Drugstore/grocery pilot is two-thirds Walgreens and one-third Kroger

Discussion
Photo: The Kroger Co
Dec 05, 2018
George Anderson

Kroger and Walgreens have provided more details on the 13-store pilot program the two chains announced in October and the scope of the program appears to be even larger, at least from a footprint standpoint, than previously let on.

The Kroger Express store-within-a-store concept will take up about 4,000-square-feet of each Walgreens, about a third of the typical selling space within the chain’s drugstores. Walgreens launched the first test location in Florence, KY with plans to open the rest in the northern part of the state in early 2019.

Each test location will carry an assortment of 2,300 products curated by store using an analysis of customer data from Kroger’s 84.51º subsidiary. The Kroger Express shops will sell fresh produce, meat, dairy, frozen and an assortment from the grocer’s private labels with an emphasis on its Simple Truth natural and organic line.

Robert Clark, senior vice president of merchandising for Kroger, said the pilot locations will serve as a destination for Walgreens customers to do some of their fill-in grocery shopping.

The test stores along, with 65 other Walgreens in the Chicago market, will also sell Kroger’s Home Chef meal kits. As part of the pilot, Walgreens will sell three Home Chef meal kits with recipes changing on a bi-weekly basis. Consumers in Chicagoland may already be familiar with the Home Chef line from its online sales and availability at Kroger-owned stores in the market.

Mr. Clark said customers at Kroger-owned Mariano’s have “responded favorably” to the kits sold in its stores and the Walgreens expansion will offer “more Chicagoans convenient access to a quick, simple meal.”

DISCUSSION QUESTIONS: What does dedicating one-third of its selling space to Kroger Express say about the Walgreens’ current evaluation of its non-pharmacy business and its future prospects? How will fill-in grocery purchases made at Walgreens affect the revenues generated by Kroger’s supermarkets in the area?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The business model spells convenience for the shopper and assuredly Kroger does grocery and ready-made foods better than Walgreens."
"While I love the innovation Walgreens continues to pursue, I continue to be challenged with Walgreens’ merchandising."
"...important to note that for major drug chains, more than 90 percent of their PROFITS come from the prescription business in the back of the store."

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20 Comments on "Drugstore/grocery pilot is two-thirds Walgreens and one-third Kroger"


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Mark Ryski
BrainTrust

Dedicating one-third of selling space to Kroger says that Walgreens is very serious about grocery. Grocery is a traffic driver, and Walgreens is betting that a robust grocery offering will help keep traffic up and opportunities to sell these shoppers more non-grocery items. There’s no doubt that the potential cannibalization impact was carefully considered by Kroger in their assessment of which Walgreens locations/markets were selected. Overall bold move.

Chris Petersen, PhD.
BrainTrust

“Fill in” grocery shopping assumes that there is a convenient location and sufficient foot traffic. This will be an interesting experiment indeed — will consumers see this as a convenience store with pharmacy, or a pharmacy with convenience foods, or something else? Given the rising capabilities for click and collect as well as the delivery of groceries, prepared meals and prescriptions, this format faces very stiff competition from Walmart and national grocery chains. A real key to the strategy will be the ability to curate assortments to the individual local store. While there are many variables challenging this pilot, it is far better to test than sit idly by and get run over by the disruptors.

Jeff Sward
Guest

This makes perfect sense, just like it did when Walmart and Target went into the grocery business. The smaller footprint and “fill-in” shopping make for better efficiency for all. Efficiency of space + inventory = profit.

David Weinand
BrainTrust

While I love the innovation Walgreens continues to pursue, I continue to be challenged with Walgreens’ merchandising. Kroger has a more evolved approach so giving up so much space will be refreshing as long as Walgreens doesn’t try to cram the merchandise they had in the space given to Kroger into the remaining two-thirds of the store. As far as any impact on Kroger’s supermarkets, the additional channel will likely help the top and bottom line rather than hurt it.

Dave Bruno
BrainTrust

Ha! Now that would be something if they didn’t cull their assortments, Dave, and instead just mashed everything in there!

Adrian Weidmann
BrainTrust

This is a mutually beneficial synergy. With more than 9,000 stores across the U.S., Walgreens has incredible geographic coverage. They have become a neighborhood destination and part of the local fabric. It makes perfect sense to team with Kroger to provide grocery staples. There is now another opportunity to sell bananas! This will certainly compete with petroleum convenience stores. I suspect shoppers will be more apt to buy groceries at Walgreens as opposed to the local BP gas station.

Neil Saunders
BrainTrust

Grocery is a critical driver of footfall and by dedicating so much space to it, Walgreens has shown it wants to go beyond just being a place where consumers can pick up the odd forgotten item.

I am broadly supportive of this strategy because it fits with changing grocery shopping habits where people are doing more smaller shops. Walgreens locations are convenient and Kroger’s offer is superior to anything Walgreens could put together itself. The challenging part will be making this habitual for consumers.

Dick Seesel
BrainTrust

I have the same question as David: What is Walgreens prepared to edit out of its assortment to devote so much space to grocery? The store already suffers from too much clutter and a lack of focus on its core health business.

Liz Adamson
BrainTrust

Busy consumers love one-stop shopping — adding grocery to their stores will bring what is probably much-needed additional foot traffic. With many large grocers, including mega stores like Target and Walmart, offering onsite pharmacies, and the rise of mail order pharmacy, Walgreens does need to be experimenting with ways to position their stores as a convenient place for consumers to knock several errands off their list at once. Strategic placement and selection can help prevent cannibalization from existing Kroger stores.

