Walgreens and Kroger Partner to Cut Supply Costs

Walgreens and Kroger announced they are expanding an agreement that allows the brands to source more products together, which will drive down costs. The joint venture, which was announced last week, will be called the Retail Procurement Alliance.

Alex Gourlay, co-chief operating officer of the Walgreens Boots Alliance, said in a statement that this growth purchasing organization will see the two companies pool their resources “to create efficiencies across our supply chains.” By analyzing food merchandise overlaps, orders can be merged to lower costs, improve efficiency and scale.

Kroger CFO Gary Millerchip explained that, in addition to driving innovation for customers, “this concept brings together the best of two great organizations to reinvent critical components of our sourcing practices.” CNBC reported that Kroger will also look to manufacture Walgreens products in-house to further improve the efficiency of their supply chains.

The two companies initially launched an exploratory pilot in October 2018 at Walgreens locations in Kentucky, and expanded in August to over 35 Walgreens locations in Knoxville, Tenn. Additionally, a curated assortment of Walgreens health and beauty products made their way onto the shelves of 17 Kroger stores in the same city.

Kroger Express, the collaboration between the health and beauty purveyor and the grocery seller that aims to be a true “one-stop shopping experience,” stocks Kroger-brand food products in select Walgreens stores in Northern Kentucky. Kroger’s online customers could also pick up their digital orders at these Walgreens locations.

Walgreens and Kroger store interior

Earlier this month, Walgreens Boots Alliance CEO Stefano Pessina said that the partnership with Kroger has led to increased sales in Walgreens.

Millerchip also said that Kroger and Walgreens were open to other retailers joining the Retail Procurement Alliance. The alliance is coming at a time when Walgreens is competing with the CVS-Aetna healthcare behemoth, and Kroger will have to reckon with the aftermath of Amazon’s first grocery store, setting up shop in Los Angeles in 2020.

Walgreens declined to provide further comment on the RPA.

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