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A Closer Look: Rite Aid’s Expanded Partnership with McKesson

Rite Aid announced in February a new five-year agreement with long-time partner McKesson aimed at creating drug purchasing and distribution efficiencies, which are expected to enhance service to Rite Aid customers and generate cash flow to fuel Rite Aid’s long-term growth.

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McKesson has been a trusted partner of Rite Aid for more than 16 years. Currently, the San Francisco-based company is responsible for sourcing branded medications that are dispensed at Rite Aid pharmacies. McKesson also oversees direct-to-store deliveries that supplement shipments of medications from Rite Aid distribution centers.

Under the new agreement, which runs through March 2019, McKesson will now assume responsibility for sourcing both branded and generic medications. By expanding the partnership, Rite Aid and McKesson can use their combined scale to gain additional leverage in negotiating drug prices with manufacturers.

In addition, the new agreement will make Rite Aid’s pharmaceutical distribution 100 percent direct-to-store, with McKesson deliveries taking place at every store five times a week for all branded and generic medications.

While Rite Aid expects the new agreement to generate additional cash flow for the business, company leaders also believe that it will help achieve higher levels of service for Rite Aid customers.

“With daily delivery, we believe that we can reduce inventory on-hand and improve in-stock conditions with minimal disruption to how our pharmacy teams manage their business,” said Ernie Richardsen, group vice president of pharmaceutical purchasing and clinical services. “This new agreement is a game-changer, both for our store teams and for our customers. It should have a positive impact on our business, our day-to-day operations and our valued pharmacy patients.”

Conversion to this new distribution model is expected to begin at pilot stores this April, once new applications are developed to facilitate optimized store-level execution, according to Senior Vice President of Pharmacy Operations Dan Miller. “Our target is to complete the conversion by September,” he added.