retail news in context, analysis with attitude

CNBC reports this morning that "Kroger and Walgreens Boots Alliance are teaming up to cut costs by sourcing more merchandise together. With what they call the Retail Procurement Alliance, the chain retailers will look for overlaps in the products they are receiving so that they can combine their orders. Doing so would increase scale and lower costs. The two will also see if Kroger can start manufacturing items in-house for Walgreens, and vice versa."

And, the two companies are hoping that other retailers join the alliance, creating even more synergies and economies of scale.

According to the story, "The alliance comes at a time when traditional retailers are under pressure as more consumers shop online and, as a result, are looking to find cost savings where they can. The joint venture builds on work that Kroger and Walgreens have already been doing together."

More than a year ago, Kroger and Walgreens partnered to begin selling Kroger products at select Walgreens stores, and even allowing for the pickup of online orders at some Walgreens. They expanded the test last August, and also started selling some Walgreens HBC items in Kroger stores.

Some context from CNBC: "Kroger and Walgreens aim to compete with e-commerce behemoth Amazon, which continues to push further into food and health. Amazon, which owns grocery chain Whole Foods, dropped the fee for two-hour grocery delivery for all of its paying Prime members. It also owns internet pharmacy company PillPack."
KC's View:
To me, one of the most interesting things about the tie-up between Kroger and Walgreens is how it gives Kroger the ability to move into markets where it doesn't have stores, like New England … it could create an e-commerce pure-play model that would use Walgreens stores as pickup points. This becomes even more possible as Kroger builds one of its Ocado robotic warehouses in Florida, in an area where it doesn't have any stores. But Walgreens has more than 800 there … which tells you something.

Building on this partnership for procurement purposes just makes sense.