Kroger, Walgreens form group purchasing organization

Adding scale to compete with big rivals, The Kroger Co. and Walgreens have created a group purchasing organization (GPO) called the Retail Procurement Alliance.

Kroger and Walgreens said Wednesday that the new GPO will build on their retail partnership, unveiled just over a year ago, by enhancing purchasing efficiencies, lowering costs and fostering innovation through combined resources.

"This collaboration is an extension of the strategic collaboration announced last year to create value for customers and shareholders of both companies," Kroger Chief Financial Officer Gary Millerchip said in a statement. "Kroger and Walgreens share a commitment to finding value and efficiency improvements by increasing innovation and competition through sourcing. This concept brings together the best of two great organizations to reinvent critical components of our sourcing practices.”

In October 2018, Kroger and Walgreens announced plans to pilot a one-stop shopping experience at 13 Walgreens drugstores in northern Kentucky that would enable customers to buy products and services from both retailers. Through the test, consumers initially would be able to order Kroger groceries — including store brands like Simple Truth — online and pick up their orders at the Walgreens stores.

Related:Kroger recasts its brand

That pilot launched last December as Kroger Express in the 13 Walgreens stores in northern Kentucky and included Kroger’s Home Chef meal kits, which also were rolled out to 65 Walgreens stores in the Chicago area. Products in the Kroger Express assortment were curated using customer data and insights from 84.51°, Kroger’s data analytics and consumer intelligence arm.

Then in August, Kroger and Walgreens said they were expanding the Kroger Express pilot to 35 Walgreens stores in Knoxville, Tenn., and introducing a curated assortment of Walgreens health and beauty products in a new Walgreens-bannered section inside 17 Kroger supermarkets in the Knoxville market. Those tests kicked off in the fall.

"Through this unique joint venture, Walgreens and Kroger have the opportunity to use our collective resources to create efficiencies across our supply chains," stated Alex Gourlay, co-chief operating officer of Walgreens Boots Alliance. "This collaboration will also enhance our ability to drive innovation for customers, including both of our private-label brands, to further meet their evolving needs for value and convenience.”

Both Kroger and Walgreens are facing increasing pressure from larger competitors like Walmart and Amazon as well as other big players like Costco Wholesale Corp., Albertsons Cos., Target Corp. and CVS Health. A procurement joint venture would increase their purchasing power with suppliers as well as enable them to rein in pricing from efficiencies of scale. In addition, Kroger and Walgreens field strong rosters of own brands, and offering their private brands at each other’s stores provides an element of exclusivity that could attract more shoppers.

Related:Report: KKR making buyout pitch to Walgreens

Most of the Walgreens stores in the pilot feature a full Kroger Express assortment of up to 2,700 products, with others offering an average of 2,300 products. Most of the Walgreens locations also offer Kroger Pickup service, which will allow shoppers to place a digital order on Kroger.com or via the Kroger app for curbside pickup at a participating store. The curated Walgreens HBA selection at the 17 Kroger stores in Knoxville spans the beauty care, personal care, over-the-counter medicine and wellness categories and includes the Walgreens Boots Alliance brands No7 and Soap & Glory.

Through its 20 regional/retail divisions, Cincinnati-based Kroger operates 2,759 food stores under such banners as Kroger, Ralphs, Dillons, Smith’s, King Soopers, Fry’s, QFC, City Market, Owen’s, Jay C, Pay Less, Baker’s, Gerbes, Harris Teeter, Pick ‘n Save, Copps, Metro Market, Mariano’s, Fred Meyer, Food 4 Less and Foods Co.

The retail network for Deerfield, Ill.-based Walgreens includes 9,277 drugstores under the Walgreens and Duane Reade banners in all 50 states, the District of Columbia, Puerto Rice and the U.S. Virgin Islands.