Kroger: Eyeing growth opportunities

Giant supermarket operator Kroger views health and wellness as an area for long-term investment, a point underscored by its purchase last year of specialty pharmacy ModernHEALTH. Even as it faces headwinds related to food deflation, Kroger is keeping an eye on growth opportunities in its expansive market area, which includes 35 states and the District of Columbia.

Last year’s acquisition of ModernHEALTH by Kroger’s Axium Pharmacy Holdings unit was an indication of how Kroger views the health-and-wellness segment. “This strategic investment will accelerate the growth of Kroger's health-and -wellness business," said Robert Clark, Kroger's SVP of merchandising. "Expanding our specialty pharmacy services will provide our customers with greater access to medications we don't currently dispense, and access to additional services without going to another pharmacy."

When the deal was announced in July, Kroger said ModernHEALTH, based in Orlando, Fla., was one of the nation’s largest independent providers of specialty pharmacy services, employing about 500 associates who provided comprehensive specialty pharmacy services, including IVIG and comprehensive medication management for HIV, cystic fibrosis, transplant, hepatitis C, rheumatoid arthritis and dermatology. Kroger’s announcement pointed to specialty pharmacy as “the primary area of growth in pharmaceuticals.”

“Merging ModernHEALTH and Axium into a combined specialty pharmacy should improve purchasing efficiencies, and allow the companies to combine each other’s payer strategies to bring down costs,” Kroger said. “The combination also will allow Kroger’s specialty pharmacy business to expand into new territories in the West and Southwestern United States, and expand offerings to other disease states.”

Kroger executives were asked to further outline their view of pharmacy during the company’s second quarter financial conference call last year. Rodney McMullen, chairman and CEO, linked this directly to long-term consumer trends. “When you look at the total health-and-wellness strategy, we are very excited about the opportunities there,” he said. “Obviously, all of us, baby boomers, keep getting older and the new generations, as well, and it creates higher demand for pharmaceuticals and other things. So it's an area that we like.”

McMullen pointed to pharmacy as a differentiator for Kroger in the health-and-wellness arena. “It’s an area where we believe we have a unique competitive advantage just because we can start helping customers eat healthier, as well, and that’s something that’s a positive in terms of the overall connection with the customer.”

Kroger also views pharmacy as a good opportunity across its physical and online platforms, McMullen said. “When you look at all the pieces together, we think it's a great opportunity to create sum of all parts, where a customer can engage with us in a physical facility, online or through the specialty drug channel, and then we can leverage across … the Little Clinic … as well,” he said. “So we really get excited about the opportunities. And the other thing that we really like is that customer is very loyal, as well.”

In addition to 2,255 pharmacies, Kroger also operates more than 210 retail clinics under The Little Clinic banner, which the company acquired in 2010.

When a company like Kroger looks at health-and-wellness opportunities, it needs to first get a handle on how customers view it. For consumers, health and wellness could involve anything from services to information that the retailer provides, said Philecia Avery, Kroger’s VP of pharmacy, in remarks made during the Health, Wellness and Technology Summit sponsored by DSN in December.

“It also could be that they walk in looking for actual tangible products,” she added. “You know, are you selling Fitbits? Are you selling hardware? Health and wellness can be food; it could be mind, body and spirit. Do you have those certain services there, as well? That is something that I actually think is a big challenge for our industry right now, because I think about 80% of Americans right now are thinking about health and wellness. The problem is, we all think it’s something different.”

One of Kroger’s big priorities is to make sure collaboration is part of the health-and-wellness proposition. “We are having programs that definitely involve the dietitians, the pharmacists, our nurse practitioners and physician assistants,” Avery said. “[We’re] reaching out to those in our health ecosystem to make sure that we’re connecting the dots.”

Even as it charts growth opportunities, Kroger is dealing with the impact of deflation in its food business. In the fourth quarter, the retailer ended its 13-year streak of quarterly growth in same-store sales, citing declining food prices. During the period, Kroger said it experienced a decline in pharmacy inflation.

Kroger is pursuing efforts to align pharmacy and health and wellness with positive community initiatives, in many cases through high-profile partnerships. In one example, Kroger has been pursuing a health-and-wellness program with Feeding America, the nation’s largest domestic hunger relief organization, in collaboration with The Little Clinic. Kroger has donated a meal through Feeding America food banks for each flu shot administered at its pharmacies or at The Little Clinic locations.

“At Kroger, receiving the flu shot this year will do more than protect you and your families’ health. Throughout this flu season, we’ll provide a meal for a neighbor struggling with hunger for every flu shot administered in our pharmacies or The Little Clinic locations nationwide,” Avery said. “Kroger has a long history of bringing help and hope to our neighbors in need in the communities we serve. We’re proud to continue that tradition by bringing health and wellness to our local communities, as well.”

In another effort, Kroger’s Ohio pharmacies partnered with the state’s first lady, Karen Kasich, in February on a program to underscore the need for good heart health. Kroger pharmacies provided personalized blood pressure and cholesterol screenings at no cost. In addition, dietitians with The Little Clinic provided complimentary nutrition education events inside some locations. “These services are first steps for patients who want to take control of their heart health, but don’t know where to start,” stated Ryan Davis, pharmacy merchandiser at Kroger’s Cincinnati/Dayton Division.