Groceries Target-Style

Discussion
Jun 25, 2009

By George Anderson

“Expect More. Pay Less.” That’s the Target tagline and now the company appears
intent on getting consumers used to the idea of expecting to buy groceries
at prices well below most other food outlets.

The company has been expanding food sections at stores across the country
for some time now and is currently testing fresh produce and meat at a number
of its conventional discount stores. The test is expected to reach 100 stores
by year-end and may eventually be standard in all Target stores.

Kathee Tesija, executive vice president of merchandising at Target, told
the Minneapolis Star Tribune that test stores offer about 90 percent
of the categories and half the assortment of SuperTargets. Roughly 20 percent
of food sales in the test stores are in Target’s private label brands.

She shopped the test stores to see if it worked for her family’s grocery
needs.

“For two teenage boys and a busy family, I could get all the basics, and
certainly enough to make dinner,” Ms. Tesija said. “Maybe we don’t have 10
choices, but we’ve got two or three.”

Initial results of the test stores
are said to be encouraging for food and beyond.

“With these test stores,
the day we set it up, the results popped and stayed up,” Ms. Tesija said. “It
was instantaneous.”

Jeff Klinefelter, a retail analyst
with Piper Jaffray, told the Star Tribune, “Target’s core customer is
showing a willingness to direct more of their food dollars in a Target store,
so it’s an opportunity to expand wallet share. It could be a much shorter-term
driver of comps and profit improvement as opposed to embarking on some acceleration
of SuperTarget growth across the country.”

Discussion
Questions: Has Target hit on a viable food strategy with its test of expanded
grocery departments including fresh produce and meat in its discount stores?
What do you think of it expanding food in its discount stores rather than
focusing more on the SuperTarget concept?

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19 Comments on "Groceries Target-Style"


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Doron Levy
Guest
Doron Levy
11 years 10 months ago

There has to be a strategy here. Fresh can either make or break your operation and when you do it right, the margin benefits certainly outweigh the risks. Can Target it pull it off? Their last attempt at dry grocery probably was as successful as they wanted it to be. I would have to see huge improvements in execution for this to actually work for them. Interesting to note the redirect from SuperTargets when Walmart is investing heavily in their Super format.

Dick Seesel
Guest
11 years 10 months ago
The number of stores in Target’s test may not provide a totally accurate reading, and it would be interesting to know which markets were selected for the trial. But the initial results sound promising: Certainly Target needs to figure out how to compete more effectively in “food and consumables” against Walmart in the future, instead of losing long-term market share. The Target model has been much more focused in the past on apparel and home decor, and long-term changes in discretionary spending require the company to drive more frequent visits. There is also a lot of real estate in a typical Target store that could be tightened up or eliminated: Continuing to devote space to books and DVDs in today’s era of digital delivery is one example. So the challenge to Target sounds like the installation of a “Fresh and Easy” or “Marketside” concept within the four walls of a prototype store. If Target can execute the right balance of variety vs. assortment at a compelling level of price and quality, it could be a… Read more »
Carol Spieckerman
Guest
11 years 10 months ago

From Target’s perspective, I’m sure that building upon food in any way is a positive because it keeps customers in the store longer and, with grocery not-so-conveniently located on the other side of the store, it keeps shoppers browsing higher-margin areas. That doesn’t mean that Target has become a destination in food; that will take some doing.

My concern is the confusion that is created by the different Target formats (P’09, P fresh, etc.). In areas in which Target stores are more prevalent, you walk into one looking for food and alas, it’s not there…unless you came to pick up chips and soda. Can I get up some fruit? Ah, only frozen…Maybe it was the store across town where I bought those bananas…or was that Walmart?

I’d like to see Target roll out Super Targets in a big way and not mess with the almost-but-not-quite model.

Max Goldberg
Guest
11 years 10 months ago

My experience with Target is that their small selection of groceries has not been worth the effort to shop them. This is the crux of their problem: how do you become a grocery destination when you don’t stock what consumers want?

It will be interesting to see if the wider selection being offered in the test will have an impact on consumer shopping habits. Will consumers learn to think of Target in their first tier of grocery retailers? If target can expand selection, turn over enough produce and meat to keep these items fresh and beat local chain grocery prices, things could get very interesting.

Dr. Stephen Needel
Guest
11 years 10 months ago

Let’s look at the Walmart lesson–a half-baked grocery section doesn’t do much for you. A much more complete grocery section, as in SuperCenters, makes you a player in the grocery business.

