On December 11, Walgreens and Kroger announced a new joint-venture group-purchasing organization designed to cut costs through greater purchasing power and to increase efficiency by combining some sourcing operations.

The venture, called Retail Procurement Alliance, is an extension of the strategic collaboration announced in October 2018. Through the alliance, the two companies hope to deliver “purchasing efficiencies, lower costs and combined resources to help drive further innovation.”

How the Alliance Benefits Kroger and Walgreens

• Kroger and Walgreens will buy more merchandise together to lower cost.
• The two companies will look for ways to merge sourcing operations to increase efficiency.
• Both companies will explore selling one another’s products, boosting their private-label offerings.

Coresight Research insight: This joint venture reflects heightened competition in US grocery in an era of Amazon as a grocery player, as well as Kroger’s ambitions to reduce costs as part of its Restock Kroger strategy—which delivered $1 billion in cost savings in 2018. The Kroger-Walgreens announcement came the same week Ahold Delhaize announced it would invest $480 million to move its US supply chain to a fully integrated, self-distribution model, with management citing lower costs as one of the key benefits of bringing its supply chain inhouse.

Retail Procurement Alliance Builds on the Existing Partnership

• Kroger and Walgreens teamed up in late 2018 for a pilot program in which Kroger’s private label food brands are sold at 13 Walgreens stores in northern Kentucky, in addition to allowing Kroger customers to pick up online orders at some Walgreens locations.
• In August 2019, the two companies broadened the pilot test from 13 to 35 Walgreens locations, all in Knoxville, Tennessee. The pilot includes Kroger Express, Kroger’s Our Brands and its organic food products. Selected Walgreens locations will offer a Kroger Express assortment of up to 2,700 products. Kroger selected 17 of its stores to carry a curated selection of Walgreens health and beauty products such as beauty care, personal care, over-the-counter medicines and Walgreens’ private label brands No7 and Soap & Glory.