Fred’s: A new force in pharmacy emerges

As the industry awaits final approval of the Walgreens-Rite Aid merger, one company that could emerge as a big winner is Fred’s Pharmacy, which stands to become a much bigger force in retail pharmacy. DSN spoke with CEO Mike Bloom about his vision to transform Fred’s into a healthcare company, how the Rite Aid deal could fast-track that plan and what the company is doing to bring more sophisticated tools and processes to its merchandising operations, to evolve from a “buying group to a true category management organization.”

 

DSN: Since you joined the Fred’s leadership team, you have talked about transforming Fred’s from a discount retailer with a nice pharmacy operation into a bona fide retail healthcare/pharmacy company. Aside from the additional stores and the scripts you will get in the deal, talk about how this deal makes Fred’s a leading force in retail pharmacy?

 

MIKE BLOOM, FRED’S PHARMACY: I’ve been in the Drugstore business my entire 34-year career with the exception of two years in the value channel where it gave me the opportunity to learn a lot about the value shopper. I started my drug store career as a store manager and then moved up to a district manager, category manager, VP of consumer healthcare, EVP of merchandising, marketing and supply chain, president and COO of Family Dollar, President and COO here at Fred’s and now CEO of Fred’s. 

 

I joined Fred’s in January of 2015. I’ve been the CEO for about 120 days. I saw a diamond in the rough here at Fred’s in early 2015; however, I knew there was work to do to turn this into a formidable healthcare growth retailer. I needed to upgrade talent and the culture, improve technology and processes, make investments in people, stores and the infrastructure, and deliver a clear healthcare growth strategy that delivers shareholder value for the long term. We embarked on this growth path in mid-2015 and are now well positioned to execute a strategic acquisition.

 

This deal makes sense for us and the customers we serve — and hope to serve — for so many reasons, including: 

 

First, we are a strong strategic fit. Retail pharmacy is our core competency. This deal accelerates our growth plan and builds on existing scale and infrastructure.  

 

Second, we have a very experienced leadership team that has a long history of successful pharmacy mergers and acquisitions. The leadership team is made up of many former executives from Walgreens and CVS.

 

Third, this deal creates a true competitor with scale and there is no meaningful overlap in the divested store markets. This deal truly maintains and enhances competition in all markets where Fred’s Pharmacy is or will be competing and provides us with the opportunity to match our vision for growth and further scale in all markets.

 

Last, this deal is good for consumers and payers. Payers and their pharmacy networks will benefit from the presence of a growth oriented and aggressive competitor in the divestiture markets.

 

DSN: The transaction will make Fred’s the third-largest drugstore retailer in terms of store count — more than doubling your store count. Talk about the opportunities but also the challenges of growing that big that fast? 

 

BLOOM: First, I would be remiss if I didn’t mention the incredibly talented people at Rite Aid that I have been watching from afar for many years. Hats off to a group of fighters that has hung in there under very challenging circumstances. I’m excited about the prospect of partnering with great stores and great people from Rite Aid and to have them be a part of this new company. 

I believe that the opportunities are endless for our customers, team members, payors and supplier partners. We have an experienced drugstore leadership team here at Fred’s that knows how to grow businesses and that should be exciting for all stakeholders. A healthy — no pun intended — number three drugstore chain is what this industry needs and that is what this acquisition creates.

 

There are always risks or challenges in everything that we do every day. My role as the CEO and for my experienced leadership team is to de-risk those challenges to the fullest extent possible. I feel strongly that between the WBA, Rite Aid and Fred’s teams that have worked together for many months on this opportunity, we have done a great job of structuring the transaction to de-risk it and to ensure a smooth transfer, integration and operational success. 

 

DSN: Assuming the FTC approves the Rite Aid store divestiture can you give us a sense of where the acquired stores will be? Will they be in complementary or new markets? Would the deal include any distribution centers?

 

BLOOM: The FTC approval of Fred’s acquiring the divested stores would make Fred’s a national drugstore retailer. A very wise person once told me that it is best to have stores located in states where there are electoral votes. The 18 new states that have the vast majority of the stores from this divestiture represent 239 out of a total of 538 electoral votes or 44%. While these states are new markets for Fred’s, these are markets in which our leadership team has spent most of their careers, so they know the markets and the customers. 

 

There will be distribution center assets included in the proposed transaction.

DSN: Where does a new Fred’s/Rite Aid pharmacy business compete? What are the strategic points of differentiation that will distinguish the new Fred’s from its competitors both big and small? 

 

BLOOM: First, let’s talk about the fundamentals of retail pharmacy. Customers or patients shop based on convenience, the trust of their pharmacist and where their insurance allows them to fill their prescription. There will be no change to the customer experience at Fred’s as a result of this proposed transaction. The stores will remain in their current location, the pharmacists and pharmacy staff will all remain as they are key team members and so important to the patient experience.  As far as insurance participation, we already participate in all of the insurance plans at Fred’s and this will continue. As I mentioned earlier, there will be a lot of opportunities for growth and for us to compete aggressively for new business.  

 

DSN: In the press release announcing the deal, Fred’s said it planned to keep the Rite Aid banner for at least two years. Talk a little bit about that decision — why not rebrand the stores right away?

 

BLOOM: Our guiding principle for this proposed trans