Rite Aid, the nation’s third-largest drugstore chain, filed for Chapter 11 bankruptcy protection on Sunday, citing heavy debt loads and weak sales. The move comes amid sweeping changes in the pharmacy industry that have led to decreasing demand for traditional drugstores.
Rite Aid said it expects to continue operating and serving customers as usual during the bankruptcy process. However, the company will likely close hundreds of locations as part of its restructuring efforts.
Rite Aid Faced Myriad Challenges
Rite Aid has contended with several significant headwinds in recent years that prompted its decision to reorganize in bankruptcy court.
The drugstore chain carries nearly $4 billion in debt, a heavy burden that has hindered its ability to invest and modernize. Rite Aid acquired much of this debt from its purchase of Brooks and Eckerd pharmacies in 2007. The deal added thousands of stores but also saddled Rite Aid with significant liabilities.
In addition, Rite Aid faces sinking sales and profits. The company has posted losses for six straight years as customers increasingly shop for medications and personal care items at big box chains and grocery stores. Online pharmacies like Amazon Pharmacy have also diverted prescriptions away from traditional drugstores.
Rite Aid was also staring down over $1 billion in legal liabilities related to the opioid crisis. The company was set to go to trial in November as part of a major lawsuit brought by several states over the industry’s role in the epidemic.
Bankruptcy Allows Rite Aid to Restructure Business
Chapter 11 bankruptcy will allow Rite Aid to restructure and potentially emerge as a more stable business. The company said the move is intended to reduce debt and operational costs.
As part of its reorganization, Rite Aid is expected to close up to 500 of its 2,300 remaining stores. These closures will shift customers to nearby locations and help the company focus resources around its best-performing markets.
Rite Aid may also use the bankruptcy process to settle outstanding lawsuits. This could significantly reduce the $1 billion liability the company faced from the pending opioid trial.
The drugstore chain hopes to complete the restructuring process within 12 months. Rite Aid leadership stressed that customers should see minimal disruptions during this period.
Growing Competition Hurting Traditional Pharmacies
Rite Aid’s bankruptcy filing reflects the larger struggles of America’s traditional drugstore chains. Industry giants like CVS and Walgreens have closed thousands of locations in recent years amid declining pharmacy sales.
Experts point to several factors fueling this trend:
Consolidation of regional chains: Mergers and acquisitions have reduced unique pharmacy options in many areas. Most markets are now dominated by just two or three major chains.
Lower reimbursement rates: Pharmacy reimbursement from insurance plans has fallen steadily over the past decade. This has cut into pharmacy profits, especially at smaller chains.
Growth of pharmacy access points: Retailers like Walmart and Kroger have added pharmacies to stores nationwide, increasing customer access and convenience. Consumers can now fill prescriptions at big box stores, grocery stores, warehouse clubs, and other retailers.
Mail order and digital pharmacies: Mail order prescriptions have become more common, supported by innovations like automatic refills. New digital pharmacies from companies like Amazon also allow easy home delivery.
This diversification of the pharmacy landscape has directed customers away from traditional drugstore chains which relied heavily on walk-in prescriptions. Rite Aid’s bankruptcy exemplifies the revenue challenges stemming from these industry shifts.
What This Means for Consumers
While Rite Aid’s restructuring aims to ensure pharmacy access for existing customers, some impacts will be felt by consumers.
The upcoming store closures will limit pharmacy choices for customers in affected areas. They may need to transfer prescriptions to alternate Rite Aid locations or competitors like CVS, Walgreens, or grocery store pharmacies.
Some Rite Aid customers could also see changes in prescription drug plans if the bankruptcy settlement impacts the company’s pharmacy benefit manager business. Experts recommend reviewing plan details carefully for any updates.
There is also a risk of drug supply issues if vendors grow concerned about Rite Aid’s bankruptcy. However, the company has reassured that it expects to maintain normal supplier relationships.
The Bottom Line
Rite Aid’s bankruptcy filing marks a watershed moment in the declining fortunes of America’s traditional drugstore chains. While industry leaders like CVS and Walgreens will likely avoid similar fates, they continue to face many of the same headwinds impacting Rite Aid.
For pharmacy customers, it means a changing landscape with potentially fewer neighborhood drugstore options in coming years. Rite Aid expects to emerge from bankruptcy as a smaller but stronger chain. But other pharmacies are unlikely to reverse the larger trends weighing on the traditional drugstore model.
Consumers will need to grow accustomed to a wider array of pharmacies ranging from big box retailers to online delivery. Rite Aid’s bankruptcy provides another signal that the old corner drugstore faces extinction unless it adapts to new realities.