Target looks to bag market share through its grocery biz

Discussion
Mar 03, 2015

It’s not a surprise, considering Target CEO Brian Cornell’s history as an executive at PepsiCo, Sam’s Club and Safeway, that he would see grocery as an important element in his plan to revitalize the chain’s business.

One thing is clear, Mr. Cornell believes that Target needs to establish its own unique identity if it is to make good on this "critically important area of opportunity," as he described it on the company’s fourth quarter earnings call last week.

Speaking with analysts, Mr. Cornell said the company recognized the need to improve the in-store experience and make changes to its assortment.

"We all know food trips drive traffic. And we want to make sure we complement our signature categories with guests that are coming to us for the great food products we can curate," said Mr. Cornell. He specifically mentioned: "more organic, natural, gluten-free items [are] critically important to the guest."

Grocery, according to The Wall Street Journal, represents about a fifth of Target’s $73 billion in annual sales. According to the paper, Mr. Cornell is planning to focus on key grocery categories including craft beers and wine, coffee and tea, snacks and candy, fresh meat, granola, produce and yogurt as a means to differentiate itself from Walmart and other competitors.

The Journal also reported that Target is searching for a new executive to lead its grocery business. Mr. Cornell and Target’s chief merchandising officer Kathee Tesija are expected to share more details of the chain’s plans for its grocery business in a meeting with analysts today.

What do you see as the biggest issues that have held back Target’s grocery business to date? Where are the greatest opportunities for future growth? From which chains would it likely draw customers?

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21 Comments on "Target looks to bag market share through its grocery biz"


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Dr. Stephen Needel
Guest
7 years 5 months ago

Where to start? A weak assortment in any one category with lots of out-of-stocks hasn’t helped. Higher prices than Walmart hasn’t helped. Mediocre meat and produce hasn’t helped. Positioning themselves as a healthy alternative to other grocery stores—not very likely to help. Their guests are suburban moms, not urban Millennials.

Frank Riso
Guest
7 years 5 months ago

It worked for Walmart so why not Target. We all know that shoppers visit grocery-type stores more than twice a week. If Target can get at least one of those trips it will increase sales significantly. So start to promote grocery to a target (no pun intended) group of shoppers, the Millennials. Target knows their buying potential can only grow and help Target grow with them. A very smart move from both Tesija and Cornell.

Max Goldberg
Guest
7 years 5 months ago

The biggest issues Target faces in grocery are selection, inventory and pricing. Their selection is too limited, they frequently experience out-of-stocks and their pricing is too high. Plus it’s difficult to find assistance when needed. Healthy snacks and gluten-free don’t make a grocer or a point of difference. There needs to be selection, strong private-label products and perceived value. Here, as in other areas, Target is finding itself in the middle, and the middle is not a successful place to be.

J. Peter Deeb
Guest
7 years 5 months ago

The need for a superior grocery merchandising and operations group should be the first step to building a much better grocery business. The P-Fresh initiative is a small grocery store trying to compete with larger conventional retailers and Supercenters and to be in the grocery business in a serious way they need to be upgraded in selection and space. The current Target supermarkets need to be expanded in number to compete. I think this grocery initiative will be an expensive and difficult road. Not to say it can’t be done, but the investment required will prove to be very large and failure would be very costly to Target.

Mark Heckman
Guest
7 years 5 months ago
One of several issues that Target must deal with on the grocery side of their business is the inherent mismatch between their grocery program and their core shopper. Currently their grocery program is positioned to appeal to the price shopper and emulate the Walmart, Meijer, big box grocery experience. Conversely their core shopper, while somewhat frugal, is more upscale than Walmart’s and is more apt to be cross-shopping at a traditional supermarket such as Publix, Wegmans, Harris Teeter and the like for his or her grocery needs. To that point, Cornell must focus his troops on delivering the same or better experience for the grocery shopper as they receive when they shop their favorite service-oriented supermarket. Upgrading the fresh side of the business would be a great start in that regard. Target’s selection of gourmet items and fresh meats are well below the standards of the aforementioned traditional supermarkets. Finally, in my view, Target has made some very questionable decisions about the breadth of variety in key categories, with a particularly large opportunity in frozen… Read more »
Liz Crawford
Guest
7 years 5 months ago

The trend in grocery is toward “fresh.” When you think of Target, you probably don’t think fresh produce. Right now, that’s the disconnect. However, I do see a way forward: TargetExpress.

The TargetExpress format caters to Millennials and an urban lifestyle, which has an emerging “just-in-time” shopping pattern. That is: Smaller baskets, daily shopping, immediate consumption. Target’s announcement that they are planning to roll out a number of these in 2015 is the right step forward.

