Can anyone fix Target’s grocery business?

Discussion
Anne Dament - Photo: Target; Twitter
Nov 03, 2016
George Anderson

Back in April of last year, a RetailWire headline asked the question, “Will Target’s new grocery boss get the job done?” Unfortunately for Anne Dament, the person handpicked by Target CEO Brian Cornell to do the job, the answer appears to be “no” as the company announced she is leaving the company less than 18 months into her tenure.

Neither Target nor Ms. Dament, a former Safeway executive, has commented on the reason for her departure at this point, according to reports. She will leave the company on Nov. 18. Mark Tritton, Target’s chief merchandising officer, will assume her duties while a replacement is sought.

Target’s same-store sales in the last quarter were down 1.1 percent as traffic declined 2.2 percent. Weakness in the company’s grocery business has been cited as one of the factors in Target’s recent struggles and its decision to lower its future forecast.

“They’re just in a really tough spot,” Brian Yarbrough, an analyst with Edward Jones, told the Minneapolis Star Tribune. “They don’t have enough groceries to drive people to the store regularly. Groceries for Target never turned out to be a destination like they thought it would be.”

Ms. Dament’s departure is the latest episode in the ongoing shakeup of Target’s c-suite. Last month it was announced that Jason Goldberger, who was named Target’s chief digital officer in May and who served as president of Target.com since 2014, had left the company. Mr. Goldberger’s duties were split between Mike McNamara, Target’s chief information officer, and Mr. Tritton.

DISCUSSION QUESTIONS: What would it take to fix Target’s grocery business? Should the retailer scrap groceries altogether?

Braintrust
"I don’t believe Target should give up on grocery. Why? Because the shoppers in the store have found benefit in the one-stop shopping environment."
"Target cannot scrap grocery any time soon because filling that floorspace with something more exciting and profitable would be a huge challenge."
"I think it would be a mistake to exit grocery. Everyone knew it was going to take a while to turn this aircraft carrier."

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22 Comments on "Can anyone fix Target’s grocery business?"

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Max Goldberg
BrainTrust

Unlike Walmart, Target seems to treat groceries like an afterthought; something deserving limited space but not enough to drive consumers to the stores. The company needs to make a full commitment to grocery or quit groceries. Either strategy carries risks. Devoting more space to grocery will require additional resources (human and financial) and space. Quitting grocery will create a competitive disadvantage against Walmart.

Gene Detroyer
BrainTrust

Target treats everything as an afterthought. One of these days they might just come up with a strategy that propels them forward, but they are always looking for the silver bullet.

Dr. Stephen Needel
BrainTrust

They should probably scrap food and keep grocery items like household cleaners, laundry, etc. that are easily warehoused and have no expiration date. At least here in Atlanta, they never seemed committed to a wide assortment and had a heavy dose of private label.

Dick Seesel
BrainTrust

It’s hard to judge Ms. Dament’s performance based on fewer than 18 months on the job and the possibly insurmountable challenge she faced. Maybe she underperformed, maybe it was a bad cultural fit or strategic clash — who knows? Anybody trying to turn this around quickly has not been dealt a winning hand.

Brian Cornell wrote off the Target Canada fiasco very quickly, but I’m not sure he can walk away from the grocery business so easily. The company spent billions on remodels and infrastructure to establish the business and it doesn’t appear to have a replacement strategy waiting in the wings.

But how does Target fix it? It’s not a “top of mind” business and doesn’t have the critical mass needed to draw weekly shoppers. Perhaps Target should hire somebody from a more disruptive grocer (think Aldi or Trader Joe’s) who can offer up a more innovative, curated approach to the category.

Dale Foerster
Guest

Trader Joe’s. Back in early 2015, a few grocery supply chain leaders at Target thought the Trader Joe’s model could be tweaked to fit the Target business model. Unfortunately, those same leaders were let go during the March 2015 staff layoffs.

It is not a secret that Target runs its grocery business upon their general merchandise strategies and systems. I would expect any traditional grocery model to struggle at Target, without a significant system overhaul. Looking at your idea from a fit perspective, a “disruptive grocer” model would have a better chance at aligning with Target’s core business model than a traditional grocer model. Your Target fix has support and merit!

Dave Wendland
BrainTrust

Getting it right at retail in any segment is an ever changing goal. And the grocery segment has been rapidly evolving (consolidation, Amazon Fresh, Aldi, Lidl, convenience channel expansion, etc.) during Ms. Dament’s watch.

