Photo: Kroger
Kroger and Walgreens are in a purchasing alliance and seeking more partners
The Kroger Co. and Walgreens have formed a new purchasing organization to cut costs and drive innovation.
The new group purchasing organization (GPO), which will be called Retail Procurement Alliance, further expands joint efforts between the supermarket and drugstore powerhouses. In August, the two companies announced plans to expand a pilot program that places Kroger Express store-within-a-store shops inside of Walgreens locations. In a separate test, select Kroger stores are selling a limited offering of Walgreens health and beauty care products, including Boots No7 and Soap & Glory.
Kroger CFO Gary Millerchip said the new GPO “brings together the best of two great organizations to reinvent critical components of our sourcing practices.”
Alex Gourlay, co-COO for Walgreens Boots Alliance, said the expanded relationship between his company and Kroger will not only “create efficiencies across our supply chains,” it will enhance the ability of the two companies to drive private label innovation and meet the “evolving needs for value and convenience” among consumers.
Kroger and Walgreens are looking for additional partners to join their newly formed purchasing group.
“If another organization thinks they have significant buying in these areas, they could partner with Kroger and Walgreens to save and reduce waste,” Mr. Millerchip told CNBC.
Discussion Questions
DISCUSSION QUESTIONS: How will the joint procurement deal between Kroger and Walgreens benefit the two companies, and what will it mean for competition? What other types of retailers do you expect might join the Retail Procurement Alliance?
Poll
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Brilliant move for both organizations and I suspect others will indeed join the consortium to take advantage of the combined buying power.
To compete in today’s retail market, purchasing smart has become table stakes. This will also allow the two organizations to focus on their core shopper delight principles … and, who knows, this may lead to a bigger and more entwined relationship.
It would be interesting to see if this attracts the attention of FTC for antitrust and anticompetitive practices.
Kroger is no stranger to platform partnerships and strength-in-numbers alliances (see Dunhummby). It only makes sense for Kroger and Walgreens to take the next step in scaling efficiencies between the two organizations. Global powerhouse potential here, whether or not they officially tie the knot.
This will clearly help to produce some synergistic savings. But other than that, I don’t find it at all that exciting and I don’t think it is a solution to the main issues either company faces.
Kroger stocking Walgreens Boots Alliance brands like No. 7 and Soap & Glory is no big deal. Target has stocked these for ages and is a popular destination. However, unlike Kroger, Target has put a major investment into its beauty proposition in stores.
Walgreens also suffers from a complete lack of investment in its shops. It’s why Ulta, Sephora, and Target have eaten into its beauty market share. And it is also why the chain is now scrabbling around to find ways of making its stores relevant.
In short, both Walgreens and Kroger need to look at and improve their customer propositions. That is the root issue both companies face and it has been caused by complacency in the past.
Good news for Kroger and Walgreens. Not so good for their suppliers. I understand that they need to partner to compete with Walmart which makes sense, but it will create challenges for suppliers to stay competitive.
It makes perfect sense when a partnership enhances the ability for the players to build off each others’ strengths. It not only creates synergies and efficiencies at the sourcing levels, it creates better value and time saving opportunities for the customer with one-stop shopping. A win all the way around. I’m not sure how outside non-partners participate. Would Macy’s tell Gimbels?
There are some complexities here that haven’t been addressed. If the consortium goes beyond small lots and starts buying truckloads, technically they should get the exact same pricing as any other company that buys a truckload. It’s called the Robinson Patman act, and while it hasn’t been well-enforced (Walmart clearly gets its own pricing), it’s an issue. Companies like Costco have different packaging and quantities to get around it. Perhaps if it’s a consortium’s private label they can get around it that way, but care must be taken.
This is an excellent opportunity for two national retailers to join efforts sharing expertise, retail store space and use their combined buying clout. The partnership can have huge positives from faster innovation with private label, cost of goods reductions, reducing costs of non-resale goods (what you need to run the business), etc. Plus, there is an opportunity to bring together customer insights from the two companies that can be exponentially positive. In my past, I have been part of joint procurement agreements and the challenges are bringing together different company cultures and product specs to create equal value for the participating organizations. Who else might join the alliance? How about a major convenience store operator, national specialty foods distributor, national electronics retailer or a national home improvement retailer?
This is a great move by both companies to leverage their combined weight to get the best deal for them and their customers. I wish the country would do the same for drug prices but I guess we will have to wait for the 2020 election to see if that may happen.
This is not a new concept and was done for almost 100 years in soft goods by Mast Industries. What is old becomes new again, when new generations discover the power of playing nicely together.
The Big Lots commercial was upbeat and inventory-focused, but it’s also very forgettable. More than half of customers will remember an ad if it makes them laugh.
There’s a reason why KFC keeps coming out with eccentricities like chicken-scented yule logs, it makes the brand unforgettable. And the Big Lots commercial, although cheerful, is forgettable at best.
Aggregating their purchasing power certainly will not hurt, but both organizations have huge buying power now. An interesting question will be who they allow to join the buying organization.
If the organization is operated as a stand-alone company, it may take the approach of aggregating and leveraging the mass as a benefit for he is good for everyone including competitors. However, the pitfall may of buying organizations have is the first don’t want competitors participating limiting the number of companies that can join and if they allow them to join there is the fear that the buying data may find it way to the other members.
This is a move to restrain trade. They are combining their purchasing power in restraint of trade. This forms a barrier to entry, and forces competitors to join their “alliance.” This sounds illegal and is really a business combination.
A terrific extension of the current Kroger-Walgreens partnership. For Walgreens, partnering with Kroger’s private label expertise, should present the opportunity for the development of differential advantage own label products. As for Kroger, getting even closer to Walgreens means the opportunity to expand its footprint in strong Walgreens’ markets, where Kroger has few to no stores. Think Florida and New England. Plus, the presence of Walgreens in all markets provides another distribution collection point for Kroger’s online offerings.
Cross-channel partnerships like this one and the Amazon-Kohl’s returns option, will be the new normal that retailers need to consider going forward.