Fast facts:
- Rite Aid has been hemorrhaging money and struggling to keep up in the competitive retail pharmacy industry amid high inflation, rising costs, and a heap of lawsuits resulting from filling hundreds of thousands of illegal opioid prescriptions.
- Rite Aid filed for Chapter 11 bankruptcy protection on Oct. 15, 2023, and appointed crisis consultant Jeffrey Stein as its new CEO and Chief Restructuring Officer as it navigates this process.
- Since filing, Rite Aid has closed hundreds of stores and sold off parts of its business but is attempting to remain afloat as the company's bondholders assume ownership.
Rite Aid — a large drugstore chain and longtime household name in the U.S. — filed for Chapter 11 bankruptcy protection on Sunday, Oct. 15, 2023, after announcing its intent to do so a few months prior.
The news left consumers wondering how such a well-established legacy brand with thousands of neighborhood locations spanning both coasts could find itself in such dire financial straits. After all, aren’t prescription drugs and household staples recession-proof?
As it turns out, the company had been facing a number of headwinds — including high interest rates on its billions of dollars of debt, declining sales, and a heap of federal lawsuits.
What is Rite Aid? A brief history
Rite Aid is a chain of retail stores, each of which typically features a full-service prescription pharmacy alongside aisles of over-the-counter supplements and remedies, first aid supplies, home staples, beauty products, toys, snacks, drinks, and other products. Some of the chain’s locations also include photo centers.
The company’s first store — then called Thrift D Discount Center — was launched in 1962 in Scranton, Pa. Additional stores were opened elsewhere in Pennsylvania and neighboring states over the years that followed, and in 1968, the company officially changed its name to the Rite Aid Corporation before going public on the American Stock Exchange.
Two years later, the company’s stock began trading on the much larger New York Stock Exchange (where it would remain until it was delisted on Oct. 16, 2024 — the day after it declared bankruptcy).
Related: The most noteworthy business bankruptcies of 2024 (so far)
During the half-century the brand spent trading on the NYSE, the company grew substantially, made countless acquisitions, and during the 2010s, almost merged first with Walgreens and then Albertsons, although both mergers ended up falling through.
After filing for Chapter 11 protection in late 2023, Rite Aid closed hundreds of locations, and by mid-2024, only 1,687 remained (down from 2,271 a year prior).
Who is in charge of Rite Aid’s bankruptcy & restructuring?
When Rite Aid began its Chapter 11 process, its board of directors appointed restructuring consultant Jeffrey Stein as its new CEO, CRO (Chief Restructuring Officer), and member of its board of directors. Stein succeeded Elizabeth “Busy” Burr, who had served as the company’s interim CEO since the beginning of 2023.
Stein has made a career out of working with distressed corporations during bankruptcy processes as a sort of professional crisis CEO. Before joining Rite Aid, he led other notable restructuring efforts at companies like GWG Holdings, Liberty Steel Group, Whiting Petroleum Corporation, Philadelphia Energy Solutions, and Westmoreland Coal Company.
According to the company’s website, Stein is a “Certified Turnaround Professional.” He is overseeing the restructuring process as Rite Aid divests from its less-profitable assets, sells parts of its business, comes to agreements with creditors, and attempts to chart a sustainable path forward.
Why did Rite Aid file for bankruptcy?
In a document titled “Declaration of Jeffrey S. Stein in Support of Debtors’ Chapter 11 Petitions and First Day Motions” filed with the United States Bankruptcy Court for the District of New Jersey, Stein wrote that “a confluence of operational and financial factors” led to the company’s decision to reorganize.
Stein then grouped the causes into six general categories that contributed to the company’s decision to file for bankruptcy protection:
Mounting debt and high interest
The first factor Stein cited was the company’s substantial debt. According to the Oct. 16th filing, Rite Aid carried $4 billion worth of long-term debt obligations and was paying around $200 million annually in interest alone.
Rite Aid accumulated some of its burdensome debt through past acquisitions conducted to keep pace with competitors like Walgreens and CVS.
Increasing costs and falling revenue
Stein next cited inflation, rising labor costs, reduced demand for COVID-19 vaccines, and increasing “shrink” costs (industry speak for shoplifting losses) as some of the company’s most notable operational challenges.
