Brand Marketers Look at Kroger-Walgreens News Cautiously
When news broke last week of Kroger and Walgreens extending their partnership by forming a group purchasing organization (GPO), many national brand representatives were left wondering what impact this might have on their companies going forward.
While some marketers are taking a "wait and see" approach, others wondered if this might be a warning bell for many manufacturers, considering the private label implications of the GPO, which Kroger and Walgreens are calling "Retail Procurement Alliance."
The joint venture will aim at delivering purchasing efficiencies, lower costs and combined resources to help drive further innovation. “Kroger and Walgreens share a commitment to finding value and efficiency improvements by increasing innovation and competition through sourcing,” Kroger chief financial officer Gary Millerchip said in a news release. “This concept brings together the best of two great organizations to reinvent critical components of our sourcing practices.”
“Through this unique joint venture, Walgreens and Kroger have the opportunity to use our collective resources to create efficiencies across our supply chains,” Alex Gourlay, Walgreens Boots Alliance co-chief operating officer, said in the release. “This collaboration will also enhance our ability to drive innovation for customers, including both of our private label brands, to further meet their evolving needs for value and convenience.”
Store Brands reported that through the partnership, the companies will be able to buy from private label suppliers at a higher volume and negotiate discounts. In addition, the companies can leverage resources from one another, such as Kroger's 37 manufacturing facilities (where they manufacture some of their own brands) that Walgreens can potentially use, and Walgreens' sourcing company in Hong Kong that Kroger can leverage.
Don’t expect the flavor profiles and current private label products to change much as a result of the GPO, Store Brands reported, as the retailers understand the risk involved in changing up a product with loyal shoppers.
It's not clear whether the alliance will extend to negotiations with national brand suppliers, which some executives contacted by the Institute suggest could put more pressure on manufacturers to reduce pricing and could be especially bad news for brands that don’t rank No. 1 or 2 in their categories. But considering there’s not much information out there yet about it the Retail Procurement Alliance, some are reserving judgment until they learn more.