If Target wants to play in this game, selection has to grow dramatically. I’m not sure going “fresh” is the answer, although if they do it well, it certainly won’t hurt.

John Lofstock
Guest
John Lofstock
11 years 10 months ago

Well for starters I wasn’t expecting Kathee Tesija to say, “You know, I shopped a Target and couldn’t find anything to feed my family.” Walmart was able to evolve into a grocery retailer and still maintain two distinct grocery offerings at its two big-box retail formats, so I would suspect Target is capable of doing the same. However, in markets where they already have a lot of competition from Walmart and other mega-grocers, I think they are a little late to the dance. Their prices and the quality of the products are going to have to be noticeably different to have any kind of an impact. I don’t think they will get the volume just hoping to sell groceries to customers coming in for electronics or apparel.

Bill Bittner
Guest
Bill Bittner
11 years 10 months ago
The old business model that had supermarkets making profit off of high volume and low margins is disappearing. No news here, as we have watched more and more non-supermarket retailers peck away at the popular items and add pre-packaged fresh foods. Supermarkets have retaliated by branching out into general merchandise, electronics, and low fashion clothing such as underwear, socks, etc. But the elephant in the room is the pure Internet retailer, who offers even greater discounts and, up to now anyway, has been able to do it without sales taxes. As non-supermarkets offer fresh items without the full service and assortment of supermarkets and supermarkets offer non-foods without the full warranty and customer support of a specialty retailer, they are both lowering consumer expectations. If I buy pre-packaged produce and meat at a non-supermarket or open a box that contains a big read leaflet telling me not to bother the supermarket retailer if I have a problem (worse yet at a specialty retailer) it just makes me ask myself (again) what is the retailer doing… Read more »
David Livingston
Guest
11 years 10 months ago
If Target tests something in the Twin Cities, it will be a skewed result. Target and Super Target do well in the Twin Cities because they have the home field advantage and all that goes with that. But outside of Minnesota, the “food ops” department is more like a food museum. Target just doesn’t get it and neither do the consumers. Typically the sales per square foot in the “food ops” department we are finding to be about 30% below average in whatever trade area they happen to be in. In the Twin Cities, they are very close to par. There are a few exceptions but typically the food side of a Super Target outside of Minnesota has been a bust. So if they can’t get food right in a Super Target, I’m wondering how just expanding food in a conventional Target will do? Personally, if they can’t prove beyond a shadow of a doubt they are as low priced as Walmart, consumers will continue to buy their food elsewhere. Naturally they will brag and… Read more »
Michael L. Howatt
Guest
Michael L. Howatt
11 years 10 months ago

One of the cardinal sins of evaluating any initiative is to have a one-person opinion. Mrs. Tesija, by going in herself to see if the format works for her family is a terrible idea. How can she not be biased? Plus, haven’t we all had a discussion with someone who says “Well, in my experience I found this…” and therefore it must be right?… WRONG.

Gene Hoffman
Guest
Gene Hoffman
11 years 10 months ago
“EXPECT MORE, PAY LESS”–Target’s tagline–suggests that their strategy is to be a dynamic, full-line food retailer. But that strategy has not be fully implemented. More Super Target Centers are called for as is more fine tuning in existing STCs. Yes, they have developed some competitive promotional and pricing practices, and while they have focused on freshness in produce their meat departments lack presence and perceivable freshness. Their current experiment to offer in Target discount stores 90% of the categories and 50% of the assortments in Super Targets…and to “get consumers used to the idea of expecting to buy groceries at prices well below most other food retailers” seems like something like Walmart would do. Two thoughts arise: 1) Are there any strong retailers who won’t match or beat Ms. Tesija’s “well below” pricing?; and an identity suggestion for consideration, 2) Drink deep into food retailing, Target, or taste not its “Pierian Spring.” And lower prices than competition might possibly suggest confusion, but–in fairness to Ms. Tesija, that’s not a fact. Upon reflection I suggest that… Read more »
Camille P. Schuster, Ph.D.
Guest
11 years 10 months ago

Who are the Target consumers wanting to purchase fresh items and what are they looking for and how does it fit into the ‘Expect More, Pay Less’ idea? Are there items for complete, specific meals that are “special” somehow or are they just becoming another food outlet? Do all food stores carry the same items or are they focused at the consumers who frequent those stores, e.g., families versus senior citizens versus young singles? Execution will make the difference as always.

