On October 14, 1996, Rite Aid announced that it bought out Thrifty Pay-less incorporated and for this chapter 12, it will be similar to the previous chapter. Corporate diversification is essential in every businesses as it can determine whether the company can change and progress or stay the same, risking of being beat by other competitors. However, in order for change or anything that might impact the company it has to go through corporate as they are the ones determining the fate of Rite Aid and without them, there will no organizational structure within the company. There is a Board of Directors, who will determine what plan or budget is necessary for Rite Aid to continue. Then the plan will go down the ladder to the employee at a branch. Even though the pharmacists and technician are doing most of the work, there has to be a balance within the chain of command in order for the company to continue. The link down below is the history and if interested a list of selection of flavor ice cream they have.

https://www.riteaid.com/thrifty

In this chapter we will be focusing on the diversification strategy that Rite Aid have implemented. Diversification is the ability to establish a sustainable competitive advantage that will make Rite Aid more appealing in terms of rarity and imitability. Rite Aid currently do not have any new strategy to be more diverse and be more unique than CVS or Walgreens. However, they do have their famous brand of Thrifty’s ice cream. In the 2nd quarter of 2019, Rite Aid stated that the sales of this ice cream was what kept their earnings above the expected EPS given by Zacks. I know for sure some people might think, how come a pharmacy is selling ice cream, but you have to realize that diversification is where you are doing something different. Something that is not related to the primary business, to create for demand for your company. Even though Rite Aid is not more diverse as other companies, it is stable enough to be a fierce competitor against CVS and Walgreens.

Rite Aid during the crisis is normal, panic people stocking up medications and the supply of workforce have decrease due to the reduced revenue.

Vertical Integration exist with Rite Aid as they have and own their own Pharmacy Benefit Manager (PBM), which is a third-party administrator of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program, and state government employee plans. This will help Rite Aid reduce cost and increase their revenue. In the eyes of many, this will give other pharmacies a disadvantage, but in this age where pharmacies are growing and became more competitive, it is necessary. For example, CVS bought out Aetna, which will affect businesses as they will require their customers to get their medications at CVS to reduce cost, since its the same company. Please look at the picture below to see how it works.

In this chapter, it talks about explicit collusion and tacit collusion and how it enables a firm to exploit the environmental opportunity of avoiding rivalry. Explicit collusion is usually illegal and occurs when various companies who collaborates and openly negotiate the amount of supplies being produce and the prices for those supplies to eliminate other businesses or companies in the same market. The reason why this is illegal because it can create a monopoly within the community and can cause the small businesses to go out of business. This is why Rite Aid and other pharmacies have establish a mark up rate and the amount they can charge the insurance companies. In addition, there was a law that was created to prevent explicit collusion by telling pharmacies to ALWAYS give the customer the generic drug because it is cheaper, unless the doctor or the patient insisted on the brand name.

On the other hand, the legal way is doing the tacit collusion, which mean Rite Aid and other pharmacies have to infer and keep a check on the prices.

For this chapter we will be discussing how Rite Aid’s ability to be flexible can be taken in various forms, including the option to defer, the option to grow, the option to contract, the option to shut down and restart, the option to abandon, and the option to expand. However, by retaining any of these options have consequences as there will always be a trade-off. This is a good and unfortunate opportunity to discuss this chapter during this crisis of the coronavirus.

Due to the stay home order and people are being quarantines at home, Rite Aid have to establish protocol for the mandate social distancing and have their employees wear protective equipment. At the same time, patient was not able to go see their doctors or visit the pharmacy due to them being in fear. This causes Rite Aid to implement the option to shut down and restart due to the uncertainty that the pandemic will affect their workers and prescription sales is down. This will help Rite Aid be more sustainable as their spending expenditure will decrease, but this will cause Rite Aid’s remaining employees to be overwork due to the low supply of staff helping the patient.

Rite Aid is a business that built rapport so the customer and their pharmacist can built a strong relationship and trust. Rite Aid is similar in every aspect to CVS and Walgreens when it comes to dispensing medications, but over the years, Rite Aid is trying to worry more of the patient, rather than increasing prescription sales, which most companies are doing.

