Target may remove big food from store shelves
Target is looking to differentiate itself from the competition in grocery and that means, in part, offering products not found on the shelves of other stores. Of course, the items found on those shelves are from the very companies that have dominated grocery for decades — Campbell Soup, General Mills, Kellogg, Kraft and others. So, is Target really ready to walk away from major brands all in the name of differentiation? It just might be.
According to a Wall Street Journal report, Target has informed some of its top food suppliers that it plans to reduce promotions of their brands. Instead, the retailer intends to invest more in four key "signature" categories that represent about 25 percent of its sales: Baby, Kids, Style and Wellness.
"Food," CEO Brian Cornell told analysts on a March 3 call, "is more than 20 percent of our business, and it ties very closely to our focus on wellness."
"Our guest has told us, they expect to have food in our stores, but they’d like us to offer more choices to support their wellness goals, more natural products, more organic, more gluten-free, items that have simple, cleaner ingredient labels."
Source: Target
While many of the large CPG companies have sought to add organics and gluten-free items, primarily through acquisitions, they sometimes face a credibility gap when it comes to Millennials. Younger consumers often view smaller firms that have organic or other health-related features as part of their founding mission as being the real deal while big food is seen as being opportunistic, or worse, predatory.
Target, according to the Journal, plans to segment food categories into three groups: signature, outperform or perform. Signature brands will get full promotional support while perform items will not be featured in ads or displays. The company is still trying to figure out what items will fit into the middle group.
Discussion Questions
Do you think it would be wise for Target to delist large numbers of products from the grocery industry’s biggest food manufacturers? What mix of products do you think would work best for the chain?
Poll
BrainTrust
Dr. Stephen Needel
Managing Partner, Advanced Simulations
Dick Seesel
Principal, Retailing In Focus LLC
Target wants to keep 20 percent of its business in food, hopefully growing that. They also want to differentiate themselves from other grocery stores (including Walmart, we presume). So they are going to dump Oreos in favor of healthy products? And they believe that Millennials will carry the day, buying all this healthy stuff at the same rate as their current lineup? I think they are continuing their slide into irrelevancy. Every survey ever done says people want healthier choices and are willing to pay more for them. Great — except they rarely do buy healthier choices when available. (And yes, organics/naturals are growing, but they are still a small part of the business.)
This initiative ties to the “curated” approach that Mr. Cornell announced a month ago. It provides a greater focus on categories like snacks, coffee, craft beer, etc. and less attention paid to “commodity” items. My RetailWire comment at the time — that a “Trader Joe’s” approach to the business can undermine Target’s investment in being a destination food store — certainly applies to this news as well.
If Target makes it harder, not easier, for the grocery shopper to find everything on his or her list, doesn’t that signify a retreat from its investment? At the same time, it may represent a chance to reposition the total store away from food and toward the other areas where it aspires to gain share.
Although Target says that 20 percent of its sales are from grocery, the company has yet to make its food department a consumer destination. To become a destination, Target needs to offer foods that consumers want, keep the items in stock and competitively price them, something the company has not, heretofore, been able to do.
Its new strategy seems to take a page from Whole Foods by offering a unique mix of good-for-you products while continuing to carry the day-to-day basics.
Target seems lost. What does its brand stand for? Cheap chic? It needs to find a niche and refocus the brand, supported by a back-to-basics approach that rebuilds consumer interest and confidence.
Personally I’m very tired of the same old products everywhere. It’s like a street market in Mexico. The exact same stuff in every stall. I’d like to see a Sprouts meets Trader Joe’s meets Walmart strategy for Target. Imagine EVERYTHING in the food aisles actually being good for you, finding things that are different and expand one’s food experience, and all at a reasonable (not lowest) price.
On a minor point: In The Graduate the key word was “plastics.” For Target I’d suggest the key word is “bread.” Where does one go to get amazing and good-for-you bread? Maybe the Great Harvest Bread company can do a store-within-a-store arrangement with Target.
