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[12 comments]

Rite Aid and Save-A-Lot in Drug/Food Combo Test

September 8, 2010

By George Anderson

Rite Aid and Supervalu's Save-A-Lot limited assortment grocery format are teaming up to test a new food/drug combo concept in 10 stores in the Greenville, SC market.

The new concept, which will operate under the Save-A-Lot Food Stores/Rite Aid Pharmacy banner, will have a pharmacy and health and beauty care items -- including private label found in the drugstore chain's stores -- along with the standard food offerings, from the grocer.

"This relationship is an opportunity for Save-A-Lot and Rite Aid to test a co-branding strategy and the integration of Rite Aid pharmacies into our traditional Save-A-Lot grocery store model," said Bill Shaner, Save-A-Lot president and CEO, in a press release.

"We're excited about the chance to offer our customers high quality grocery products including fresh meats and farm-fresh produce at great prices," said Ken Martindale, chief operating officer for Rite Aid. "We chose to add Save-A-Lot because of its strong sales record, wide selection of attractively priced exclusive brands and its solid reputation for discount grocery. Plus it's a model that's efficient for Rite Aid associates to operate."

Discussion Question: What are your expectations for the Save-A-Lot Food Stores/Rite Aid Pharmacy combo concept? What do you see as the benefits and pitfalls of such an arrangement?

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Discussion Questions:

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How optimistic are you about the prospects for the Save-A-Lot Food Stores/Rite Aid Pharmacy combo concept?

Comments:

Combo stores have been around since the middle of the last century. Take Dart Drug/Dart Home, and of course Kroger/Save-on and Jewel-Osco.

But the twist here is that in those large A type Rite Aid free-standing stores, it will be the grocery store contained within the drug store.

Not as far fetched as you might think. The side wall already has refrigerated cases, so that side of these Rite Aids will contain the grocery half. Take out the useless one hour photo stands, eliminate the non essential non drug items but keep candy and seasonal, all the HBA and OTC items, and of course, the back-wall pharmacy.

The tricky part will be the front-end registers and bag yourself area. But that can be squeezed into a reconfigured front portion of the footprint. These footprints tend to be wedges, with the main door at the front corner. Either that could be blocked in and access achieved from the front of the structure, or the entrance remains the same.

But the main concern will be finding dumped lettuce in the shampoo aisle. Rite Aid will have to make associates diligent that the store remains both functional and tidy.

'weo'

The relationship is very symbiotic and I see both groups benefiting from the venture. Rite Aid stores have limited space to carry a full line of grocery items especially perishables. They are also not recognized by consumers for carrying perishables so starting from scratch would be slow if not impossible.

Using Save-A-Lot to enter the grocery business is smart. Save-A-Lot also benefits from this venture by gaining respect in the pharmacy and HBC departments, thanks to Rite Aid. They will also benefit from Rite Aid's Private Brands saving Save-A-Lot time and money in creating their own. If this works, you can count on others to follow quickly.

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John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC

Rite Aid was smart to pair up with Save-A-Lot on many levels. Rite Aid's two biggest drug competitors have a head start in food (Walgreens got going in January and CVS in May) so sitting it out wasn't an option and going it alone would make for a steep learning curve that could put Rite Aid further behind.

Rite Aid chose a food-savvy retail/wholesale/distribution powerhouse in Save-A-Lot and by co-branding the stores, they are differentiating from mono-brand competitors while making the most of both brands' equity and recognition in their respective niches. They won't have to wait and hope that shoppers "notice" the new items, the promise will be right there on the sign. Smart move!

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Carol Spieckerman, President, newmarketbuilders

The proof is in the product. Conceptually a great idea. The real question though is are these two brand promises complementary? The idea of a combination of stores only makes sense if the value proposition to the consumer remains clear. Time will tell.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

The chosen markets would have represented a ripe opportunity for a "right-sized," convenient food/drug combo in years past. They were semi-rural, middle to lower-middle class food deserts. Today they are virtual bedroom communities to the Greenville/Spartanburg metroplex. They have Ingle's Markets, BI-LOs and CVSs a plenty. I'm not sure the opportunity for Rite Aid's concept is still there. Maybe.

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Ben Ball, Senior Vice President, Dechert-Hampe

The concept is sound and I think today's time-pressed consumers will welcome a mini-discount grocery store within a drugstore. However, Rite Aid is so far behind CVS and Walgreens that even if this concept significantly boosts performance, their larger national competitors can easily duplicate it on a larger scale with better assortment and prices. The best Rite Aid can hope for long-term is a competitive edge over smaller, regional/local competition.

Dan Berthiaume, Editor, Independent consultant

The combo strategy certainly makes sense. Finding the right assortment of products in all categories as well as quantities and logistics systems will be a challenge. However, that is a challenge for every retailer.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

The ready-to-eat and ready-to-heat fresh prepared food niche or the Grocerant niche continues to grow. I like how Rite Aid has positioned this test. The winners will be the consumers.

The Grocerant niche is booming, this test will continue that growth both ready-to-eat and ready-to-heat food products will drive growth in these new avenues of distribution.

Steven Johnson, Grocerant Guru, Foodservice Solutions

As someone who spent the first 17 years of his career in Jewel/Osco, I'd say the combo concept works. In the case of these two retailers, the strength of both of them independently will add to the draw of their formidable combination. Management of the combo will have to set aside corporate egos, however, I know this can work to the benefit of both individual organizations.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

I think this will be a bust. First Rite Aid might not be around for much longer anyway. Save-A-Lot continues to show weakness, particularly in the south. This reminds me of the Fleming-Kmart marriage.

David Livingston, Principal, DJL Research

I can see this test market working successfully for Rite Aid and Save-A-Lot, but only in a limited market area. I am not sure Rite Aid will find this to be the crutch to get them back on their feet.

What is the difference between this test and what Super Target and Super Wal-Mart are already doing, and doing successfully?

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Let's see...Save-A-Lot combo stores...anyone remember the Deal$/Save-A-Lot debacle?

What happens when you take a limited assortment format (with all of the efficiencies of limited assortment) and complicate it with the added SKUs of drug and HBC (or vice versa)? You get an instant replay of the infamous Save-A-Lot/Deal$ experiment. Couple all of that with employees (on both sides of the aisle) that don't understand the other's business and everything suffers.

Save-A-Lot would be better served to go back to it's roots and revisit what brought them to the dance in the first place, instead of always looking to the "quick fix" for their sales and market share problems. My prediction is this will go the same way as all of the other Supervalu "cutting edge" format experiments.

'Treehugger'

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