THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, January 14, 1996 TAG: 9601130281
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY MATT MURRAY, THE WALL STREET JOURNAL
LENGTH: Long : 109 lines
It's nearly 10 p.m. in Manhattan, and Martin L. Grass is roaming a Rite Aid drugstore on Second Avenue.
One shelf is missing a few hair dryers. Grass, Rite Aid Corp.'s chairman and chief executive, and Timothy J. Noonan, the chain's president, summon the manager and pepper him with questions.
``These guys scrutinized everything,'' recalls Nancy A. Lieberman, a partner at Skadden, Arps, Slate, Meagher & Flom, who went along on the spontaneous visit. ``If there should be 10 combs in a rack, (Grass) homes in on the one rack with a missing comb.''
Such is the no-nonsense, detail-oriented approach that the 41-year-old Grass inherited from his father, company founder Alex Grass, whom he succeeded nearly a year ago.
But Rite Aid is no longer the single drugstore that Alex Grass opened in 1962. Through the years, the Grasses have used a series of acquisitions to build the company. In November, Grass - completing a deal his father had long sought - launched a friendly, $1.8 billion tender offer for Revco D.S. Inc., which has 32,000 employees and 2,100 stores. The offer, which expires next week, would nearly double Rite Aid's annual sales to $11 billion and make it the nation's largest drugstore chain, with more than 4,500 stores in 22 eastern states and Washington.
The offer is the latest in a series of aggressive moves designed to shake up Rite Aid and boost its bottom line. The company is being squeezed by competition from superstore retailers and supermarkets, and pricing pressure from managed-care organizations. ``Martin has decided to change the company's basic way of doing business,'' says Joseph C. Ronning, an analyst at Brown Brothers Harriman.
Rite Aid's rejuvenation started in 1994 with the sale of noncore businesses such as auto-parts retailing, bookstores and dry cleaning. The company also dumped nearly 200 poorly performing stores.
A lot of work remains. Rite Aid has traditionally lagged behind competitors in remodeling stores, leaving some of the stores looking dated and even shabby. ``They haven't devoted as much capital as they should have to their store base,'' says analyst Jack Russo of A.G. Edwards. ``This chain needed a fresher look.''
To achieve that, Grass has focused on a prototype for new Rite Aids and makeovers of some stores. The free-standing model store is about 10,000 square feet, compared with the roughly 7,500 square feet of the average Rite Aid, and it offers more food items, beauty aids, services - such as one-hour photo-processing - and parking. More stores will have drive-through windows and be free-standing; rival Walgreen Co. has proved that stores that aren't chained to strip malls often perform better.
Says a supplier, Beth Kaplan, vice president of cosmetics and fragrances for Procter & Gamble USA: ``Cosmetics has been something they carried because they had to. Now they are looking at it as something they have to invest in.''
There is also an ambitious Rite Aid advertising campaign, including the company's first-ever TV spots. The move follows studies that show ``with a lot of consumers we had no image at all,'' Grass says.
He has tinkered with the management structure, too. Rite Aid stores have separate managers for pharmacy and nonpharmacy, and in the past they tended to clash over their fiefdoms. Now both report to a common district manager, and they are eligible for bonuses based on total store performance. Rite Aid also has been a technology leader, linking stores by satellite for greater access to customer files and communication between headquarters and managers.
Some of Grass' moves stem from his belief that drugstores need more clout in their increasingly tense dealings with pharmaceutical manufacturers and managed-care groups. To cut costs, managed-care companies have squeezed prices at the pharmacy counter. Meanwhile, drug suppliers have found profits in mail-order businesses that bypass pharmacies altogether. Rite Aid and other drugstores have filed a federal class-action suit in Chicago against the major drug makers seeking to force them to offer drugstores the same deals they give managed-care groups and prescription plans.
Drugstores haven't mounted much opposition to the pricing pressures, but Grass argues that the Revco acquisition should make Rite Aid too large to ignore. Last month, he attempted to prove his point after Maryland signed a $266 million contract with Merck & Co.'s Medco Containment Services to provide prescription drugs to state employees through local pharmacies. Rite Aid led drugstores in refusing to fill the prescriptions on the basis that they would lose money. That led the state to cancel the contract, though Maryland's attorney general is investigating the case.
``It's a small victory, but that's one scrimmage in the war,'' Grass says. ``This is an ongoing battle, and I think it will continue to intensify.''
Grass has been in the drugstore business since he was a teenager. He, along with his brother and two sisters, started out working at Rite Aid during school breaks. After college and business school, he joined the company formally in 1978.
Grass inherited his work ethic from his father. ``Work is their life,'' says Rite Aid board member Leonard N. Stern, who is chairman of Hartz Group Inc. in New York. ``It's a culture of work, detail and a sense of responsibility to the enterprise.''
The younger Grass usually works six days a week, commuting an hour each way to Rite Aid's Camp Hill, Pa., headquarters from Baltimore and spending half the week on the road visiting stores and investors. Other than Sundays with his wife and his three children, all of whom are younger than eight years old, his main escape is classical music: He has a home theater stocked with music and sits on the board of the Baltimore Symphony Orchestra.
``To be honest,'' he says, ``all I do right now is work. When I don't work I try to spend time with my family. That's the biggest challenge. I don't play golf. I don't play tennis. I don't play cards. I just work. I think I got that from my father.'' ILLUSTRATION: Color photo
Martin L. Grass, chairman and chief executive of Rite Aid
KEYWORDS: PROFILE BIOGRAPHY DRUG STRORES by CNB