Walgreens to acquire Rite Aid for $17.2 Billion

[jp the roadgeek]

Looks like there's going to only be 2 players now in the Pharmacy Industry

http://www.usatoday.com/story/money/2015/10/27/walgreens-rite-aid/74684642/

[jeffandnicole]

Walgreens said Rite Aid would keep its brand name for now.

Very important, even if it's just for looks.  I imagine there's numerous areas where there's a Walgreens & Rite Aid right across the street from each other.

A while back, there was a Walgreens in Woodbury, NJ, about a block down from a Rite Aid.  A few years ago, Walgreens closed a very small number of underperforming stores, including that one.  Rite Aid decided to leave their older building to move into the former Walgreens building.  Now, if the acquisition goes thru, Walgreens will technically gain control of the building once again!

[jp the roadgeek]

In my town, there are 2 CVSs (1 is 24 hours), 2 Rite Aids, and a Walgreens.  One of the Rite Aids is old and antiquated, and the other is relatively new and right next to a highway entrance.  The Walgreens (ground built and about 10 years old), and the 24 hour CVS are right across the street from each other near a hospital, with the antiquated (30+ years) Rite Aid about a half mile from that.  The newer Rite Aid (5 years) and the other (often empty but in a busy plaza) CVS are in another part of town.  I think the old Rite Aid one will eventually close, but the newer one stays.

[cl94]

Buffalo has a bunch of all 3 chains, but they don't all cover the same territory. There are several locations where a Rite Aid is across the street from a Walgreens, as those two chains have been expanding quite rapidly around here. Wasn't always that way, but Rite Aid bought Eckerd a decade ago and that gave them a crazy amount of locations.

In a lot of the northeast, though, Walgreens is a new addition that has far fewer locations than CVS and Rite Aid. We're going to see store closures to prevent cannibalism, but given the limited impact of Walgreens in the northeast, I expect far more conversions, similar to what happened when Eckerd merged in.

[kkt]

Great, I was just saying to myself the other day what a shame it is that there's competition between businesses and what we need is a good monopoly.   

[AlexandriaVA]

Retail consolidation is nothing new. Don't know why this is coming as a surprise.

I also wondered how these pharmacy-retail outlets could compete with the pharmacy-grocery or pharmacy-big box outlets. When you think about, the pharmacy is almost like a wholly-owned subsidiary of the retail store. And then when you compare the retail offereings, it will never compete with big box like target (for durable goods) or groceries (for food).

[jeffandnicole]

Retail consolidation is nothing new. Don't know why this is coming as a surprise.

Because of the size of the companies it's going to raise eyebrows. If the acquisition is approved, 2 players - CVS & Walgreens - will have over 99% of the revenues of all pharmacy companies. 

BTW, CVS has also announced they want to take over Target's 1,600 pharmacies found within their stores.  In general, those supermarket  & other big box pharmacy stores are there as a convenience to some shoppers, such as the snack bars, flower shops, etc, and really aren't a huge revenue stream for the store.

Airlines have gone thru similar mergers, and now there are only 3 big players out there - Delta, American & United, with a host of smaller players, which includes Southwest, Frontier, etc.

Cable pisser Comcast recently tried to acquire Time-Warner, but the Feds & the public thankfully heavily questioned the deal.  Comcast & TW eventually broke off talks after determining the FCC may decline to permit the merger.  While it would have only controlled 30% of the overall cable subscriber market, it also would control 60% of the broadband internet market.  And since Comcast partially owns Hulu, they can modify the broadband line to benefit them such as slowing the speed of competitors like Netflix...which they have already been accused of doing.

So, retail consolidation isn't new...but there needs to be some good competition out there to make it acceptable.

[cl94]

Retail consolidation is nothing new. Don't know why this is coming as a surprise.

Because of the size of the companies it's going to raise eyebrows. If the acquisition is approved, 2 players - CVS & Walgreens - will have over 99% of the revenues of all pharmacy companies. 

BTW, CVS has also announced they want to take over Target's 1,600 pharmacies found within their stores.  In general, those supermarket  & other big box pharmacy stores are there as a convenience to some shoppers, such as the snack bars, flower shops, etc, and really aren't a huge revenue stream for the store.

Airlines have gone thru similar mergers, and now there are only 3 big players out there - Delta, American & United, with a host of smaller players, which includes Southwest, Frontier, etc.

