Speculation Intensifies on Kroger and Walgreens Plans

While Walgreens Boots Alliance (Walgreens) reportedly is mulling over private equity firm KKR & Co.’s formal overture about a leveraged buyout, the company is strengthening its partnership with Kroger, as both companies continue to look over their shoulders at Amazon.

During the summer of 2019, Kroger and Walgreens expanded their strategic partnership which began in October 2018 to operate the Kroger Express concept in 50 Walgreens stores and Walgreens’ own health and beauty brands will be available to customers in 17 Kroger stores.

Kroger is trying various strategic initiatives to boost its sales and lower costs. The offering of Walgreens’s health and beauty products should attract more consumers to Kroger stores, as will its pick up facilities at select locations. Kroger currently operates about 2,270 pharmacies in its 2,761 stores. Kroger Express stores will offer Walgreens products that complement their breadth of  2,300 products on average and help drive higher customer traffic.

Recently, Walgreens and Kroger announced the formation of a joint-venture group purchasing organization called Retail Procurement Alliance, which will expand capabilities and increase efficiencies of scale for both companies to compete against larger competitors such as Costco, CVS Health/Target, and Albertsons.

Walgreens and Kroger said is aimed at driving purchasing efficiencies, lower costs and combined resources. The new GPO does not appear to be exclusive, as company executives have invited organizations to join that have significant purchasing in the space, which dampens speculation to a degree about a merger between the two companies.

Walgreens products that will be sold in the selected stores this fall include beauty and personal care products, over-the-counter medications, and wellness products. Sales of Walgreens’s owned-brand products will improve if this pilot works.

Takeaways

The Kroger-Walgreens relationship may lead to a broader collaboration as both companies develop strategies to compete with competitors, particularly Amazon