Lee Peterson
Guest
11 years 10 months ago

Price is the best way to enter a market if you’re late, so that’s not a bad strategy to get on the map. The real question is, what took you so long? Target’s obsession with fashion merchandising, especially apparel, led them to take their eye off the ball that is consumables. If Walmart’s entry into groceries was the single best strategic retail move of the last 30 years, then Target’s sleepy response to that was the single worst (most costly?) strategic retail move of the last 30 years. It’s one thing to be a ‘fast second’ a completely different thing to be a ‘slow third’.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 10 months ago

The question that I have is whether the economics work for Target on a gross margin per square foot basis. They are simply not set up to work on the same gross margins as Walmart, and any expansion into grocery is likely to dilute their margins. It strikes me that they would need to generate more sales dollars per square foot than even Walmart to generate the margin dollars they need to cover their margin requirements.

Steven Johnson
Guest
11 years 10 months ago

Target’s tepid entrance into food, at first glance appears half hearted and can only produce half-hearted results.

Ed Dennis
Guest
Ed Dennis
11 years 10 months ago

I am a long way from Minnesota, but my Target seems to draw a distinction between national brands and store brands by limiting the choice in national brands, pricing them above the market and giving us a break by pricing their PL about 15% less. In fact Target’s PL is higher than Publix PL and Publix beats them hands down.

Target seems to have built a reputation by selling J.C. Penney clothes at a reasonable price. They aren’t fashion forward, just reasonable quality at a reasonable price. Clothing offers few opportunities to compare as decisions are made monthly compared to groceries where decisions are made daily. Target will have to get a lot sharper before trying to pass off PL product as a bargain. Too many have too much experience buying groceries for a haberdasher to make an impact using “value marketing” unless they are presenting a value.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 10 months ago

I am not sure Target needs to be a grocery destination, but rather a convenience for their shoppers. They already have shopper traffic for pharmacy, clothing, toys, etc…adding the convenience of traditional grocery items to the mix is a great strategy to build basket size. Limited assortment will work if shoppers can count on certain items during each visit.

I also was impressed with their Private Label sales reaching 20%. Building on Private Label success while continuing to support key national CPG brands should prove to be fruitful. Keep it simple so the shopper has the correct expectation when they shop the department.

Brent Streit Streit
Guest
Brent Streit Streit
11 years 10 months ago
With expansion coming to a near halt, this is very necessary for them to drive foot traffic. Customers have been asking for this for a long time. We’re talking the basics of produce such as bananas, apples, and lettuce. Remember, prior to the first Super Target store opening in 1995 that Target stores just used to have a snack section. They then added cereal, milk, bread, and Campbell’s soup. We don’t flinch at buying eggs and ice cream at this point at Target so it’s a necessary progressive step. It will get their customers thinking about Target as a grocer and will allow for the eventual expansion of Super Target on a wider scale. The capital just isn’t there to do what Walmart did with their Superstores. Target manages for the next 50 years so time is on their side. They will have 3000 stores domestically before they even think about expanding overseas or into another country. Look at the pullback in sales at retailers such as Best Buy or Home Depot. Has international expansion… Read more »
Mark Price
Guest
Mark Price
11 years 10 months ago

The strategy is outstanding and a perfect fit for Target. The end result of including some level of grocery purchases in core Target stores will be increased frequency. Those additional visits will not only result in grocery sales, but will also benefit the core business, which has much higher margins, as consumers purchase other Target items on shopping trips primarily designed to buy groceries.

The incremental visits are all that Target needs to justify the investment. Increased consumer reliance on Target, in support of their positioning, of course, can take the company to higher levels over time.

The only challenge will be logistics, but Target is a master of that.

Domenick Celentano
Guest
Domenick Celentano
11 years 10 months ago

No surprise here! Consumers have become comfortable shopping for food at Walmart. Kmart has more attractive stores. The mini-grocery concept is great…many communities are hesitant to zone for behemoths like a Walmart SuperCenters. Minis make sense from an execution standpoint.

Yes, Kmart will need some supply chain experience in food…but so what?! They can easily hire for that. Maybe with some incentives to woo Walmart people over.

This is great for brands. They now have a second, credible retailer to deal with, so Walmart no longer will have the unitary leverage they currently possess.

The pendulum swings both ways!

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