Photos: Getty Images; Walgreens
Will the Kroger/Walgreens pilot lead to something really big?
Kroger and Walgreens have announced a new pilot program that brings together the convenience of shopping on the supermarket’s website with customer pickup at 13 local Walgreens in Northern Kentucky. Items from Kroger’s private label lines, including its Simple Truth organic brand, will also be stocked in Walgreens as part of the test.
“This exciting collaboration aligns with Kroger’s vision of serving America through food inspiration and uplift,” said Rodney McMullen, Kroger’s chairman and CEO, in a statement. “This concept brings together the best of two great brands to rethink convenience and redefine the way America shops for food.”
The retailers said they plan for the test to take several months during which they intend to seek feedback from customers.
“This innovative new concept is an opportunity to test and learn, as we determine how we can best work together to further elevate our customer offering,” said Stefano Pessina, executive vice chairman and CEO of Walgreens Boots Alliance.
The connection between the grocery and pharmacy giants will undoubtedly lead to speculation as to where it might lead in the future. Will the pilot prove successful and be rolled out across the country? Would the two consider a merger or, perhaps, a deal similar to Target and CVS whereby Walgreens locates its pharmacies in Kroger’s stores?
Discussion Questions
DISCUSSION QUESTIONS: How do you expect the Kroger/Walgreens pilot program to work out? Do you see this as the start of something big between the two retailers or a one-off test?
Poll
BrainTrust
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Jason Goldberg
Chief Commerce Strategy Officer, Publicis
Grocery and pharmacy are a natural fit, so conceptually this makes sense. The real challenge here will be in how these two behemoths coordinate their logistics to make this a seamless process for shoppers. Given the challenges that retailers have with BOPIS and ship from store, there’s a lot that can go wrong here and ultimately, I’m not sure there is much to gain for either Kroger or Walgreens.
On point Mark, regarding logistics, I am getting flashbacks of Walmart and Uber’s partnership back in 2017 and can’t help but wonder if there will be some similarities.
Yes, Mark. I see this as a logistics nightmare that isn’t needed. Both brands have many locations of their own that are readily convenient. This seems to be adding a lot more work than payback. For my 2 cents.
From a customer point of view, this is a sensible partnership. By virtue of the number of stores and their locations, Walgreens is very convenient so makes a perfect pick-up place. That Walgreens also gets to elevate its own grocery offer by stocking Kroger brands is beneficial.
Now, that said, while I applaud Kroger for all that it is doing to innovative in digital, it really needs to pay attention to its store estate – much of which is now grotty and down-at-heel. Initiatives like the one with Walgreens only serve to push people away from stores, which dilutes margins. There needs to be more of a balance of driving online and giving people reasons to come to stores.
Hoping that a merger never happens. We love our Kroger pharmacists and my neighbors hate their Walgreens pharmacists (they are forced to use them for insurance). In a Kroger-centric area like Northern Kentucky (assuming the Cincinnati suburbs), how much easier are they really making this? If I look at my part of the Atlanta suburbs, there are no Walgreens that aren’t within a few blocks of a Kroger.
My first reaction is: too complicated. If KISS is the recommended approach, this is not it! Too many logistics issues and I think the consumer will be somewhat confused for the first three to five years (if it works at all). Good luck with this one.
The convenience and cost of getting groceries to the consumer are critical to the ultimate success of multichannel grocery. Leveraging ubiquitous retail pickup points, a la Walgreens, is smart of Kroger and a way to drive incremental foot traffic to Walgreens. No surprise to see that the grocer making this initiative happen is Kroger, further demonstrating how much faster and bolder Kroger is than their competitors.
I’m glad to see the new world of commerce and collaboration happening. This is a great way to reach more customers and satisfy the consumer’s thirst for convenience.
I do see some consumer issues in this — during the course of fulfillment, what happens when a consumer doesn’t get what they ordered? (What? Does that happen?) What happens when the product gets damaged? (Definitely not … this never happens.)
Not having suitable answers for these is going to leave the consumer with less than satisfactory experiences that won’t bring them back. Hopefully Kroger and Walgreens are working this out.
Both Kroger and Walgreens are big enough to test an outside-the-box idea like this one, and none of us has a crystal ball about where this will lead. I frankly see an alliance (like the CVS stores inside Target) being more feasible than a financial combination — there is nothing Walgreens would like more than several hundred new locations inside Kroger stores.
This reminds me of the speculation swirling around Kohl’s when it installed Amazon return desks (and “device” shops) in its stores — Is Amazon buying Kohl’s? Why would Kohl’s “sleep with the enemy”? As it turned out, the alliance was a win for both companies, and maybe this trial run will turn out the same.
Somewhere inside the bowels of Walgreens and Kroger this looked good outlined on a whiteboard. Retailers have a difficult time just managing the inventory they are supposedly being paid to sell by their vendors. This makes for a good press release but I suspect this experiment won’t capture the attention of either Kroger or Walgreens shoppers.