Unprofitable stores and lease payments
Next, Stein cited the company’s inability to exit unprofitable stores without the help of a court-assisted bankruptcy process due to ongoing lease agreements. Specifically, the company was paying $80 million annually in real estate leases for stores that had already been shuttered as the company attempted to cull locations that were losing money.
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Unfavorable vendor terms
According to Stein, rumors about the company’s impending restructuring caused many of its vendors to alter the terms of their deliveries, requiring cash upon (or before) delivery instead of allowing Rite Aid to receive goods on credit and remit payment later. Stein referred to this as “trade contraction” and attributed $100 million of the company’s losses to the phenomenon over just a two-month period.
Lawsuits and other legal troubles
Rite Aid is a defendant in a highly publicized series of federal lawsuits for filling illegal opiate prescriptions between 2014 and 2019. According to Stein, these lawsuits (along with other legal issues, including government investigations, contract disputes, and “securities matters”) have cost the company a significant amount of money and resources — as well as the valuable time and attention of its executives that could have otherwise been spent charting a more profitable path forward for the floundering drugstore chain.
Competition
Lastly, Stein mentioned the highly competitive industry in which Rite Aid operates. CVS and Walgreens represent the chain’s largest traditional competitors, while supermarket and retail pharmacies (like Kroger, Walmart, and Target) and online retailers (like Amazon) also vie for prescription medicine market share.
Related: Why are groceries so expensive? A look at post-pandemic food price inflation
A timeline of Rite Aid’s Chapter 11 bankruptcy process
Oct. 15, 2023: Rite Aid files for Chapter 11 bankruptcy protection, initiating a court-supervised restructuring and debt-management process.
Restructuring consultant Jeffrey Stein is named Rite Aid’s new CEO, Chief Restructuring Officer, and member of the company’s board of directors.
Oct. 17, 2023: Bankruptcy court authorizes “First Day” motions that allow Rite Aid to access $3.45 billion in debtor-in-possession financing from some of its lenders.
This financing is meant to provide sufficient liquidity for Rite Aid to navigate its restructuring process while continuing to pay its employees and vendors.
Rite Aid announces that it intends to sell Elixr, its pharmacy benefit management subsidiary, to MedImpact Healthcare Systems.
October 2023–early January 2024: The brand files a series of motions to close 154 stores in October, 55 in November and December, and 45 in January.
Jan. 9, 2024: Rite Aid secures court approval to sell Elixr to MedImpact Healthcare Systems.
Feb. 1, 2024: Rite Aid completes the sale of Elixr, its pharmacy benefit management subsidiary, to MedImpact Healthcare Systems for $575 million.
Feb. 27, 2024: Rite Aid files a motion to close stores in Michigan and Ohio.
March 6, 2024: Rite Aid announces that it has entered an agreement to sell some of its Health Dialog business assets to Carenet Health. Upon the sale, Carenet will acquire “Health Dialog’s Nurse Advice Line, Chronic Care Management solution and Shared Decision-Making solution, along with client contracts associated with those services.”
March 26, 2024: A lawyer for Rite Aid announces that the company agreed to a bankruptcy settlement with its creditors, the Department of Justice, and McKesson Corp, but that some details needed to be worked out before the agreement could be presented to the court.
March 28, 2024: Rite Aid is granted permission to begin the voting process on its bankruptcy restructuring plan, which involves transferring the bulk of the company’s equity ownership to its bondholders.
The plan also allows bondholders to continue exploring the prospect of selling the company as the restructuring process continues.
April 2024: Rite Aid files motions on April 2 to close two stores, April 3 to close six stores, April 9 to close 17 stores, April 16 to close 13 stores, April 23 to close 16, and April 26 to close seven, bringing the total number of closures to 345 since the company’s October 2023 filing.
April 30, 2024: Despite ongoing bankruptcy proceedings, Rite Aid launches a new service — home alcohol delivery via Uber Eats — from almost 1,000 stores across eight U.S. states (California, Idaho, Michigan, New York, Ohio, Oregon, Virginia, and Washington).
May 8, 2024: Rite Aid announces that it has completed the sale of certain of its Health Dialog business assets to Carenet.
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