Rite Aid have been expanding their business by implementing a care clinic that will not only increase revenue to the business, but expand patient care too. This will increase the quality of care for their patient and will give their customer the feeling that Rite Aid is a place where they can go regarding their health. CVS has a similar business, but not many others do, therefore by establishing a clinic site early on, it will make give you a better advantage than other pharmacies.

Rite Aid aim to progress and strive base on their product differentiation for providing better care for their customer and being able to innovate to protect the well-being of their customer in the process. This discussion relates to Rite Aid in the real world because in society there are numerous competition that can either push customer towards one company to another, based on how different the company is and whether the service or product they have is significantly different enough that it will make them change where they want to go. This is the real world that we live in, and if we do not change and make us unique, the market will crush us.

Based on the Jay Barney of “Gaining and Sustaining Competitive Advantage”, a company can have the same product or service, but at a different price due to:

(1) size differences and economies of scale

(2) size differences and dis-economies of scale

(3) learning-curve economies

(4) differential access to factors of production or

(5) technological advantages independent of scale

The reason why Rite Aid is still in the pharmacy business is because of the size differences as it is the 3rd/4th biggest pharmacy within the pharmacy world after Walgreens and CVS. Even though, size does not matter in most market as it can increase the overhead cost and liabilities, as long as there are a lot of stores to cover each region, by meeting a certain quota every day, for example dispensing 100 prescriptions, might be able to cover the cost of labor. In addition, as indicated in my last blogs, ever since Walgreens have bought out half of Rite Aid’s asset, there was an agreement that allow Rtie Aid to use their distributor’s contract of allowing them to purchase their prescription drugs at a reduce price, lowering their cost.

Any new companies or individual pharmacies wants to enter into the pharmacy business might have a problem due to the increase cost of prescription medication and decrease reimbursements from insurance companies. If these pharmacies can be successful in producing or generating some what similar services at a substantially lower cost or find ways to decrease the labor cost in the pharmacy than Rite Aid, then the competitive rivalry between all the pharmacies will increases and will force Rite Aid to make changes within their company in order to stay competitive in the pharmacy world.

For this week, I am going to explain how Rite Aid fits in the VRIO framework, where VRIO stands for Value, Rarity, Imitability, and Organization.

1. The Question of Value: Do a firm’s resources and capabilities enable the firm to respond to environmental threats or opportunities?

In my opinion, Rite Aid does not have the capabilities in some certain area, such as flu season, to respond to environmental threats because of their suppliers. Suppliers are limited in influenza vaccinations, and required consumers or organizations to pre-order the influenza vaccinations beforehand approximately 8 months before they shipped it to the retailers. Once Rite Aid have purchase the supplies they need, they will not have another opportunity to purchase more unless Rite Aid wants to buy at a higher price, giving them little or margins at a loss. In addition, they would also not want to purchase more than they should because that would also caused them to lose money based on the unused vaccines that have an expiration date of 1 year. Therefore, in some situation, Rite Aid can seize opportunity and some they cannot.

2. The Question of Rarity: Is a resource currently controlled by only a small number of competing firms?

Resources is currently controlled by various distributors, wholesalers, and manufacturers. Depending on how Rite Aid deals with daily day-to-day inventory, they might required all three to meet demands. However, currently, most of their supplies comes from McKesson Corporation to meet all of their needs to supply their customers with prescription medications. Therefore, unless, there is a shortage or an immediate need for certain medications, it is fairly easy to obtain them from not only one source, but plenty. In addition, if there is a shortage, healthcare providers can simply switch the brand name or generic, or change the medication to an alternative.

3. The Question of Imitability: Do firms without a resource face a cost disadvantage in obtaining or developing it?

If Rite Aid does not have the resources (prescription medications), then their competitors can just compete with them and take away their customers because dispensing medications can be done at other pharmacies. In addition, as indicated above, if Rite Aid ran out of resources and want to compete with other pharmacies, they might need to purchase their resources at a higher price, causing Rite Aid to have a cost disadvantage.

4. The Question of Organization: Are a firm’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?

Rite Aid have established procedures in purchasing their medications or resources based on the demand of the market or based on the need of the medications. For example, for Lisinopril, a hypertensive medication is bought in bulk because it is popular among physicians dispensing the medication. Another medication that is rarely dispense such as cancer medications is probably stock approximately 1 to 3 package just to have it in case they might need to dispense it to their customer.