Cable pisser Comcast recently tried to acquire Time-Warner, but the Feds & the public thankfully heavily questioned the deal.  Comcast & TW eventually broke off talks after determining the FCC may decline to permit the merger.  While it would have only controlled 30% of the overall cable subscriber market, it also would control 60% of the broadband internet market.  And since Comcast partially owns Hulu, they can modify the broadband line to benefit them such as slowing the speed of competitors like Netflix...which they have already been accused of doing.

So, retail consolidation isn't new...but there needs to be some good competition out there to make it acceptable.

Rite Aid and Walgreens combined will have slightly lower pharmacy revenues than CVS. CVS controls almost 1/4 of the market. As of now, Walmart has more pharmacy revenue than Rite Aid - and a lot of that comes from $4 generics. Kroger has quite the market share and, in areas with Wegmans, they are an extremely popular pharmacy option. As Wegmans expands and drug prices continue to increase, I wouldn't be shocked if those two get more of the market.

[vdeane]

They had better not drop my toothpaste.  Rite Aid is the only place I can buy it (Wegmans too, but that doesn't help me in Albany!).

[Pink Jazz]

Looking at Rite Aid's coverage area, it seems the areas with the highest concentration of Rite Aid stores are the Northeast, Mid-Atlantic, Southern California, and the Atlanta metro area.  I'd expect there will be some divestitures in these areas.

It appears that there used to be some Rite Aid stores in the Phoenix area.  They must have pulled out of the market a long time ago.

[cl94]

Looking at Rite Aid's coverage area, it seems the areas with the highest concentration of Rite Aid stores are the Northeast, Mid-Atlantic, Southern California, and the Atlanta metro area.  I'd expect there will be some divestitures in these areas.

The Northeast, Mid-Atlantic, and Southern California are where Walgreens isn't the market leader (and often isn't anywhere close). I had never heard of Walgreens until I moved to Ohio. Every small town in the northeast and Mid-Atlantic has a Rite Aid. Where you'll see most of the divestitures is the Midwest and Great Lakes.

[Pink Jazz]

Looking at Rite Aid's coverage area, it seems the areas with the highest concentration of Rite Aid stores are the Northeast, Mid-Atlantic, Southern California, and the Atlanta metro area.  I'd expect there will be some divestitures in these areas.

The Northeast, Mid-Atlantic, and Southern California are where Walgreens isn't the market leader (and often isn't anywhere close). I had never heard of Walgreens until I moved to Ohio. Every small town in the northeast and Mid-Atlantic has a Rite Aid. Where you'll see most of the divestitures is the Midwest and Great Lakes.

Okay then, what about Atlanta?  How strong is Walgreens there?  Atlanta appears to be a strong Rite Aid market.  I believe that many of the Atlanta area stores are former Eckerd stores; Eckerd was primarily a Southern chain.

[cl94]

Looking at Rite Aid's coverage area, it seems the areas with the highest concentration of Rite Aid stores are the Northeast, Mid-Atlantic, Southern California, and the Atlanta metro area.  I'd expect there will be some divestitures in these areas.

The Northeast, Mid-Atlantic, and Southern California are where Walgreens isn't the market leader (and often isn't anywhere close). I had never heard of Walgreens until I moved to Ohio. Every small town in the northeast and Mid-Atlantic has a Rite Aid. Where you'll see most of the divestitures is the Midwest and Great Lakes.

Okay then, what about Atlanta?  How strong is Walgreens there?  Atlanta appears to be a strong Rite Aid market.

They're probably the market leader. You'll see divestitures there, but Rite Aid is a distant third based on number of locations.

[SP Cook]

These types of stores break down into 3 market segments. 

First is the pharmacy.  Obviously, there is still plenty of competition from CVS, mom & pop places, and pharmacies within grocery stores and other retailers.  And Wal-Mart.  And, if you have insurance, or are on welfare, you (or whoever is working to pay your welfare) are not really buying the drugs from the drug store.  The insurance company (in the giant computer)  buys the drugs directly from the drug company and pays the drug store a fee to dispense some of theirs to you and then (in the giant computer) replaces the ones the drug store gave you with some of its own. 

Second is non-prescriptions.  Band-aids, asprin, soap, make up, so on.  Again plenty of competition.  Wal-Mart.

Third varies by location.  In small towns and the suburbs, its is a small grocery store.  Competition from 7-11 and such.   In the urban core, they are a generally more important grocery store, because there is less competition.

