Kroger, Walgreens pilot one-stop shops

Looking for avocados? They’re near the Aleve.

Band-Aids? You passed them when you grabbed a banana.

A one-stop shop for your grocery and pharmacy needs is what Kroger and Walgreens have in store. Through “Kroger Express,” the grocer will add more than 2,300 products at 13 Walgreens locations in Northern Kentucky, selling dairy, meat, produce, frozen foods and more. The first pilot store is already open in Florence, Kentucky, with the remaining 12 locations debuting early next year. Shoppers can also order Kroger groceries online to be picked up at Walgreens.

The partnership comes as brick-and-mortar retailers look for new ways to compete with e-commerce giants, especially when it comes to groceries. Analysts say both companies could stand to benefit: Kroger could see a major boost to its national footprint if the pilot expands, for example. And Walgreens could reel in foot traffic from shoppers who regularly refill their prescriptions and decide to pick up dinner, too.

But analysts also have a lot of questions: How will profits be divided between the companies? Will the space inside Walgreens stores be leased out to Kroger? Will Walgreens pay its own employees to stock Kroger items? Could there be any overlap between Krogerbrand and Walgreens-brand items sold on the same shelves?

“There are so many things we don’t know,” said Bill Kirk, a food retail analyst at RBC Capital Markets. “And frankly, I think it’s because they don’t know yet.”

Walgreens said its own employees will stock Kroger Express shelves, and that Kroger is responsible for supplying the products to Walgreens locations. Kroger’s groceries will take up about 4,000 square feet of a Walgreens store, which average about 10,000 square feet of inventory. Walgreens declined to say whether that space would be leased or shared under some other arrangement.

In the absence of much more information, analysts aren’t convinced that shoppers will think of Walgreens as a place to go for groceries, or that people would think to order their groceries in advance and then pick them up at the drug store.

“I think [Kroger] must think they have a really, really strong brand that will carry over to another venue,” said John Ransom, managing director of health-care equity research at Raymond James. “And that’s where I get to be a little skeptical.”