Dynamic OTC marketplace: Albertsons and Rite Aid merge, Amazon enters the fray

21 Feb 2018 --- Albertsons Companies, one of the US’ largest grocery retailers, and leading drugstore chain Rite Aid Corporation have announced a definitive merger agreement, creating a retail behemoth with US$83 billion in annual revenue. The move is thought to give the integrated company more weight to compete with bigger chains in an industry anxious about the reported entry of Amazon.com.

The merger comes as CNBC reports that Amazon has “quietly launched” an exclusive line of OTC health products. The product line, coined Basic Care, is produced by private label manufacturer Perrigo, and allows Amazon to squeeze other retailers, such as CVS Health, Walgreens Boots Alliance and Rite Aid, which are losing traffic as an increasing number of consumers shop for OTC products online.

Albertsons reports that most of its pharmacies will be rebranded as Rite Aid. With approximately 4,900 locations, 4,350 pharmacy counters and 320 clinics across 38 states and Washington, D.C., the integrated company will serve over 40 million customers per week. 

Rite Aid Chairman and CEO John Standley is to become CEO of the combined company, with Albertsons Companies Chairman and CEO Bob Miller serving as Chairman. The name of the combined company will be determined by transaction close.

The combination will “provide customers with flexible and convenient access to a full range of food, health and wellness offerings,” Albertsons reports.

“The new company will have an expanded footprint and be ranked first or second in 66 percent of the top metropolitan areas in the US and first or second in 70 percent of pharmacy locations. It will establish the leading integrated food, health & wellness retailer on the West Coast and will have a strong brand position in the Northeast,” an Albertson's statement reads.

The combination of Albertsons Companies’ billion-dollar own brands, including O Organics and Lucerneâ, and its manufacturing and operating capabilities, with Rite Aid’s own brands in health and wellness, as well as its pharmacy expertise will allow the combined company to drive growth opportunities and efficiencies across its purchasing, marketing, manufacturing, and merchandising functions.

The Albertsons statement notes that the combined company’s expanding omnichannel platform will provide customers with convenience, choice, and flexibility through multiple in-store formats, digital channels and same-day food and prescription delivery options from stores and via Drive Up & Go.

“This powerful combination enables us to become a truly differentiated leader in delivering value, choice, and flexibility to meet customers’ evolving food, health, and wellness needs,” says Rite Aid Chairman and CEO John Standley. “The combined platform positions Rite Aid to capitalize on our pharmacy expertise and expand and enhance our pharmacy footprint. We are confident that delivering improved customer experiences and value will drive growth and profitability while creating compelling long-term value for shareholders.”

“We have always put our customers first, and our combination with Rite Aid will enable us to even better serve the valuable pharmacy customer by providing a fully integrated one-stop-shop for our customers’ food, health, and wellness needs,” says Bob Miller, Albertsons Companies Chairman and CEO.

According to Albertsons, the combined business will benefit from an enhanced financial profile and solid capital structure, which will support growth and expansion. On a pro forma basis, the combined company is expected to generate year one revenues of approximately US$83 billion (excluding potential revenue opportunities) and year one Adjusted Pro Forma EBITDA of approximately US$3.7 billion (including run rate cost synergies). 

The merger is expected to close early in the second half of the 2018 calendar year , subject to the approval of Rite Aid’s shareholders, regulatory approvals and other customary closing conditions.