Kroger's potential deal for Walgreens, Rite Aid stores will make Publix, other retailers 'very nervous'

Aug 30, 2016, 3:00pm EDT

Ashley Gurbal KritzerSenior ReporterTampa Bay Business Journal

If Kroger Co.'s reported plans to buy Walgreens and Rite Aid stores come to fruition, it could give the grocer a major competitive edge over Publix Super Markets Inc.

When Rite Aid and Walgreens (NASDAQ: WBA) complete their merger later this year, about 500 of their stores will likely be put up for sale — and Kroger is apotential buyer, according to Bloomberg. It's not yet known which stores, or where, might be part of the deal.

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If Kroger Co. snaps up Walgreens and Rite Aid stores, it could give it a major… more

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Kroger, based in Cincinnati, is a major competitor to Lakeland-based Publix in metro Atlanta and in the Carolinas, where Kroger operates stores under itsHarris-Teeter banner.

Buying those drugstores would be "an ideal situation" for Kroger, said Phil Lempert, editor of SupermarketGuru.com.

"I think it’ll make every other retailer in the market very nervous," Lempert said.

While the deal would boost Kroger's growing pharmacy business, it could also have larger implications in the retail industry. It means prime real estate, often in dense urban areas — exactly where Kroger has been expanding in recent years. It would also give Kroger control over a sector of the drugstore market, which has emerged as an up-and-coming grocery competitor.

"These chains over the last five or six years have been adding more food," Lempert said of drugstores.

If Kroger does buy those stores, Lempert said, there's the potential for them to be converted to "mini Kroger stores" with an even split of groceries and health and beauty products.

The smaller footprint of those stores is also a boon. Several grocers with smaller retail footprints — Trader Joe's, Aldi and Lidl — are expanding rapidly in the U.S., and Lempert said consumers like the smaller stores.

Publix has been rumored to be working on a very small prototype store — 20,000 square feet — for years. At one point, it appeared the grocer would debut that prototype in Gainesville, but the company has since submitted plans for a 28,000-square-foot store on that site.

Publix has dozens of prototypes that it adapts to fit different real estate sites, currently ranging from around 30,000 square feet to 60,000 square feet.

The smaller stores could be an advantage to Kroger, Lempert said, especially as more shopping shifts online.

"All retailers need to be looking at smaller stores with more delivery," Lempert said.