Dive Brief:
- Walgreens and Kroger last week announced they have established a joint venture to combine buying power, according to a press release. The group purchasing organization (GPO) is called "Retail Procurement Alliance" and will involve both retailers' private label brands.
- Kroger will contribute grocery expertise to the partnership while Walgreens pulls the weight in health and beauty purchasing, according to the release. Kroger CFO Gary Millerchip told CNBC the GPO is open to other retailers joining the alliance.
- Kroger and Walgreens have collaborated since 2018, placing mini Kroger grocery outlets in a few dozen Walgreens stores and selling Walgreens-branded health products on Kroger shelves. Millerchip called the GPO an extension of the partnership.
Dive Insight:
"GPO's sit between the suppliers and the customers," Chris Sawchuk, principal and global procurement advisory group practice leader at the Hackett Group, told sister publication Supply Chain Dive in an interview.
Though most well known in healthcare purchasing, GPOs are not uncommon in retail. Small and mid-sized buyers within specific product categories, such as office supplies or athletic gear, sometimes band together to stay competitive with larger, national brands. Hotels and foodservice firms commonly enter into similar arrangements.
GPOs are less common, though, among retailers of Walgreens' and Krogers' size. One of the few examples of similar arrangements comes from Europe, where grocery giants Carrefour and Tesco entered a purchasing alliance in 2018.
Despite sparse precedent, by the numbers, it's not too difficult to imagine why either Kroger or Walgreens would want more buying power.
Kroger and the Walgreens Boots Alliance together represent roughly $253 billion in revenue in 2018 revenue, while CVS Health reported $195 billion, Amazon $233 billion and Walmart $500 billion.
In terms of inviting more members and increasing the total spend, for legal and strategic reasons new members will need to be vetted carefully, Sawchuk said. It's unlikely that either entity would welcome direct competitors or any members that might bring the attention of the Federal Trade Commission.
The success of the endeavor and the benefit to GPO members often lie in the terms, none of which are yet disclosed for this endeavor. No matter the structure, retailers' suppliers are likely displeased about this development. When Carerefour and Tesco joined buying power, suppliers told Reuters the move threatened their survival.