Every retailer should experiment and fine tune their brand experience. Seems like Target is trying to rediscover or figure it out all over again — a bit concerning, frankly. The grocery customer in a Target is probably for the most part the same one that shops the rest of the store. It shouldn’t be a mystery in terms of figuring out what Target should assort in the food section. I hope they’ve done some representative store testing prior to the wholesale change. It’s really easy to lose a customer, takes a lot longer to attract a different one.
Not sure if this is the right move for Target but they need to do something in the food section to differentiate themselves from everyone else. They did a great job of this in merchandising. It has a great chance of working.
Target is just a smaller, lower-volume version of Walmart with a somewhat classier setting. The overall theme is still low price, AKA cheap. Grocery is already nearly 250 feet from the checkouts. I’m sure some of the product changes will work. Even Walmart has added organic and gluten free products. So just how will you fill up 13,000 square feet of the grocery box down on the far end of your store? Trader Joe’s has a sales area of perhaps 9,000 square feet. Earth to Target — you are not Trader Joe’s. The mix of products that works with the low income and price sensitive crowd can be seen at Walmart. Walmart operates larger stores, higher volume stores, and higher sales-per-square-foot stores. Perhaps take a lesson from someone that, despite their shortcomings, has better results.
There are two conflicting laws for retail store survival today:
Target’s grocery strategy seems to make some sense regarding differentiation. Target can’t compete head-to-head with Walmart and Amazon Prime, and there is a growing U.S. trend towards a healthier lifestyle.
But on the second law one has to ask, who are Target’s core customers today? Target used to “own” women ages 18 to 54. That is a lot of diversity in terms of food preferences, especially if you consider regional differences!
Walmart tried a major SKU rationalization reduction strategy a few years back, and that did not go well when moms couldn’t find their major brand of peanut butter.
Since food is still a core traffic driver for Target’s stores, they would be very wise to test the food category makeover very carefully and systematically.
Max has it right. Target needs to move away from cereal and Oreos and offer a boutique selection of only-here products as Trader Joe’s has done. With the right blend of aspirational food products, Target can bring new life to its grocery aisles and attract young foodies who are setting up households.
Great teams are coached to run to their strengths and manage their weaknesses. Same applies to retail teams.
However, if Target expects to grow groceries overall, they would do well to have a broad group of food categories that perform well. Every home chef chooses to cook with variations. Some folks are going to make their chicken broth from scratch the way Mama might have made it. Others are going to be comfortable with Campbell’s, Swanson’s or the generic house brand.
Target has done well in bringing consumers to some center aisles for signature products, and their customers have been ready adopters of organic brands and products, gluten free and health-driven. Target has a broad shopper base for their stores. They do not have a broad shopper base for their groceries at this stage.
Based on the Prosper Monthly Consumer Survey of 6,500 plus adults, 18-and-older, the Target shopper in general spends $282.57 per month on groceries. The Target shopper who shops at Target for groceries as a first choice spends only $251.08 per month, nearly 13 percent less. That figure is lower still than adults 18-and-older who spend $267.75 on groceries each month.
To build grocery, Target has to keep customers shopping a broader number of aisles, meat and produce. Don’t knock out too many of those big brands or grocery is going to fall below 20 percent.
Target is a convenience-only grocer to me. By that I mean if I am in Target and remember I need something I might just walk over and get it. They have never differentiated themselves from others to make them a destination. I doubt they can pull this change off any more than the others they have attempted recently.
Super Target stores are supposed to be your full shopping experience. I am a loyal shopper, and each week I am beginning to question that loyalty as I am no longer able to find the national brands and products I want to purchase. While health and wellness and PL are growing, I still want to have choices and not have them dictated to me. Going too far down the specialty line will lose other customers like me.
Scary. My heart is very much with the smaller vendors and healthier items, but this sounds like a major move that could hurt. It’s been established that shoppers say one thing and then buy another, especially when it comes to eating and exercise. I hope Target tests this out in select stores before jumping off this cliff.
We shop at Target weekly for groceries. But there are always things we want that Target doesn’t offer, and I always say the same thing — “Now let’s go to a real grocery store.”