I can see many possibilities here as well as additional partnerships with other retailers. We’ve already seen success with Amazon partnering with retailers so why not include brick-and-mortar opportunities? The victory will come from how both retailers use this program, how they market it and provide incentives for customers. Cross-promoting both brands is the first that comes to mind so for example, if I go to Walgreens to pick up my Kroger items, perhaps I can receive a coupon for the next time I shop in both Walgreens and Kroger. Moreover, when I visit Kroger, they could promote the partnership with Walgreens and give a coupon for something available in a Walgreens store. Sharing traffic and using promotions wisely can help both parties increase sales.
I know that some retailers trying BOPIS now in their own parking lots are running into logistics problems. Given that, this is going to be a real challenge given the disparate real estate strategies. Could work in a limited way where a Walgreens is on the corner of the Kroger lot, but otherwise, this seems like good PR more than anything.
Having said all that, it’s good they’re trying something! The fail fast mentality has finally taken hold at mass retailers. Bravo for that at the very least.
Although only a test, I view this as part of a continuous effort by Kroger to increase its online presence in a manner that is both customer friendly and cost effective. The ultimate winner here may be Walgreens, particularly if it drives additional customers into its stores.
Going forward, this could be something bigger along the lines of Target/CVS. The aging of America underscores the potential impact of CVS and Walgreens. This is a great way to begin the dating process.
Digital order ahead with curbside pickup is a huge trend sweeping the U.S. So distributing that pickup experience to more convenient locations makes perfect sense for Kroger. In the U.K. (where the trend is a bit more mature) it’s common to see petrol/gas stations as grocery pickup options. Walmart and Amazon are both experimenting with pickup-only locations.
Adding Rx distribution is an added value (if it can be done in a low friction way). The devil will be in the details (do I have to go in the store to opt out of consulting with the pharmacist to get my prescription with my groceries?).
It’s also a continuation of another smart play we are seeing Kroger run, which is to evolve from private label to owned brands. Simple Truth is the #1 organic brand in America, and now Kroger is expanding it globally via Tmall (Kroger is a retailer in the U.S. but in China they are now a food brand). So adding Simple Truth to Walgreens is also a smart play for Kroger.
It’s less clear how big a win this is for Walgreens. The main value proposition around buying everyday essentials and food from U.S. drug retailers is that it’s convenient while you’re picking up a prescription. Drug doesn’t win on assortment or price. So as more consumers shift to at-home or curbside pickup for prescriptions, that’s bad news for the retail side of drugstores. Outsourcing the digital shopping experience to Kroger is probably not a long-term win for Walgreens.
Partnerships aside, an interesting twist here is expanding exposure of Kroger’s private brand labels to a larger and “new” audience that might not be the same as their grocery audience. This is an extension of omni-pickup testing well. Nice play, expect to see more of this across the industry with very different types of partners. The question will be whether the partnerships are sustainable over the long haul — I don’t see this as merger material though.
As pointed out by other panelists, the two brands may not have chosen an ideal test market. The advantages of the partnership are highlighted when there is sufficient distance between locations. Only then does the stocking of some Kroger items and delivery from online shopping in Walgreens stores represent a true convenience for customers.
The longer play for Walgreens would be to become the pharmacy inside of all Kroger stores, but what is the incentive for Kroger to give away its pharmacy business? Insurers are increasingly influencing consumer choice of pharmacy. For example, Blue Cross Blue Shield in Florida designated Walgreens as its only pharmacy, meaning policyholders can no longer use CVS to fill prescriptions. The result: choice in pharmacy is eliminated. Kroger could drive store traffic by aligning with the insurer-designated pharmacy in large markets.
Which begs the questions on why people are Kroger private label customers if they aren’t near one and need a Walgreens for pick-up….
While the category integration makes sense given the overlap and frequency of customer touchpoints, I don’t understand this as the right partnership starting point given the complexity with limited scope. If this is a BOPIS opportunity for Kroger, how did customers become Kroger loyalists without being near one and needing a Walgreens to pick up? This seems mostly to make sense in a private label brand distribution, which could be profitable, but doesn’t appear to be the sexy lede. The bigger question is whether this is a beginning discussions of a larger more integrated vision that is actually transformative.
This partnership really underscores the disruption that is reverberating throughout the CPG industry – it combines brick-and-mortar and e-commerce, healthcare and food & beverage, private label and national brand, and more! We are seeing two really powerful retailers again recognizing that the game is changing, and the old way of doing things is no longer enough to win the hearts – and wallets – of today’s shoppers. While the partnership may not be “the golden ticket,” it is certainly another major step in exploring the always-evolving future of CPG.
The bigger headline is that Walgreens will be carrying Simple Truth items. This further cements the brand as a national brand vs. private label.
However, the logistical nightmare and extra costs for Kroger to deliver online grocery orders to Walgreens stores doesn’t make much sense especially when testing in the Cincinnati metro where Kroger and Walgreens are everywhere:
It’s great that Kroger is testing novel ideas and not resting on its laurels, but this seems like more of a potential problem than a solution for most shoppers?