robert gillings walgreens not buying riteaid

Walgreens Will Not Buy Rite Aid

Brand battles can be brutal. Companies vying for a finite customer base, especially in a rapidly changing marketplace, will go all out to gain and maintain a market advantage. It’s no different in the pharmacy business. Look on any corner with a Walgreens, CVS or Rite Aid, and you can bet a rival will be set up nearby, often on the opposite corner. The common physical locations of the brands involved in these rivalries give consumers a chance for a head-to-head comparison, as well as the ability to choose their favorite and express that loyalty.

These brands may duke it out for years, decades even until the market creates a tipping point. At that juncture, it can become clear which brand has the best advantage in the market. From there, a company may make several decisions. In this case, Walgreens chose to attempt to purchase Rite Aid outright. Sometimes, those takeovers happen without too much trouble. Other times, regulators put a lot of hurdles into the process.

In this case, US regulators put up so much resistance, Walgreens has decided to table its takeover bid…shifting to a purchase model that allows Walgreens to buy locations, distribution centers, and inventory. The new deal will allow Walgreens to purchase 2,186 stores, three distribution centers, and all the related inventory…all at a price tag of about $5 billion. And, instead of Walgreens purchasing all of Rite Aid outright, Rite Aid has the option, at least for a year or two, to join Walgreen’s group purchasing organization.

Walgreens released a statement that showed the company is attempting to roll with the punches of this decision. Instead of an all-at-once brand switchover, Walgreens said it planned to move the Rite Aid purchases over to the Walgreens brand over time. How long might this take? Accounts varied, though the deal is expected to be done in about six months.

What will this mean from a public relations standpoint? Well, Rite Aid fans now have a choice. Will they just go over to Walgreens, because the physical location of their drugstore of choice hasn’t changed…even though the name on the door will? Or, will they take the opportunity to shop their options?

It’s this latter choice that should give Walgreens pause for thought. In a brand war this tight, Walgreens must gain customers, not lose them … and they need to gain more than Rite Aid is losing. Because, Walgreens can’t invest all this capital and time to only do as well, or slightly worse than Rite Aid did in those locations. For it to work, Walgreens needs to see better success than Rite Aid did. Otherwise, they’re just buying a debt.

Robert Gillings is an award winning writer, producer, actor architectural designer, philosopher and financial consultant.

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