Building on their existing collaboration, Kroger and Walgreens will join forces to source a number of products together, through a joint venture called Retail Procurement Alliance.
Aim to deliver cost savings and increase efficiencies
By identifying any overlap in the products they both merchandise, the new group purchasing organisation (GPO) aims to increase purchasing efficiencies as the retailers join their resources to procure these. The increased scale will also lower costs and other retailers are being invited to join the group if they have significant buying in these areas, to drive these efficiencies further. The collaboration is expected to improve innovation in meeting customers needs for convenience and value, particularly through both retailers' private label products. Private label development is an area of strength for both businesses; combining the sourcing of products could also lead to the sharing of more innovation and unlock new opportunities.
"This collaboration is an extension of the strategic collaboration announced last year to create value for customers and shareholders of both companies. Kroger and Walgreens share a commitment to finding value and efficiency improvements by increasing innovation and competition through sourcing.”
Gary Millerchip, Kroger's Chief Financial Officer
Extension of the existing partnership
Over the last year the two companies have started to work closely together on a range of strategic initiatives. Kroger Express stores have been launched within around 50 Walgreens stores and online orders from Kroger can be picked up from selected Walgreens locations. There has also been a trial of Walgreens health and beauty products in 17 Kroger stores. Given the leading positions of both these retailers, improving components of their supply chains will have an impact on competition in the market and will help them compete more effectively, particularly on pricing.
Impact on suppliers
As with any buying group, this collaboration may change the way in which suppliers work with each of these retailers. Expect prices to be driven lower but on the flip side, the scale of the order will potentially increase. For existing suppliers, consideration will need to be given as to how these changes may affect your business and how best to negotiate with the new procurement organisation. While the initial scope of the partnership is for private label products, success in this area could see it evolve to include other products. What is becoming evident is that these two major retailers are finding new areas of collaboration which over time could see them form a more strategic and long-term relationship.
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