So there really is nothing much going on. 

In any event, Rite-Aid pays as little as possible and treats its employees like dirt.  Consequently it gets people who cannot hack it elsewhere.  Hopefully Walgreens changes Rite-Aid and not the other way around. 

[lepidopteran]

So it looks like the drug store industry has gone from a quad-opoly (when Eckerd was around) to a tri-opoly, to a duopoly.  To say nothing of the predecessor local chains, e.g., People's in DC, Genovese (sp?) in NY.

Still, many supermarkets nowadays are more likely than not to have their own pharmacy, along with a varying selection of health and beauty aids.  As do big boxes like Wal-Mart and Target.  But when you don't feel up to walking through a huge parking lot, long aisles, and a lengthy checkout line...

One thing is for sure, though: there will always be a need for brick-and-mortar drug stores.  When one gets that sinus headache, who wants to wait 2 days to get Sudafed ordered online?  Nor will online streaming help here.

Meanwhile,

• Bed Bath and Beyond sort of became a monopoly when Linens and Things closed
• Barnes and Noble became a monopoly when Borders shuttered, apart from the more limited penetration of BAM/Books-a-Million.

[Brandon]

So it looks like the drug store industry has gone from a quad-opoly (when Eckerd was around) to a tri-opoly, to a duopoly.  To say nothing of the predecessor local chains, e.g., People's in DC, Genovese (sp?) in NY.

Still, many supermarkets nowadays are more likely than not to have their own pharmacy, along with a varying selection of health and beauty aids.  As do big boxes like Wal-Mart and Target.  But when you don't feel up to walking through a huge parking lot, long aisles, and a lengthy checkout line...

One thing is for sure, though: there will always be a need for brick-and-mortar drug stores.  When one gets that sinus headache, who wants to wait 2 days to get Sudafed ordered online?  Nor will online streaming help here.

Meanwhile,

• Bed Bath and Beyond sort of became a monopoly when Linens and Things closed
• Barnes and Noble became a monopoly when Borders shuttered, apart from the more limited penetration of BAM/Books-a-Million.

1. The pharmacy issue only applies to 49 out of 50 states.  In North Dakota, the pharmacist must own 51% of the pharmacy.  Thus, there is only one Walgreens in the state, and it actually lacks a pharmacy.

2. Bed Bath and Beyond (and for that matter Linens N Things) competes against a whole slew of discount, department, and hypermarket stores such as Target, Carson Pirie Scott, and Meijer.  All it does it select one part of their offerings to compete against.

3. Barnes & Noble really competes more with Amazon than anything else.  Personally, I prefer to get a book shipped by B&N over Amazon any day as B&N tends not to damage the book in the warehouse and packs it so it won't get damaged in transit.

[hbelkins]

I think this will be good for small-town Kentucky, if the Rite Aid locations become Walgreen locations. I've always liked Walgreens' selection of merchandise and their prices. However, Walgreens aren't in small towns around here. Rite Aids are.

[SteveG1988]

I think they should keep the name, Rite Aid may not be that old of a brand, but I still use it to say that I am going to a pharmacy. "mom, i'm going to the rite aid, do you need anything?" is all i need to say, and mom will know what to expect. I say i am going to the walgreens "what do they have?" walgreens is nice, we have one next to a CVS on the other side of town, if I need something quick i will always go to Rite Aid first, the customer care is better than at the CVS or Walgreens, the store is laid out better as it is not trying to be a small scale supermarket.

[cl94]

So it looks like the drug store industry has gone from a quad-opoly (when Eckerd was around) to a tri-opoly, to a duopoly.  To say nothing of the predecessor local chains, e.g., People's in DC, Genovese (sp?) in NY.

Still, many supermarkets nowadays are more likely than not to have their own pharmacy, along with a varying selection of health and beauty aids.  As do big boxes like Wal-Mart and Target.  But when you don't feel up to walking through a huge parking lot, long aisles, and a lengthy checkout line...

One thing is for sure, though: there will always be a need for brick-and-mortar drug stores.  When one gets that sinus headache, who wants to wait 2 days to get Sudafed ordered online?  Nor will online streaming help here.

Meanwhile,

• Bed Bath and Beyond sort of became a monopoly when Linens and Things closed
• Barnes and Noble became a monopoly when Borders shuttered, apart from the more limited penetration of BAM/Books-a-Million.

