Kroger And Walgreens To Partner On Procurement

The Kroger Co. (NYSE: KR) and Walgreens Boots Alliance (NASDAQ: WBA) are forming a partnership, called the Retail Procurement Alliance, to cut costs by sourcing more merchandise together. Walgreens, the nation’s largest drugstore chain, and Kroger, which operates grocery stores and online food delivery across the U.S., say that they will look for overlaps in the products they are receiving so that they can combine their orders. The two will also explore options for Kroger to start manufacturing items in-house for Walgreens, and vice versa.

Kroger and Walgreens say in the announcement that the alliance will deliver “purchasing efficiencies, lower costs and combined resources to help drive further innovation.” Kroger CFO Gary Millerchip said that the companies are interested in having more retailers join their alliance. Millerchip said, “If another organization thinks they have significant buying in these areas, they could partner with Kroger and Walgreens to save and reduce waste.” Financial terms of the group purchasing deal weren’t disclosed.

The joint venture builds on work that Kroger and Walgreens have already been doing together. The two companies are already combining the grocery giant’s popular brands with Walgreens health and beauty products as part of a pilot in certain U.S. markets. Most of the Walgreens stores in the pilot feature a full Kroger Express assortment of up to 2,700 products and offer Kroger Pickup service for or Kroger app orders. The Walgreens selection at the Kroger stores includes beauty care, personal care, over-the-counter medicine, and wellness products.

Industry observers expect the two companies will collaborate further. The retail network for Deerfield, Ill.-based Walgreens includes more than 9,200 drugstores in the U.S., Puerto Rice, and the U.S. Virgin Islands. Cincinnati-based Kroger operates nearly 2,800 food stores under its 20 regional/retail divisions, including 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.