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Kroger to Sell Groceries In Walgreens Stores -- WSJ

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12/05/2018 | 02:48am EST

By Heather Haddon

Kroger Co. plans to sell groceries in branded sections of Walgreens Boots Alliance Inc. stores, as both retailers look for ways to keep customers loyal to their products.

The first "Kroger Express" sections will open by early next year in 13 Walgreens stores near the grocer's Cincinnati headquarters. The companies said they would add more of the 4,000-square-foot displays of produce, Home Chef meal kits and other products if customers take to them. They will account for roughly a third of an average Walgreens selling space.

Like most traditional retailers, Kroger and Walgreens are also racing to reach new customers and reshape their businesses to account for the rise of e-commerce. Amazon.com Inc.'s 2017 purchase of Whole Foods and its $1 billion bid in June for online pharmacy PillPack Inc. have raised pressure on supermarkets and pharmacies to change their businesses.

CVS Health Corp. last month completed a nearly $70 billion merger with insurer Aetna Inc. Walgreens and health-insurance provider Humana Inc. are in talks to take equity stakes in each other, The Wall Street Journal reported last month.

Supermarkets are also under pressure as consumers buy more of their food outside big food stores. Chains of smaller stores like Aldi have lured away customers with low prices on a narrower selection of goods.

Grocery stores that sell a more limited range of items saw their sales grow about 7% last year, according to Inmar Analytics, while sales at traditional supermarkets were up about 1%.

"We are definitely seeing that customers are changing and looking for different options," Gary Millerchip, a Kroger executive leading corporate partnerships, said in an interview.

Kroger and Walgreens executives wouldn't say how the companies would share sales revenue or provide financial details of the deal. Kroger and Walgreens will supply and operate the Kroger-branded sections together, officials said.

Kroger won't sell store-brand items that compete with Walgreens's private-label products, but it will take over its supply for branded goods, the companies said. Deerfield, Ill.-based Walgreens has struck a number of deals recently, such as taking a minority stake in the Birchbox Inc. cosmetics company and offering parcel services at stores through FedEx Corp.

"This is consistent with our broader partnership strategy," said Adam Holyk, Walgreens senior vice president and chief marketing officer.

Grocer Albertsons Cos. and pharmacy chain Rite Aid Corp. earlier this year attempted to merge to better position both companies to fend off competitors. The deal failed after Rite Aid investors protested the share price offered, among other issues.

Kroger's agreement with Walgreens mirrors aspects of the scrapped Albertsons deal. The arrangement would have put Albertsons's store-brand products and its Plated meal-kits in Rite Aid stores. Private-label products are more profitable for grocers than sales of goods made by other companies.

Kroger has made six deals this year to broaden its reach and revenue streams, ranging from building warehouses where robots will pack groceries to selling its goods online in China through Alibaba Group Holding Ltd.

In October, Kroger added some Walgreens stores to the list of locations where its customers can pick up groceries ordered online. Kroger said it also would sell Home Chef meal kits at 65 Walgreens pharmacies in Chicago.

Meal-kit companies are looking for more sales in stores as subscription sales of the pre-apportioned packages have stalled. Kroger acquired Home Chef in May.

Kroger is scheduled to report third-quarter earnings on Thursday.

Write to Heather Haddon at heather.haddon@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM -0.24% 1887.46 Delayed Quote.2.39%
KROGER -0.14% 28.37 Delayed Quote.-2.00%
SQUARE, INC. 0.56% 68.69 Delayed Quote.9.80%
WALGREENS BOOTS ALLIANCE -0.84% 53.42 Delayed Quote.-9.40%
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Sales 2020 122 B
EBIT 2020 2 867 M
Net income 2020 1 779 M
Debt 2020 13 132 M
Yield 2020 2,12%
P/E ratio 2020 13,0x
P/E ratio 2021 12,0x
EV / Sales2020 0,29x
EV / Sales2021 0,28x
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Michael Joseph Donnelly Chief Operating Officer & Executive Vice President
Gary Millerchip Chief Financial Officer & Senior Vice President
Yael Cosset Chief Information Officer & Senior Vice President
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