We in the food industry are well aware of the consumer turn toward healthier choices in dining. Whether eating out, getting carry-out or cooking at home, the American consumer has been driving changes in the retail food market and food services by actively seeking out cleaner and healthier options, with a more transparent supply chain. Consumer interests in health have certainly not gone unnoticed. Cue the stampede.

Phil Kafarakis

McDonald’s is offering apple slices in its Happy Meals, and it is well on its way to selling vegan burgers. Walmart sells fresh produce. Sheetz and Wawa offer healthier options. You can now buy organic pasta sauce in Bed, Bath & Beyond. And for producers of vegetarian, non-GMO, gluten-free, repurposed, natural and/or organic, and other specialty foods, the market has been exploding.

Amid the swirl of companies trying to navigate these changes, we’re simultaneously seeing a blurring of the lines between the food and health care industries. Taking note that consumers’ two biggest health sources are food and pharmaceuticals, I’m closely following where the two intersect.

Large grocery stores like Albertsons Cos. have long offered pharmacy services in-store. Consumers love the convenience, and stores with pharmacies see a bump in traffic. But things seem to be moving to an even more finely graded scale these days.

Albertsons is moving to buy the remainder of Rite Aid, the third-largest pharmacy chain in the nation. While much of Rite Aid has already gone to Walgreens, it looks as if Albertsons’ acquisition of the rest will bump it into the big leagues, serving 40 million customers a week from 4,900 locations, with 4,350 in-store pharmacy counters and 320 health clinics across 38 states — courtesy of the Rite Aid addition. And it won’t hurt Albertsons’ food sales either — it stands to see sales of $83 billion.

It will also be acquiring Rite Aid’s pharmacy benefit management company — the people who manage the prescription drug side of employer health care insurance programs. That’s way beyond the friendly pharmacy in the back of the store near the deli counter.

Albertsons is not the first, or only, retailer to head into health care. For years, the progressive folks at Hy-Vee in Omaha have been quietly developing the “healthy store,” featuring nutritionists and dietitians who provide wellness services and immunizations and teach weight control classes. The maxim from the early Greek philosopher Hippocrates — “Food is thy medicine, and thy medicine is food” — is coming to life in grocery aisles that once focused only on end-aisle promotional sales. But it’s a fair guess that the Albertsons-Rite Aid deal is the biggest of its type, pairing food and health care in a way that might actually enable it to compete with the likes of Amazon.com and Walmart.

Ah, we couldn’t keep from invoking the other A word. First, Amazon grabs what many might call the largest “healthy” food chain in the country, Whole Foods Market; now the big news on the food and wellness front that has the grocery and pharma industries trembling is that Amazon is moving into health care, too. With the wild enthusiasm of a beachside bartender shaking a daiquiri, Amazon is joining with JPMorgan Chase & Co. and Berkshire Hathaway to form a health care company they say will serve their combined workforces, numbering in the hundreds of thousands.

How can grocers compete with this kind of scale and clout? Albertsons clearly sees health care as its logical next step toward growth, and has quoted research indicating that supermarket shoppers tend to spend more, and are much more loyal, when they shop for food while getting their prescriptions filled. Albertsons isn’t the only retailer understanding the wellness impact on the consumer — it is part of a wave of retail thinking along the same lines.

CVS Health is buying Aetna to create a giant health care provider, pharmacy and health care insurer all in one. Walgreens is in early talks to buy out AmerisourceBergen, a huge drug distributor. In fact, the combined mega-company could pull down about $276 billion in annual revenue. Only Walmart would be bigger.
The migration to combining food and pharma has already been quietly going on across the country — no doubt you have walked into a Walgreens and noticed that the vibe is more like a convenience store, with prepared foods front and center while all the health and beauty aids have disappeared to a remote place in the store.
With all this in mind, the CVS and Walgreens moves seem nearly inevitable; pharmacy and health care have long been partners. But the moves by Albertsons and Amazon are bringing food into the mix in a way that feels new. Add the influence and financials of a huge venture capital firm like Cerberus Capital Management, the owner of Albertsons, and it’s time to take “Food is thy medicine” pretty seriously.

The crew at Cerberus must be pretty serious about making the huge Albertsons-Rite Aid deal work, too, because weeks after it was announced, Cerberus brought in retail turnaround veteran Jim Donald to put the organizations together. As the new CEO, Jim will bring his experience in introducing food at Starbucks into play. With increasingly demanding consumers, he’ll need all the practical wisdom — and help — he can get in finding the right balance of product and customer experience. His career at Albertsons and a board seat at Rite Aid, combined with his recent stint in hospitality at Extended Stay America Inc., makes him the ideal leader to power Albertsons forward. He will most likely guide it into an IPO, so that Cerberus Capital can profit from the emerging consumer focus on wellness.

In addition to wellness, consumers are increasingly demanding from food retailers — and maybe grocers especially — a careful curation of products that address their health. And along with that, they’re demanding a rarified and unique customer experience when shopping for it. They’ve voted with their wallets that their interest lies in smaller-sourced new food products that have a health aspect to them. So maybe, just maybe, this should be less about size and more about quality.

How can big grocery stay competitive with, on the one hand, the smaller retailers selling more specialized and healthy foods and, on the other, the Walmarts and Amazons? It’s a tightrope walk.

Maybe it’s indeed time that the supermarket with a pharmacy in the back took a deeper interest in health care. Maybe adding a PBM does make grocery more viable. Because with consumers buying food just about everywhere — with Wawa; Bed, Bath & Beyond; and the tiny gourmet market all taking their bites out of the food marketplace — it may be grocery’s last best hope.

Food industry veteran and advocate Phil Kafarakis is president of the Specialty Food Association, an umbrella organization representing 3,700 entrepreneurial member companies in the food and beverage industry. He can be contacted at [email protected].