That said, I don’t believe Target should give up on grocery. Why? Because the shoppers in the store have found benefit in the one-stop shopping environment. The challenge, in my opinion, is that the assortment is too broad in some categories, too narrow in others, and not organized for convenience. I’d prefer that Target make a decision to either be a full-line grocer (this is going to present the biggest challenge), a private brand destination (e.g., Aldi-esque), or a c-store (think “7-11 inside”). Once identity is determined, Target must rally around that focused business and return to its more effective marketing roots.

I’m sure many of my BrainTrust counterparts will recommend abandoning grocery altogether … I guess I’m the eternal optimist and would rather see this phoenix rise from its own ashes.

Kim Garretson
BrainTrust

Target cannot scrap grocery any time soon because filling that floorspace with something more exciting and profitable would be a huge challenge. Today there is nothing distinctive about grocery. The shopping experience is much like the regional smaller-space grocers competing with the big guys in the market. That is, it is utilitarian, meaning the shopper feels like she can likely get everything she needs, but the experience is nothing unique. However, there is a very interesting Future of Food project underway at Target, and in the future we might start to see more Apple store-like experiences in Grocery at Target.

David Livingston
Guest
1 year 1 month ago
Keep the SuperTargets but don’t build any more. They were smart to put grocery near the entrance at SuperTarget. In most of the Pfresh Targets, grocery is about 240 feet after entering. It’s an afterthought and is quiet as a museum back there. Fresh perishables are minimal, don’t sell and should be scrapped. Just compare sales volumes to the nearest Walmart. Usually you will find Target only does about 25 percent of what the nearby Walmart will be doing in grocery. Grocery-comparable items (food, drug, consumables) make up about 60 percent of the average Walmart store. In Target it’s only about 35 percent. Used to be about 42 percent but they were forced to sell off the pharmacy to CVS. What is sad is that when using the REDcard, Target is slightly cheaper than Walmart, but it seems with no perishables and grocery hidden in the back of the store, it’s not worth making the grocery trip to save 1 percent. Target could hire the best in the industry to fix grocery but if they… Read more »
Ross Ely
Guest

It’s easy to say that Target should exit the grocery business, but grocery now accounts for 20 percent of Target’s revenue and the retailer is in no position to absorb a loss of this magnitude. Target needs to continue to explore how to apply its value proposition successfully to grocery. Exclusive brands at affordable prices has worked in the fashion category and a differentiated grocery model along these lines may succeed as well.

Cathy Hotka
BrainTrust

No, no, no. Target entered the grocery business to recession-proof the company, but there’s nothing about Oreos and frozen fish that reinforces Target’s brand as the leader of chic and inexpensive trendiness. Grocery selections are thin and the margins are thinner. I’ll predict that this experiment will last only a few more years.

J. Peter Deeb
BrainTrust

Target has been half pregnant in grocery for many years. They are trapped somewhere between a limited-assortment retailer and a conventional supermarket. In addition they hid their offering as far from the door as possible making it more difficult for shoppers to get in and out of the store. They further compounded this, in my opinion, with no or little cross-merchandising with higher-volume items near the higher-margin general merchandise area (i.e. Walmart’s power alley).

Target might be better served to carry only non-perishable household items and soda and snacks, etc. and devote more space to their strengths in higher-margin apparel, toys and other like categories.

Fool Me
Guest
1 year 1 month ago

Politically, Target made fatal mistakes. If I made a list of what wrong, there would be no room for the solutions. Best advice is to quit while your losses are sustainable, otherwise you will bury yourself.

Richard J. George, Ph.D.
BrainTrust

Having read the comments of other contributors one can understand the varying opinions. I think it would be a mistake to exit grocery. Everyone knew it was going to take a while to turn this aircraft carrier. I suggest that Target follows two of my rules of strategy (number seven and eight), namely, focus-focus-focus and concentrate your resources. Target needs to focus on grocery and figure out what the job is to be done in grocery relative to its customer base. Having done that, Target needs to concentrate its resources at the point of attack, namely the grocery section, to achieve the job to be done. If neither of these two actions take place, then grocery will continue to be a drag on Target’s performance.

