Dive Brief:

• Kroger will expand its Express store-within-a-store pilot to 35 additional Walgreens locations in Tennessee this fall, according to a news release. The Knoxville, Tennessee Walgreens stores will feature around 2,300 fresh, frozen and shelf stable goods, including private label products like Kroger's Simple Truth and Home Chef meal solutions. The assortment will vary by store and could include as many as 2,700 products.
• Most of the Walgreens stores will also serve as pickup spots for customers using Kroger's click-and-collect service. Shoppers place their order online, select a store location, then pull into designated parking slots at their selected time.
• Also this fall, 17 Kroger stores in the Knoxville area will offer an assortment of Walgreens private label health and beauty products. This includes over-the-counter medications and personal care items in brands like Walgreens' No7 and Soap & Glory.

Dive Insight:

Kroger's core grocery business is struggling, but it may find new life as a service for other retailers.

The grocer launched its tie-up with Walgreens last October, with around a dozen of the drug retailer's stores serving as pickup points for Kroger's online orders. Two months later, those same locations added 4,000 square feet worth of grocery space under the Kroger Express name. Sixty-five Walgreens stores in Chicago began offering Home Chef meal kits at the same time as both companies sought to boost traffic and push outside their legacy business.   

With the latest expansion, Kroger is building on its brand strength in grocery, in particular with its store brands, which now span several lines and account for more than 30% of the company's sales. Simple Truth is now a $2.3 billion brand and a standout in the growing private label health and wellness movement.

A key metric for Kroger will be whether the Express outlets drive engagement with its stores and e-commerce offerings. The locations also offer additional pickup points as Kroger battles Walmart and Target in click-and-collect. Grocers are finding pickup to be a popular choice for consumers, and additional access points are crucial for boosting convenience. Other retailers are experimenting with dedicated pickup spots, including Walmart and Amazon, which operate pickup-only depots, and Hy-Vee, which has rolled out grocery pickup lockers.

Just as Kroger's grocery offerings add authority and brand awareness to Walgreens' grocery assortment, Walgreens' health and beauty rollout inside Kroger delivers well-known brands to a growing category. According to Nielsen data, health and beauty care sales at food, drug and mass stores grew 1.5% in 2018 while general merchandise overall declined 1.6%.

Indications are the partnership has performed well so far. Walgreens' CEO Stefano Pessina noted in April he sees future expansion opportunity for the Express concept as his company focuses more on its non-pharmacy business. Walgreens has been putting additional resources toward its own food and beverage private label development, including Nice! and Finest Nutrition.

Could Kroger Express become a revenue generator for the company? Grocery has fractured in recent years, with everyone from hardware stores to home goods outlets offerings snacks, drinks, meals and more. Kroger's micro store could be a creative way for the grocer to join this movement rather than fight it. However, it has to make a strong case for other retailers to let it in their aisles. The company also has to be careful it doesn’t cannibalize sales from its own stores.

Still, there are numerous possibilities here. Kroger could lease out portions of its assortment, like Simple Truth products and Home Chef meal kits, depending on the retailer and the market. It could also explore micro markets in cities and inside office buildings and other establishments. Up-and-coming retailers like Green Zebra Grocery are putting in automated mini markets with an assortment of fresh and shelf-stable products.