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Retailer "Co-opetition"

Competing against Wal-Mart, Costco, Aldi, and other powerful retail players hasn't been easy; and in the low-margin grocery channel, there isn't much margin for error. But for decades Kroger, with its portfolio of strong regional grocery brands, has managed to hold its own. Staying relevant, however, is another matter altogether with Amazon's recent and dramatic foray into grocery providing a stimulus for a change in Kroger's marketing strategy.

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Walgreens also has been feeling pressure from Wal-Mart et. al, as the drug channel has become cluttered with too competitors offering similar products. Marketers of higher margin drug and personal care items also want to stay ahead of the curve and look for new ways to keep customers loyal to their stores and the products they carry. As such, Walgreens is currently in talks with Humana, a health insurance provider, to form a partnership that benefits both entities. Walgreens gets to expand its service offerings and Humana secures a strong national retail presence. Sounds like a healthy alliance.

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So what do Kroger, a grocer, and Walgreens, a drug store, have to do with one another? Cooperate. In a major shift in strategy, Walgreens has taken a page out of the Wal-Mart playbook and will soon offer groceries in its drug stores. But the groceries will be branded as "Kroger Express" stores, as Kroger will be providing all the groceries. It is not yet clear how the arrangement will play out, but by early next year, there should be Kroger Express sections in several Walgreens locations. It is unnecessary to be hasty, and so perhaps a slower roll-out would give marketers more time to smooth over any kinks that are sure arise. Kroger already sells drug channel products, but a close alliance with Walgreens could help these grocery marketers improve their efforts to sell more high margin drug and personal care items. Perhaps Kroger will soon have Walgreens sections. We shall see.

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But as is the case with these sorts of alliances, great care must be taken to avoid one company "cannibalizing" too much of the sales of the other as they become more similar. Indeed the fact that the two entities will be working to together to succeed in Walgreens locations increases the prospects of both entities coexisting healthfully, but they will still compete against one another. Call it "retailer co-opetition". It will be very interesting to see where each of these retailer brands stands five years from now. One thing is for sure, these sorts of alliances are going to become more and more common.