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[7 comments]

Target Tries to a Get Handle On the PFresh Format

December 12, 2013

When Target first launched its PFresh grocery program in its conventional discount stores, the aim was simple: give its guests more reasons to visit the store more frequently and, in turn, drive greater sales of higher profit non-grocery items. The chain billed the concept as a convenience, but as a Star Tribune (Minneapolis) article points out, convenience is in the eye of the beholder and Target appears to be still trying to figure out how to best manage PFresh to its advantage.

One of Target's strategies to encourage shoppers to buy more than groceries is to place its PFresh department towards the back of its stores. That alone runs contrary to the notion that consumers can do a quick in/out trip to buy a small number of items, such as bread and milk.

"It's like Target is saying 'we are going to call you on your bluff,'" Amy Koo, an analyst with Kantar Retail, told the Star Tribune. "You may have intended to buy food but you really want to buy clothes."

"Target's greatest strength is the near-bullet-proof loyalty it enjoys from many of its customers. Its loyal base looks for excuses to make purchases at Target and groceries are a perfect reason to make the trip sooner than later," said Carol Spieckerman, president of newmarketbuilders and a RetailWire BrainTrust panelist in a 2012 discussion on this site. "Target's biggest opportunity for improvement is to create a more intimate shopping experience in grocery, and across the store for that matter. The hike to grocery is cold and cavernous and Target's uber-spaced departments render the term 'adjacency' an oxymoron. If Target is to get the full benefit of those (hopefully) more frequent food-driven trips, it needs to tighten things up or forfeit its cross-the-aisle opportunity."

Kantar's Ms. Koo said PFresh offers Target an opportunity for greater growth if the chain focuses more on convenience to attract new, less affluent customers. Rival Walmart, its been well documented, has gone the reverse route in recent years with mixed results.

FINANCIALS:     [NYSE:TGT] [ ]

Discussion Questions:

Is Target, generally speaking, on the right path with its PFresh initiative? What changes should the chain consider to gain further benefit from grocery sales?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

What grade would you give Target for its PFresh initiative to date?

Comments:

Carol Spieckerman said it all in her 2012 post, Target needs to make it easier for customers to find what they want and create a more intimate shopping experience. It's not easy to locate items in a Target superstore. Sections of the store and aisles are not well labeled, consuming valuable time and energy.

Target seems to be great at launching initiatives, but poor on real-world follow through.

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Max Goldberg, President, Max Goldberg & Associates

There is only one definition of convenience: the customer's. The Target spokesman's comment in the Star Tribune article, "Convenience can mean different things. CityTargets are convenient because of their locations in the city core," widely misses the mark.

The goal of forcing Target shoppers to purchase something besides food is a throwback to traditional retailers who placed the milk and dairy products at the back of the store, forcing customers to traverse several aisles in pursuit of these products.

One retailer stated to me that he viewed his store like one huge vacuum cleaner and his goal was to suck out all of the customer's money. Obviously, a very customer friendly and convenient store!!!

I recognize that we would like customers to shop the entire store due to its impact on basket size and margins. However, we all would like to have peace in the Middle East. Having said this, nothing happens until we put an acceptable plan in place to achieve this goal. The same for retailing. Wishing is not enough. Make the shopping experience more customer centric and convenient is a way to start.

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Richard J. George, Ph.D., Professor of Food Marketing, Haub School of Business, Saint Joseph's University

If PFresh is working to drive sales and cross traffic then something is terribly wrong with the rest of the store, because store for store sales have struggled at Target. PFresh is an incredibly expensive remodel that drives a low gross margin sale, and it puts Target in even more head to head competition with the lowest cost grocery retailer in America...Walmart. PFresh will be low ROI...forever.

Jan Kniffen, CEO, J rogers Kniffen Worldwide Enterprises, LLc

Neither Target nor Walmart has cracked the fresh categories, but Meijer has. Meijer started as a food retailer, thinks like a food retailer, and places food front and center for easy shopping. Target and Walmart started as mass merchants, think like merchants and added food. The result is both Target and Walmart simply do not get the inventory turns to be competitive in selling fresh products.

These retailers need to ask the basic question, why do we want the consumer to visit our store? What is the consumer's top-of-mind when deciding where to shop? I know the hardware store will have filters. I know the auto parts store will have oil, etc. Consumer communication must support to attract.

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W. Frank Dell II, CMC, President, Dellmart & Company

Yes. Follow the trail of the others who are doing the same thing in the mass category (Walmart) becoming more of a full destination location for their customers, delivering more revenues to the bottom line, and providing the right in-store mix will all become Target's next step if it wants to make this a successful strategy.

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Kai Clarke, President, Kowa Optimed, Inc.

Outside of Minneapolis, word has been slow to leak out that Target sells groceries. The grocery department is about a 220 foot walk from the checkouts. Sales per square foot in the grocery departments runs about half of what Walmart does. We are finding that grocery is running about 50% of Walmart's sales while in Target about 30%, and keep in mind, Target stores are smaller and much lower volume. So that puts Target way behind Walmart when it comes to groceries.

Where I see Target having an advantage is price. While pricing in Target appears to be 1% to 2% higher, the REDCard rebate of 5% makes Target the lower priced store. One big weakness the PFresh format has is that perishables like meat and produce are limited and there is no bakery or deli. If the market is just too competitive, Target will eliminate perishables altogether.

If I were to change Target PFresh, I'd put groceries closer to the entrance, expand perishables and offer at least an Aldi-type selection, and work harder on getting the word out that Target is cheaper than Walmart.

Hy Louis, Tea buyer, Wong Imports

Constructing a store layout that forces your customers to wind their through a gauntlet of merchandise that, somehow, it has been determined many will wish to purchase on their way to the groceries, doesn't seem like a strategy that puts the customer first.

A study of cross-promotional opportunities might be in order for Target. Rather than relying on a contrived shopping path that takes all customers on a convoluted journey through the same set of products, why not better exploit that great loyalty data that Target has to construct cross-category promotional offers? And tailor those offers to individual customers or customer segments, something that cannot be done with a single, physical store layout.

I'm not suggesting that the effective construction of cross-category promotions is an easy task. Understanding within-category cross-effects is challenging enough. Understanding cross-category effects in a way that is actionable, especially when crossing general merchandise and grocery, is indeed a cutting-edge problem in data science. When looking between categories, it is so much more difficult to separate the signal from the noise. If you are not rigorous with your statistical methods, the combinatorial explosion in the number items that potentially might influence one another will have you believing that you simply must promote arugula with engine oil, when the moon is three-quarters full.

Bottom line: Treat your "near-bullet-proof" loyals well, reward them with well crafted, targeted offers. Don't manipulate them with your store layout.

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Dr. Paul Helman, Chief Science Officer, KSS Retail

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