In this chapter, through my interpretation, it talks about how any business can twist the threats that they might have face and turn it positive or offset the threat so it would not harm the company.

Rite Aid have face so many problems during the last decade and even more so now.

There were many threats that Rite Aid somehow overcome to be able to withstand the numerous competition today, such as:

Entry – What helped Rite Aid set apart from all other small or big pharmacies is that Rite Aid is a well known pharmacy that everyone knows. In addition, what makes it difficult for other pharmacies to enter the market is the regulations that they need to go through, in order to become an establish entity within the pharmacy game. Rite Aid also have the technology and brand name to keep it afloat in this game, compared to others, and most importantly, they have not had recent big news that can cause their customers to go to another.

Rivalry & Substitutes – What makes Rite Aid special is that the company have 3 distribution center and most importantly they have a Pharmacy Benefit Management, EnvisionRxOptions PBM. This will likely help Rite Aid reduce their cost for administrative purposes for the numerous medications that they dispense daily, helping them stay alive in the fight between all the pharmacies. In addition, in recent years, with the bought out of half their properties, Walgreens have given Rite Aid an opportunity to gain a 10 year contract with McKensson deal where Rite Aid can have their medications at the same rate as Walgreens.

Suppliers – Rite Aid have numerous suppliers, depending on the medication, whether it is a specialty medication or generic. As I described above, currently Rite Aid had obtain the rights for a discounted price from McKensson for 10 years, thanks to Walgreens, and by my guess. After the 10 year contract have ended, they would likely to use that contract as leverage to lower down the price of other company or use the same company to establish a price within the range they were getting. However, in this economy, I think any company would likely want to obtain their business.

Buyers – Rite Aid’s customers have many choices in getting their prescription medications. However, there is one thing that can catch their attention. Rite Aid’s Thrifty Ice Cream that has been established in “California since 1940, has moved up the 101 and now have 8 signature flavors available in Washington, Oregon, and Idaho”. Rite Aid’s Thrifty Ice Cream alone helped Rite Aid 3rd quarterly earnings to be in the positive. This one perspective can be laughable, but as long it is getting customers and increasing profits, I would say that is genius.

This is the list for the competition for Rite Aid:

CVS, Walgreens, Costco, Amazon’s PillPack, Walmart, and other mail order pharmacies.

By doing a risk assessment using Michael Porter’s five forces or threats:

1. Threat of Entry: the pharmacy business is regulated by the state’s board of pharmacy and is regulated by the FDA and the DEA, so depending on the pharmacy that the pharmacy is located at entry could vary. In addition, depending on the pharmacy, if the pharmacy wants to sell prescription drug to another state or dispense control substance medication, they would need to obtain a license depending on what they want to do.

2. Threat of Rivalry: The pharmacy business is a very competitive environment as anyone could enter. As any pharmacist can open their own pharmacy as long as they have the appropriate licenses to open a business and to handle prescription medication. So Rite Aid have to deal with both big players (CVS and Walgreens) and small players (independent pharmacies).

3. Threat of Substitutes: This section would be similar to Threat of Rivalry, but the the differences might be customer service.

4. Threat of Powerful Suppliers: Pharmacies would need to find suppliers, such as Mckessons or distributors to supply them with prescription medications for Rite Aid or other pharmacies to sell to their customers. In the pharmacy game, if a pharmacy is unable to buy their supplies at a price point where their margin can be high enough to be profitable. This is important because selling some generic medication does not have much profit, so by not buying medications at a price where the margin is not high, could cause the pharmacy money if you considered about the labor and overall cost. For example, a hypertension pill could cost 3 dollars for a 30 day supply, but insurance only pay 3.50 plus dispensing fee. Not much profit is gain from there.

5. Threat of Strong Buyers: Rite Aid and many other pharmacies have been pressured by private insurance companies, HMO’s, and other federal government insurance programs to reduce the price of their drugs that they have dispense or prevent the pharmacies from marking up their prices. This cause the pharmacy business to be in peril as other pharmacies are struggling. In the past Rite Aid sold off half of its asset to Walgreens and currently in the process of selling the rest, once it can find a buyer. However, with government regulation, such as the FTC, it will be difficult for Rite Aid to be acquire by other pharmacies as they are scared it might create a monopoly.