart intends to accelerate its commitment to its Express stores model, the scaled-down convenience store format the retailer has begun opening, mostly in urban settings.
For its part, Rite Aid, though still shaky, is performing more hopefully of late, and its Wellness+ stores, now numbering some 500, are turning out particularly well.
Thus, on the face of it, acquiring Rite Aid, assuming the Camp Hill, Pa.-based drug chain is amenable and terms acceptable to both parties could be worked out, would give Walmart access to many urban markets, markets that might favorably lend themselves to Express stores.
But acquiring Rite Aid would also provide Walmart with the headaches that customarily come with the flotsam and jetsam of a 4,639-store acquisition. Many of Rite Aid’s stores are old, outdated and badly located. Others don’t attract customers in the numbers Walmart needs to make these stores work. Finally, converting them to a format that’s acceptable to Walmart would be costly and time-consuming. Then there’s the union question …
Then too, there’s the reality that Walmart can do pretty much anything it wants. If the world’s largest retailer wants to open Express stores or, as Simon also stated, accelerate its Neighborhood Market program, a far simpler and more productive approach would be to open these stores alone, without the benefit and burden of an acquisition.
Moreover, history has shown that acquisitions are generally a messy business, even those that are confined to one retail segment. Look at Walgreens 2006 acquisition of Happy Harry’s, the Delaware drug chain that had become the prototypical regional drug chain, one that had won the unquestioned loyalty and business of Delaware’s residents.
Today, six years after the acquisition, Walgreens has finally been cleared to put its own name on the stores. Still, impartial observers claim that Walgreens is not Happy Harry’s and never will be. And those same observers claim that sales figures bear them out.
Then there’s Walgreens’ recent acquisition of USA Drug, the 144-store Arkansas-based drug chain. Initial indications are that Walgreens plans to close at least half of the stores, and that the retailer isn’t even certain which half. Moreover, most observers believe that Walgreens only bought USA Drug for its prescription files — and it really doesn’t much matter what the drug chain will do with the USA Drug stores.
All this is by way of saying that there’s more to an acquisition than buying stores. There’s the question of what to do with them after the deal is done. It is a question that has proved difficult for many acquisition-minded retailers to answer.
Perhaps a more logical acquisition would put Family Dollar and Rite Aid together, especially in the aftermath of former CVS merchant Mike Bloom’s arrival as president and the increasing talk of late that Family Dollar will, sooner or later, begin selling prescription drugs. Even now, Family Dollar is advertising “drug store merchandise at discount prices.”
However, the feeling here is that an acquisition by Family Dollar at this early stage of its repositioning as a mainstream retailer would only be a distraction.
Finally, there’s Rite Aid itself. The drug chain is healthier today than it has been since early in this century. Some of its new initiatives are exciting. Some are profitable. Its senior staff boasts many bright lights. The supplier community is more optimistic about Rite Aid than has been the case in some considerable time. And the drug chain represents an all-too-rare counterweight to the Walgreens-CVS tandem that has come in recent years to dominate chain drug retailing.
So the feeling here, which is by no means indicative of anything more than the feeling here, is that, speculation aside, there is no chance of a Walmart-Rite Aid tie-up. Furthermore, when speculation persists for an inordinate amount of time, it seldom fulfills expectations. In our experience.