Kroger Co. (NASDAQ: KR) has come up with a way to help it compete with Amazon.com’s grocery business and Walmart’s large grocery operations. It will open locations inside of Walgreens stores.
The deal could give Kroger substantial leverage if it goes beyond the test stages. Walgreens Boots Alliance Inc. (NASDAQ: WBA) has 9,560 Walgreens locations in the United States, and they are in all 50 states. Kroger and related brands have approximately 2,800 locations.
Under the new arrangement:
Kroger Express—a curated assortment of 2,300 products, selected using customer data and insights provided by Kroger subsidiary—will soon be offered at the 13 Walgreens test stores in Northern Kentucky, near Kroger’s Cincinnati headquarters.
Additionally:
[I]t will launch Home Chef Express meal kits in 65 Walgreens locations in the Chicago area. The new offering enhances the reach of Home Chef’s Express products, already available at certain Kroger Family of Stores, including select Mariano’s stores in the Chicago area. During the pilot, Walgreens will offer three unique Home Chef Express meal kit options, with recipes rotating bi-weekly. Other recipes are available for delivery through homechef.com, where shoppers can find additional weekly variety.
The tests are modest at best. However, Kroger needs a way to flank its competition. Among its disadvantages is that it is only in the grocery store business while Amazon and Walmart can rely on much wider sets of operations.
Will the deal work? It will take months to know, and a rollout may be over a year away. Kroger is running out of operations to maintain its lead in the industry. Experiments like the Walgreens one are critical to growing without the expense of opening more stores, many of which may not draw the customers Kroger needs.
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