Dive Brief:

• Kroger has announced plans to buy pharmacy records from 42 Shopko locations, according to the Milwaukee Journal Sentinel. Financial terms of the deal were not disclosed.
• Shopko pharmacy customers in Wisconsin will have their prescriptions transferred to their local Kroger store, which includes Pick 'n Save, Metro Market and Copps banners — all of which fall under the Roundy's division umbrella. Kroger will also take over Shopko pharmacy records in Utah, Nebraska, Idaho, Washington and Montana.
• Kroger CEO Rodney McMullen told the Journal Sentinel that the large number of Shopko pharmacy files being acquired shows the commitment by the grocer and its Roundy's division to investing in Wisconsin, where 25 of the 42 stores are located, and building its presence to better serve customers throughout the Upper Midwest. Kroger’s purchase of Shopko's files comes on the heels of an announcement that the department store will shut down 39 stores in 14 states.

Dive Insight:

This deal comes as Kroger continues to invest in its Roundy's business. This fall, the company announced it would consolidate its Roundy's and Mariano's divisions into a single entity. Since it bought Roundy's in 2015, Kroger has invested more than $300 million in store remodels throughout the division's home state of Wisconsin.

Kroger continues to make strategic investments and smart acquisitions as it looks to year two of its Restock initiative. Its purchase of Shopko pharmacy files is a well-intentioned, logical move to generate new customers and better serve existing ones, especially as shoppers seek to streamline time spent in stores and consolidate shopping trips. Kroger is making a clear play in the pharmacy space, with another recent announcement that it would begin selling groceries and offering pickup at 13 Walgreens locations around the country. 

The fusion of pharmacies and retail is gaining traction throughout the country. CVS operates pharmacies inside Target stores, and though it fell through, Albertsons had big plans to acquire Rite Aid earlier this year. Amazon acquired PillPack in June, showing that it’s not just brick-and-mortar retailers that want in on the pharmacy business. 

The effort to bring pharmacies and food together is being driven by grocers' commitment to becoming a source of health and wellness for customers and entering the food-as-medicine space. Many grocers including Supervalu, Hy-Vee, Publix and Raley's are launching services such as in-store health clinics and kiosks, diabetes screenings and full-time dietitians. Others are creating a curation of food, health and beauty products and pharmacy offerings to provide customers with a shopping experience that meets all their eating and wellness needs. 

This is the first major effort Kroger has made to boost its pharmacy business directly. Kroger recently announced growth in its low-margin specialty pharmacy business during third-quarter earnings, which ate into profits but shows a potential growth area for the company. Taking over Shopko's pharmacy records allows the grocer to tap into an established customer network from a well-known Midwest entity, despite its recent troubles and pending bankruptcy.

Though pharmacies can be low margin, many retailers are attracted to the added convenience of a pharmacy inside their stores and the ability to offer one-stop for their shoppers, which should drive customer loyalty. Other grocers, like Stater Bros. think it is a risky investment that detracts from their focus on food and their ability to meet the demands of customers in the ever-changing food and grocery space.