Jan Rogers Kniffen
Guest
1 year 1 month ago
I attended the big unveiling of PFresh grocery at Target. I told the management that day that PFresh would have the worst ROI of any major investment they had ever made. I would have been right had it not been for their foray into Canada, which I also opposed since I had looked at owning all those locations that they bought. They are not a grocery store that can compete with the best major player in the space, Kroger. They cannot be as cheap as Walmart, or offer the breadth of Walmart, so what are they? There is no evidence that they get crossover traffic from what should be the higher-traffic grocery part of the store to the lower-traffic (in theory) apparel and consumables part of the store. Grocery, as done by Target does not work. It never will. Walmart owns price, Kroger owns service and no one wants to go for specialty grocery at Target vss say Wegmans, or Stew Leonard’s, or Trader Joe’s or … I have said, only half in jest, that… Read more »
Susan O'Neal
BrainTrust
The strategic purpose of having grocery in Target is to increase frequency of visits — that purpose goes away if grocery is culled back to either household goods (longer purchase cycle won’t drive frequency) or convenience (insufficient selection to drive an incremental trip). The investment in infrastructure is too significant to walk away from grocery altogether. These are all negative reasons for Target to stay the course (the alternative isn’t pretty). On the positive side, Target has some solid assets to build upon. The brand equity Target has built in the Archer Farms label is strong, and they have some unique products that their shoppers will go out of their way to buy — this points to the potential for the success of a Trader Joe’s approach. What should they do more of to be successful? Target’s brand is a strong and a positive one for CPG companies to be associated with and co-op marketing programs do drive meaningful impact on consumer awareness and intent to buy. If Target increases investment in mutually beneficial co-marketing… Read more »
Thomas Hall
Guest
1 year 1 month ago

Target was really dumb to get into the grocery business. They used to have a neat electronics department which they downsized to make room for ice cream and milk. They have a poor selection of groceries and they are usually located near a good full-service grocery store. They should admit their mistake and remove the grocery section, and rebuild electronics and other departments they sacrificed.

Lee Peterson
BrainTrust

Target should commit or get out of grocery for sure. And by committing, I mean making grocery a priority, like their competition does — better fresh, more space devoted to the category, warmer design (grocery customers don’t like “sterile,” just ask Whole Foods), feature grocery up front vs the dollar area, meals to go, devoted staff, BOPIS, on and on. Grocery just doesn’t feel like it matters in Target and customers can sense that.

Then there’s the whole issue of not doing it well for the past 30 years. Customers get that too.

So here’s my suggestion: take it all online. Do online grocery in select markets only and store it in the back of key locations for BOPIS and shipping. It’s just too big of an investment for front of house during this era of shrinking physical retail. Why bother when most likely you’ll be closing a lot of stores in the years coming up. You’re going to wind up competing with online grocers anyway, why not start now?

Craig Sundstrom
Guest

What, really, are there options? If they drop grocery then they’ll have large amount of space in their stores which will either be empty or devoted to items (presumably) even less profitable. They could try to lease it — as they did with pharm — but I have no illusion that there’s any (other) grocer who would be interested. So they own it. Live with it.

Kai Clarke
BrainTrust

Grocery is not Target’s strength, and it should be accepted that it cannot be with the limited selection and space Target has committed to this. Short of a new store design for all Target stores, Target should focus on its strength in hard goods and commit the resources to continually improving those categories it includes instead of shifting resources into a losing proposition like grocery.

Tony Orlando
BrainTrust
Target is another example of trying to be a supermarket in a department store. Yes they can sell candy, cookies, HBA, private label, and snacks, but what makes them stand out? The answer is nothing, and there are tons of formats that also sell the same stuff they do. So what would make them and the others stand out is outstanding perishable departments, with real butchers, and bakery/delis where everything is made fresh. However, this is not who they are and never want to be, because it would cost Target and others much higher payroll, and a huge investment in equipment in order to have a chance at succeeding, and that is something they will not do. I’ve said before that everyone is in the food business, but how many of them offer the custom meats, gourmet deli/bakeries, and signature take home foods, that would make customers take notice, and want to buy food from them? 55 years in this business, and I have seen many new formats pop up. Very few of them are… Read more »
Mark Price
BrainTrust

The challenge of the grocery business is the depth of the product assortment that is required by today’s upscale customer segment. Target has attempted to replicate European grocery stores in creating a higher-end store brand, but American consumers are more attached to their own brands and do not see the value in the store brand to create a premium price.

Target can be a small private label grocery provider or a larger branded grocery provider — there really are not any other choices.

Christopher P. Ramey
BrainTrust

The first rule is reinforce your DNA. The second is give those who are your best prospects and customers what they want.

So far, zero out of two.

wpDiscuz
Braintrust
"I don’t believe Target should give up on grocery. Why? Because the shoppers in the store have found benefit in the one-stop shopping environment."
"Target cannot scrap grocery any time soon because filling that floorspace with something more exciting and profitable would be a huge challenge."
"I think it would be a mistake to exit grocery. Everyone knew it was going to take a while to turn this aircraft carrier."

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