Buy, Build or Bridge? Retail's Cutting-Edge Conundrum
When does it make sense for a retailer to acquire a competitor or solution provider? What triggers decisions to partner up or, conversely, to create solutions in-house? The answers to these questions will define retail going forward, and no two retailers will take the same path.
Most are cobbling multiple models together rather than relying solely on home-grown solutions, simply due to time and resource constraints and plain old lack of experience with implementing new-world technologies.
Target is positioning its much-discussed decision to outsource its pharmacy business to CVS as a way to execute against newly-defined priorities. According to CEO Brian Cornell, the decision marks “an important step in driving Target’s strategic priorities forward.”
In late 2014, Target announced a renewed focus on what is being called “signature” categories, which include baby and children’s products, “design and style,” an umbrella category encompassing fashion, furniture, and other products that it has long been known for, in addition to wellness items such as organic foods and, of course, all of the products and services that CVS will now bring to the table. Target’s hookup with CVS allows it to offload a complex business rife with regulatory red tape, but one that nonetheless drives frequent trips and (fingers crossed) incremental sales in high-margin categories, such as apparel.
Over the past several years, Walmart has set a new retail standard for ambitious acquisitiveness, particularly when it comes to technology, yet it has recently shown an independent streak in its other businesses. After nearly two decades of partnership with Murphy USA, Walmart recently decided to wrest back control of its fueling stations. This move will afford Walmart more control over a business that serves as a powerful lure to the boxes stationed behind and could potentially lead to a greater margin as it cashes in on sales of convenience store impulse items. Murphy may have built the bridge, but Walmart’s taking it from here.
Kroger has blazed a trail to scale through a series of acquisitions that began in the late ‘90s and accelerated again in 2014. Kroger’s omnivorous appetite for companies great and small, from regional players to sizable multi-category retailers and e-commerce platforms, has been governed by a shared strength approach. In the wake of its acquisition of regional grocer Roundy’s last year, CEO Rodney McMullen stated that “mergers for Kroger always involve both parties bringing something to the table.” Clearly Kroger isn’t into fixer uppers, and its pickier approach to purchases has allowed the company to drastically expand its physical and digital footprint and its category reach.
Remarkably, Kroger has also continued to launch new formats under its own banners, including Kroger Marketplace, its upscale take on supercenters, andMain & Vine, a smaller format targeted to urban foodies.
Yet Kroger too has shown a selective penchant for bridge strategies, the most recent example being the creation of an in-house data hub called 84.51. The new entity shifted Kroger’s decade-long exclusive joint venture with data-drilling powerhouse Dunnhumby to a licensing arrangement that now precludes Dunnhumby from seeing Kroger’s data. Now with Kroger’s foundation built, Dunnhumby is free to roam in North America, but without any looky-loos into Kroger’s data treasure trove.
Clearly, retailers are starting to put their insular pasts behind them, but they will also reserve the right to change their minds along the way.
What is your take on where retailers’ strategies to buy, build, or bridge are going next?