Covid-19 Vaccinations, Tests Give Boost to Kroger's Health Ambitions

By Jaewon Kang | Photographs by Maddie McGarvey for The Wall Street Journal 

Thousands of people recently streamed into an arena in Lexington, Ky., to receive Covid-19 vaccines, but it wasn't a hospital or health company managing the event. It was Kroger Co., the biggest U.S. supermarket chain.

The Cincinnati-based company, which put up signage around the arena, has administered about 28,250 doses at the mass-vaccination site since February. Kroger hopes to boost its health business through its pandemic efforts. It aims to deliver millions of vaccinations to people nationwide and create more repeat customers for its pharmacies and supermarket offerings.

The pandemic, and stay-at-home orders combating it, helped make 2020 a banner year for U.S. grocers. Kroger generated record sales of $132.5 billion in the year ended Jan. 30.

The post-pandemic path is less clear for Kroger and other supermarket chains. Reopened restaurants will likely reclaim some of consumers' food purchases, industry executives and analysts say, while pandemic-related safety measures elevate supermarkets' expenses.

Kroger is betting that its in-store pharmacies and clinics can keep its supermarkets central to consumers' lives even as the coronavirus recedes, with shoppers spending more in a continuation of the company's pandemic-fueled growth. Over the past year, Kroger also has provided hundreds of thousands of Covid-19 tests in stores and drive-through sites, delivered prescriptions for no charge and offered virtual health services.

"Covid has taught us that pharmacy is always really important and will be important as we go forward," Rodney McMullen, Kroger's chief executive, said in an interview.

With 2,250 pharmacies and 220 clinics largely in the Midwest and the southern U.S., Kroger is the fourth-largest pharmacy operator by script count. Efforts to expand its footprint in the sector won't be easy. Kroger and other conventional supermarkets must challenge Walmart Inc. and drugstore chains that are farther along in providing care for chronic conditions like lower-back pain, diabetes and high blood pressure, said James Beem, managing director of global healthcare intelligence at J.D. Power.

Pharmacy giants CVS Health Corp. and Walgreens Boots Alliance Inc. have partnerships with insurers and can offer lower prices for prescription drugs. They are looking to become health hubs, adding medical services -- with physicians or without -- to diversify their revenue beyond prescription drugs. Walgreens is adding physician clinics through its partnership with VillageMD, while CVS owns insurer Aetna and pharmacy-benefit manager Caremark.

Walmart, the nation's biggest food seller, has been building up its healthcare business partly by adding in-store clinics. One advantage it has over Kroger is that it has more locations, especially in regions with limited pharmacies.

Kroger is "going to have to act like a provider that has partnerships with health insurance companies," Mr. Beem said, adding that the company will need more capital, store space and technology infrastructure.

In 2019, the most recent year for which data was available, Kroger's pharmacy operations made up about 9% of overall sales. In comparison, Albertsons Cos.'s pharmacies accounted for about 8.4% of fiscal 2019 sales, while Weis Markets Inc.'s pharmacies contributed about 8.7% of fiscal 2020 sales.

Kroger is looking to forge deeper ties with higher-spending consumers, ultimately boosting both grocery and pharmacy sales. "Vaccination is a huge opportunity to engage with customers," said Colleen Lindholz, who is president of Kroger's health business and a pharmacist by training.

Kroger had administered about 1.38 million vaccine doses as of Sunday, including more than 78,100 to its employees. In the coming weeks, the company plans to conduct 100 mass-vaccination events, and at its in-store pharmacies the first hour of operations each day will be devoted to inoculations. In remote areas, Kroger will use mobile trailers, historically used for disaster-relief efforts, to vaccinate people, Ms. Lindholz said.

On-site vaccinations may boost store traffic, but retailers say they aren't expecting a boost to profit; companies receive only an administrative fee paid by insurance companies. Retailers and pharmacies are also looking to hire thousands of pharmacists and technicians to speed the process, while also dealing with consumers' fears and questions about the inoculations.

However, companies are hoping those visitors will turn into pharmacy customers. Executives said pharmacy users are some of the chain's most loyal customers, and spend three times more than non-pharmacy ones.

Kroger executives said they are working on ways to weave together consumers' grocery and health needs, potentially using pharmacy data to suggest foods to improve a customer's health. The company plans to offer more nutrition counseling and sell curated boxes of healthy foods that are tailored to medical conditions. It is also discussing potential partnerships with hospitals.

Karen Short, a Barclays analyst, said Kroger and other grocers may attract more shoppers through vaccinations, but the companies still face a significant hurdle.

"I don't think consumers think about the grocery store as a go-to authority on all things health and wellness," she said.

Ken Kotas, 65 years old, recently received a Covid-19 shot at Kroger's Mariano's store in Chicago and bought groceries afterward. "Maybe I'll get some of my prescriptions here," he said.

Write to Jaewon Kang at [e-mail]

(END) Dow Jones Newswires

March 25, 2021 05:44 ET (09:44 GMT)

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