Brian Cornell is moving in the right direction for the company.

W. Frank Dell II, CMC
Guest
7 years 5 months ago

There is a big difference in apparel and housewares retailing than groceries. Target has done well with item selection and advertising with the former, but not the latter. The issue is grocery retailing has dropped to the lowest level of just price. Somehow grocery advertising does not translate into sexy advertising. Yes there are great grocery retailers, but they are not apparel and housewares retailers. They do well focusing on only one area. To be truly successful Target will need Trader Joe’s product selection, Wegmans and Whole Foods’ range and presentation coupled with Publix’s service. Increased sales for Target will come from weak chains and independents.

Gene Detroyer
Guest
7 years 5 months ago

The opportunities are very limited. The grocery business is mature. Which means that if one company is going to gain, another is going to lose. The only growth in grocery is with the retailers who have established their businesses as brands: Whole Foods, Wegman’s, HEB, Trader Joe’s, etc.

Target already has a brand that is not associated with a unique grocery offering. That means they will be pushed into competition with Walmart, Kroger, Publix, et. al. I can not imagine Target taking business away from any of those operators.

Richard J. George, Ph.D.
Guest
7 years 5 months ago

First, the food offering is too sterile. Walking from the non-food to food sections of a Super Target does not create any appealing sensory environment. Second, Target’s fresh and perishables sections are severely lacking. Third, at the moment no one on the grocery side seem to know anything about food, assuming you can find someone to assist you. Fourth, in many Targets there is not a dedicated grocery store entrance.

On the positive side, Target’s private-label offerings are among the best, not only when compared to other food retailers’ offerings, but also compared to national brands.

Target’s biggest opportunity is to take share from Walmart on the grocery side as it did on the non-foods side via its “cheap chic” positioning. Walmart’s grocery offerings, although currently better than Target’s, are something that Target should be able to capitalize upon.

Tony Orlando
Guest
7 years 5 months ago

Both Target and Walmart will not invest in the perishable departments like they really need to do, and I for one am glad, as their meat and deli programs are horrible. Pre-packed injected meats and delis with zero appeal will not cut it, and they are too unwilling to invest the money and expertise in butchers, caterers and great homemade foods to gain any inroads.

We can’t be all things to every consumer, but if want to actually sell perishables there is no shortcut way to do it, and therein lies their problem.

Running a strong beautiful meat and deli program takes great, creative employees who tend to be on the high end of the pay scale, and unless you are willing to custom cut your case and offer something great besides a roasted chicken, the results will be failure. Yes they can give away staple items, who doesn’t, but it will not add much to the bottom line.

Ed Rosenbaum
Guest
7 years 5 months ago

Where do we begin? This is going to be a daunting task for Target. There are too many strongly-entrenched chains standing between them and success. Starting against Publix locally, they have no chance of gaining even a little market share. Then there are the others such as Trader Joe’s, Whole Foods and Walmart. Granted Target should stay in the business. The brand alone will attract customers. But until they can establish a line of interest to the public they stand little chance of recognition.

Jan Kniffen
Guest
Jan Kniffen
7 years 5 months ago

Walmart, Walmart, and then of course, there is Walmart. (Oh, and Kroger.)

Graeme McVie
Guest
Graeme McVie
7 years 5 months ago
Grocery is a great traffic driver and is less discretionary than Target’s traditional general merchandise and apparel categories, so it wouldn’t be impacted to the same degree during any economic downturn. If Target is successful with grocery then it could drive cross-purchases with their general merchandise/apparel customers picking up some grocery items when they’re in the store and their grocery customers could pick up some general merchandise/apparel when they’re in the store. But they have to be smart about their macro-space plan to facilitate some of this cross-purchasing while not alienating customers that are on a specific mission that only involves one side of the store or the other. If grocery is a success for Target then it will drive higher top-line sales and gross margin dollars, but grocery generally has a lower GM percentage than general merchandise and apparel so higher grocery sales could lead to a slightly lower GM percentage which the investment community might not like. Target needs to be careful that the grocery side of the business doesn’t tarnish the brand… Read more »
Robert DiPietro
Guest
7 years 5 months ago

The biggest issue with Target’s grocery business is that customers aren’t going there for primarily food shopping. Just look at the carriages at the checkout. Not one is full of groceries. It is a fill-in trip at best. The assortment is limited and the pricing high.

Lee Kent
Guest
7 years 5 months ago

I will agree that grocery has the potential to draw more traffic but—and that’s a big BUT—they have to do it right and meet the needs of the customer.