Dave Bruno
BrainTrust

Seems like a win for both Walgreens and Kroger to me. I have long felt that Walgreens struggled with their grocery assortment and pricing strategies, so outsourcing to Kroger to develop localized assortments feels like it can only be an improvement. The traffic gains will benefit Walgreens, and I doubt that Kroger risks too much cannibalization. And the private label emphasis will only help build the brand …

Steve Montgomery
BrainTrust

The first thing that came to mind was that this was an admission that Walgreens’ internal attempt to operate a c-store-within-a-store concept did not produce the results that it wanted. In essence this test is Walgreens outsourcing the c-store portion of its business to someone that has extensive c-store experience.

Until Kroger recently sold its c-stores it operated 700 c-stores across the country. It has the knowledge and expertise to successfully operate or support the operation of these locations.

The can be a win for both companies. Walgreens gets the added foot traffic that the c-store merchandise will draw and Kroger gains additional points of distribution without having to invest in new locations.

Richard J. George, Ph.D.
BrainTrust

For Walgreens, this deal allows it to expand the food and beverage assortments in its stores beyond what it could potentially do profitably on its own. On the other hand, Kroger gets to showcase its high-end private label, including the noted Simple Truth brand worth $2 billion.

Going forward there is no doubt that drugstores are moving up on the competitive radar of traditional supermarkets as they offer more food and beverages, including prepared meals, fresh produce and bakery products.

If this experiment works, I see Kroger developing similar formats for places of high consumer traffic, like hospitals, airports, office buildings, etc. The threat to traditional food retailers is real. According to research by McKinsey and Co., traditional grocers could lose as much as $700 billion globally to competing formats, with over half at risk of being forced to close if no preemptive or defensive action is taken.

Kai Clarke
BrainTrust

Dedicating one-third of their space to a Kroger Express concept is a smart test for Walgreens to measure how fill-in grocery purchases can impact the Walgreens consumer, as well as how it impacts grocery purchases at local Kroger supermarkets. Mixing and matching consumers will provide for a new target market mix that Walgreens is not seeing, as well as a new purchasing dollar spend. Great move and test by both Walgreens and Kroger!

Shelley E. Kohan
BrainTrust

The business model spells convenience for the shopper and assuredly Kroger does grocery and ready-made foods better than Walgreens. The question on cannibalism reminds of when retailers went online and the big question was if it would impact store sales; we all know how that has turned out by building deeper loyalty across more touchpoints. On the Walgreens side, a more edited assortment would help the inventory turn and provide a more focused value proposition to the target market. Holistic wellness and beauty would make the most sense.

Sid K. Hasan
Guest

The answer here may be Amazon buying Rite Aid.

Jeff Bezos is not buying brick-and-mortar for ketchup and amoxicillin — he’s buying to gain a holistic view of a consumer’s buying manifest.

I urge my fellow RetailWire readers to understand one fundamental principle: “In God we trust; all others must bring data.”

Gene Detroyer
BrainTrust

Today retailing is convenience for the consumer. Personal time continues to press on individuals. That personal time is not only work and family related but also entertainment and leisure. Once upon a time shopping used to be entertainment or distraction (even the grocery store). Today it is a necessity to be avoided. This makes all the sense in the world.

Fill-in shopping will be the driver for groceries as more basic shopping continues to move online.

Herb Sorensen
BrainTrust
Sounds like a great idea to me. First, because even in a 40,000 square foot supermarket, more shoppers buy only one item than any other number, with two items being the second most common, etc. So a “drug store” is far closer to the proper size for a “supermarket” than the capital intensive, wasted space and inventory that is the expected “supermarket.” There is a lot more, but it is important to note that for major drug chains, more than 90 percent of their PROFITS come from the prescription business in the back of the store. How to get and hold that pharmacy business has always driven the need for traffic in the front of the store. This is the same principle that drove Walmart to be the #1 global retailer, (Here comes Amazon!) when Walmart added serious groceries beginning in the ’80s. Walgreens/Kroger is now adding SERIOUS groceries! Profits from sales have long been subordinated in the supermarket world to “selling access to their shoppers,” to their suppliers, et al., keeping margin on sales… Read more »
Lee Peterson
BrainTrust

I don’t get it. More than a third of Walgreens’ space is already like a lot of parts of Kroger. Sounds like they’re just outsourcing the measly 15% of their business to someone who knows how to do it better. I don’t see this as a huge revenue lift at all.

Ken Morris
BrainTrust

The drugstore retail segment is under a lot of pressure from multiple angles: online prescription retailers, grocers expanding into pharmacy and drugstore items and the fact that there are probably too many physical stores. Hence, drugstore chains are testing new concepts and models – anything that will increase foot traffic and overall profitability.

This move by Walgreens seems like a smart strategy, as consumers appreciate anything that is more convenient and eliminates one more stop on a shopping trip. I think it is a better strategy than Walgreens test with an area for Birchbox, as from beauty customer perspective, they are two totally different demographics. Amazon lockers might be another thing for drugstores to test to increase foot traffic. The more concepts you test and measure, the greater chance you will find a winning concept. The idea of curating a micro assortment by location will be the key to the success of this test. This is a good move by Walgreens.

Howard Davidson
Guest

I find it amusing to see Kroger look for revenue anywhere it can irrespective of its so-called commitment to “customer experience” (let alone one consistent with its brand). What more proof do you need to demonstrate that delivering engagement and “experience” is all lip service when you choose to sell fresh foods next to lip gloss and hemorrhoid creme. Tellingly I think that WILL be the difference maker and those who don’t deliver will fall by the wayside in the brick-and-mortar side of their business.

wpDiscuz
Braintrust
"The business model spells convenience for the shopper and assuredly Kroger does grocery and ready-made foods better than Walgreens."
"While I love the innovation Walgreens continues to pursue, I continue to be challenged with Walgreens’ merchandising."
"...important to note that for major drug chains, more than 90 percent of their PROFITS come from the prescription business in the back of the store."

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