US retailers Kroger and Walgreens are expanding their partnership to form a new group purchasing organization (GPO) under the name of Retail Procurement Alliance, designed to improve efficiencies across the supply chain through higher joint purchasing volumes. Kroger will focus on the food category, while Walgreens will lead health & beauty purchasing. The two retailers will also look into the joint manufacturing of private label brands.
Buying alliances have been predominantly an EU phenomenon so far, where they have helped retailers to circumvent anti-competition laws, build scale and secure competitive advantage on a country-level. The purchasing alliance between Kroger and Walgreens comes at a time when both retailers face growing competition from larger competitors like Walmart, CVS Health and Amazon, and is a logical solution to generating operational efficiencies. In order to stay competitive in today’s ecommerce-driven landscape it will be crucial for retailers to partner to achieve profitability.
With Kroger and Walgreens inviting other retailers to join their alliance, suppliers should prepare for the possibility of buying groups gaining traction in the US. CPGs must draw from the European experience, where A-brands and private label producers have faced substantial margin pressures and tougher negotiations, as their dependency on fewer and larger retailer customers increased. Meanwhile, smaller brands will have to prove their relevance to buying groups to secure listings in the face of expected assortment harmonization.
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