The old broken record, me, keeps saying “get back to your roots, Target” but it is falling on deaf ears. RadioShack ignored me too…hmmm….

One interesting thing I did read in this article is Craft Beer, is a rising hot commodity, along with maybe coffee and/or tea. I am thinking getting back to the Target, Tar-chez (that’s the way I like to say it), business and these types of items could distinguish them. Again, if done right.

They aren’t competing on price or selection, so this with the right marketing could move them in the right direction.

And that’s my 2 cents.

Hy Louis
Guest
7 years 5 months ago

The grocery department is more than 200 feet from the store entrance. Then another 200 feet back to the checkout. You need a RedCard to get the 5% discount. Minimal fresh perishables and there are no meat cutters. Grocery is just and afterthought. Pricing is only comparable to Walmart if you use a RedCard. The chains Target will impact the most are usually those located within the same shopping center. However, with Walmart being such a depressing place to shop since our social issues are all on display there, it would seem Walmart would be impacted the most.

Roger Saunders
Guest
7 years 5 months ago
Brian Cornell is taking the right approach. He is taking a page out of Steve Burd, former Safeway CEO’s book. Cornell reported to Burd, and helped implement a number of successful programs during that tenure. Burd and the Safeway team focused on 2 or 3 vitally important areas each quarter. All departments were expected to lend support to those areas, as they impacted the big picture and the bottom line, as the incremental improvements could strategically and tactically improve the bottom line. The Prosper Monthly Consumer Survey provides a comparative of Target grocery shoppers to grocery shoppers at other chains for reasons that they shop there for groceries. Target registers favorably on Price (76.3% Target/73.9% All), Quality (48.3%/49.6%). Location, with fewer stores, is (63.5%/72.2%) respectable. They have work to do on Selection (46.5%/57.0%), Fresh Produce (15.7%/33.4%), Meat (5.9%/20.9%), and Organic (3.3%/8.2%). The Target team has to pick out a couple of areas of grocery, while calling out to the entire organization that grocery is important. With the focus, they can begin to turn up the… Read more »
vic gallese
Guest
7 years 5 months ago

I agree with Mr. Cornell that Target has tremendous opportunity in grocery. It is, though, easier said than done: see Meijer and others for examples.

It is hard to change perceptions once folks see you as a mass merchant. Also, Target really has not executed like a top grocer in a way consistent with its general merchandise side.

Take time to study Meijer, and a few of the “better” grocers. Then, after making the necessary changes, plan on a big and long marketing spend to get people to cross the aisle and/or gain a different shopper.

Target will pull traffic from a number of midrange grocers.

Lee Peterson
Guest
7 years 5 months ago

First and foremost: perception. Most people think first of Tarzhay, the cheapy chic fashion retailer for the whole family. Grocery is way down the list.

Perception would be followed closely by previous poor execution. Target’s efforts at grocery have been half way there at best. American grocery consumers like freshness, and they just have failed to get that message across. Add tight aisles and florescent tubes overhead and bingo, you’ve got a grocery nightmare.

Cornell knows; Walmart boomed during the last recession because consumers shopped there for low-cost groceries, which led to sales in other categories. Meantime, Tarzhay got their lunch handed to them because they were so ensconced in apparel world.

It’d be smart to make sure that didn’t happen again.

Sue Patzkowsky
Guest
Sue Patzkowsky
7 years 5 months ago

Super Target stores have the ability to be a primary shopping place. However, with the expansion of PFresh, these stores have gotten lost. I am a supplier and loyal shopper at Super Target. However, I am finding that I increasingly have to shop another store to get all of my needs as Target is expanding too much on private label, and organics.

People say they want this, but does the sales volume justify the space given?

Variety has been cut back to solve their out of stock issues as well. I would never do much grocery shopping in a PFresh—it would purely be a fill in, and cannot count on being able to get everything on your list. Taking buyers from GM and moving them over to grocery is a long learning curve and by the time they get it, they have moved on. Mr Cornell, you have your work cut out for you.

Gordon Arnold
Guest
7 years 5 months ago

Department stores like Target are not aware of the grocery business and the needs of the consumer. If we were able to peruse the initial plan’s needs and awareness points, I doubt if we would find much data about the typical grocery shopping habitats and basket contents of the then present day Target customer as a part of the justification. This is exactly why Walmart is stuck in the mud while attempting to move into the grocery business. As we all know too well when companies entered this aging economic depression, sales and marketing experts were among the first to be let go. This is exactly why market share and new business ventures do so poorly.

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