Dive Brief:
- Kroger is in talks with prospective partners in the health care industry about developing a new line of business, Bloomberg first reported.
- CEO Rodney McMullen said that Kroger is exploring which area of health care it could pursue to benefit its customers. A health care offering could establish a new revenue stream for Kroger with the potential to help generate additional operating profit.
- "Health care is an area where we see a lot of opportunity," McMullen told Bloomberg. "We’re talking to several potential partners at the moment," which he declined to name.
Dive Insight:
As the grocery industry experiences ongoing price pressure, companies are working to find additional sources of higher-margin revenue to boost profits and offer more value to their shoppers, and health care could be an answer.
This news comes on the heels of Kroger’s Q4 earnings call, during which CEO Rodney McMullen highlighted the importance of Kroger’s alternative businesses. McMullen said that in 2019, Kroger expects 20% profit growth in alternative businesses, with plans to launch more new businesses that are “symbiotic” to the company’s core and deliver high margins.
"We are transforming from grocer to growth company by deploying our assets to serve even more customers and create margin-rich alternative profit streams," McMullen said.
An entrance into the health care industry may fit the bill for Kroger. The company has shown an increased emphasis in the health space in recent months, launching a prescription drug membership program aimed at reducing up to 85% of drug costs for consumers. Kroger also acquired pharmacy records from 42 Shopko stores in the Midwest, citing an opportunity to better serve customers. The retailer offers vaccinations at many of its in-store pharmacies and operates on-site clinics at more than 215 Kroger retail locations.
Kroger isn’t the first retailer to get into health care, however. Amazon, Berkshire Hathaway and J.P. Morgan just announced that they'll name their joint health care venture Haven, with a goal of delivering simpler, lower cost health care to consumers. Haven's website has also launched, offering new details about the organization.
Walmart has been building up its health care offerings, too. The company continues to expand its Center for Excellence program, which establishes a list of preferred providers where Walmart employees can go for a variety of treatments and surgeries. Walmart has also offered free health screenings to customers for the past four years as part of its Walmart Wellness Event. The program grows larger each year, with 4,600 Walmart stores participating last September.
The marriage of health care and retail makes sense, given the prevalence of retail locations and the frequency with which shoppers visit their local grocery stores. Grocery stores are a comfortable, familiar place for many people, and the ability to access health services there is likely to appeal to customers.