Barnes and Noble became a monopoly when they bought a bunch of regional chains in the late 90s and promptly shuttered them/convinced the financers to stop investing.

There will still be a need for standalone drug stores, but with the proliferation of Walmart and Target along with the expansion of a few major supermarket chains, their share is going to decrease. If you don't have full prescription coverage, the drugstores are too damn expensive, especially with the $4 generics.

[Roadgeek Adam]

So it looks like the drug store industry has gone from a quad-opoly (when Eckerd was around) to a tri-opoly, to a duopoly.  To say nothing of the predecessor local chains, e.g., People's in DC, Genovese (sp?) in NY.

Well, Genovese is interesting and let's look at it this way. When I lived in Queens from 1991-1995, there was a Genovese in the Whitestone Shopping Center right under my old apartment building. Since then:

Genovese bought out by Eckerd. (bought 1998; renamed 2003)
Eckerd bought out by Rite Aid. (bought 2007)
Rite Aid bought out by Walgreens. (bought 2015?)

While they say the Rite Aids will keep their names for now, we'll see how long it is until the one in the Whitestone Shopping Center, now a Rite Aid stays one. Of course, my family and I still own a ton of Genovese photo albums from the early 90s.

On a similar point, at what rate  do we not have CVS suing on the bounds of anti-trust? I mean I know AT is supposed to deal with monopolies, but this has the potential to expand Walgreens into a massive-sized power. I think CVS would at least have an argument in that.   

[cl94]

So it looks like the drug store industry has gone from a quad-opoly (when Eckerd was around) to a tri-opoly, to a duopoly.  To say nothing of the predecessor local chains, e.g., People's in DC, Genovese (sp?) in NY.

Well, Genovese is interesting and let's look at it this way. When I lived in Queens from 1991-1995, there was a Genovese in the Whitestone Shopping Center right under my old apartment building. Since then:

Genovese bought out by Eckerd. (bought 1998; renamed 2003)
Eckerd bought out by Rite Aid. (bought 2007)
Rite Aid bought out by Walgreens. (bought 2015?)

While they say the Rite Aids will keep their names for now, we'll see how long it is until the one in the Whitestone Shopping Center, now a Rite Aid stays one. Of course, my family and I still own a ton of Genovese photo albums from the early 90s.

On a similar point, at what rate  do we not have CVS suing on the bounds of anti-trust? I mean I know AT is supposed to deal with monopolies, but this has the potential to expand Walgreens into a massive-sized power. I think CVS would at least have an argument in that.

CVS has fewer stores, but they'd still have more in revenue. Have to take mail order stuff into account, as that's 25% of the drug market. CVS has a slightly lower in-store prescription revenue than Walgreens, but their mail order business alone is much larger than the revenue of Rite Aid, giving CVS about 25% of the prescription market if all channels are taken into consideration. Walgreens and Rite Aid combined have 22%.

[lepidopteran]

...Walgreens aren't in small towns around here. Rite Aids are.

Many smaller towns also have what I think are mom-n-pop pharmacies branded under the "Rexall" banner.

[pctech]

Another industry headed down the "consolidation" trail it seems

[JMoses24]

In my town, there are 2 CVSs (1 is 24 hours), 2 Rite Aids, and a Walgreens.  One of the Rite Aids is old and antiquated, and the other is relatively new and right next to a highway entrance.  The Walgreens (ground built and about 10 years old), and the 24 hour CVS are right across the street from each other near a hospital, with the antiquated (30+ years) Rite Aid about a half mile from that.  The newer Rite Aid (5 years) and the other (often empty but in a busy plaza) CVS are in another part of town.  I think the old Rite Aid one will eventually close, but the newer one stays.

We don't, as far as I know, have a Rite Aid, but we do have two CVS stores and three Walgreens stores in Florence. Neither of the CVS stores are open 24 hours, but the Walgreens on Mall Road is.

[Roadgeek Adam]

CVS has fewer stores, but they'd still have more in revenue. Have to take mail order stuff into account, as that's 25% of the drug market. CVS has a slightly lower in-store prescription revenue than Walgreens, but their mail order business alone is much larger than the revenue of Rite Aid, giving CVS about 25% of the prescription market if all channels are taken into consideration. Walgreens and Rite Aid combined have 22%.

So we're going to have an ugly biopoly in terms of stores, especially in the NYC metro area, considering Walgreens already owns Duane Reade. Should be fun.