Maybe it will work for Millennials, but I think Millennial moms will have a budget and want to buy more than just the trendy stuff.
It is difficult to say you are all-in on “small food,” when you are all-in on Tide, Pantene, Colgate, Purina, Barbie, Samsung, Suave, Hershey, etc., in your other aisles.
Actually, both Walmart and SuperValu (Chicago) tried something similar by limiting/engineering brands and SKUs. Didn’t work out so well for them.
Retail management needs to have a strong grasp of data analytics prior to wandering off. There are some very interesting correlations and affinities that become apparent.
Distribution logistics and customer logistics often do not interlink.
They will release a tremendous amount of trade marketing dollars to their competitors.
When Target started the PFresh remodels to ramp up its commitment to grocery and “drive cross-shopping” into the rest of the store, I said that the PFresh remodel would be the worst ROI project in retailing. If Target had not subsequently decided to lose seven billion dollars or so in Canada and Ron Johnson had not decided to burn a few billion at J.C. Penney, I would have been right.
No, Target cannot win against Walmart and Kroger in “regular” grocery, but they also cannot be the “go-to” place for organic and healthy foods. Unfortunately they cannot afford to tear out PFresh and try to go back to the pre-2006 Tarzhay. (They could not get there again in any event, given the new competitive set in apparel.) They have trapped themselves.
Grocery at Target has been a debacle from the beginning. They are always out of basic products. Removing core products in order to make room for more Archer Farms crackers isn’t going to help.
There’s a difference between differentiation — a well thought out strategy which has a different focus than a competitor — and simply doing things differently “because.” Target’s success with this latest (and umpteenth) attempt to build a better mousetrap, if any is to be found, will be in doing the former not the latter.
One thing that I don’t see mentioned here is the rampant SKU proliferation that has occurred over the last two decades on behalf of leading brands.
So the bottom line IMO is that what Target is doing is a long overdue course correction to rationalize the products shoppers will purchase.
Here are a couple of facts that I have known for 10-plus years and put them in one place for you to digest:
Let me give you a few facts on SKU count I observed on a recent trip to a top 10 supermarket retailer.
I could go on.
REALLY!
This retail proposition is in need of a major overhaul.
If done right, I think Target can have it both ways. Improve their selection/shopability dramatically and stock the items that are growing in demand. Add that to getting better at store/shopper segmentation and appropriate store formats (not trivial operational issues) and Target could have a big win.
My prediction is that we’ll see other retailers following suit soon.
I am not a consultant but I am in the business, and it appears to me that is an attempt to improve the gross margin of the grocery department. Replacing low-gross commodities with high-gross margin private label is something all retailers wish they could do, but which only Trader Joe’s has been able to do, because they have done it entirely while creating (and cultivating) a market for their own products. Traditional grocers still have to layer on these private-label items, now including ever more natural and organic products, but it is always to give the consumer a choice (albeit a more profitable one) over the national brands.
But Target is in grocery for a different reason: to drive increased frequency of trips. As strictly a GM merchant they could see customers once or twice a month, but grocery is supposed to increase that to once a week or more. For some Target shoppers grocery may be an add-on to the sale, but for grocery shoppers, GM is an add-on to the grocery trip, even if it is a fill-in trip.
If I were to go to Target, where they have a lower everyday price than supermarkets, to buy two boxes of national brand cereal for $6 but then ended up spending $60, what is the opportunity cost of discontinuing that cereal? What does that do to shopping patterns? To the reputation of the store? Does this strengthen competitors who offer more choices?
Target is in a deep profit hole after the data breach and Canadian venture fiascoes. The first rule would be to stop digging. The second would be to start filling, and if you can’t get more money out of the national brand vendors (when you plan to do little to drive their sales), it seems their answer to getting out of the hole is to fill it with more profitable private label and health and wellness offerings.
The strategy is a gamble, and time will tell if turning on one constituency at the expense of turning off another will pay off in the long run as well as the short. It would seem like they would want to (and need to) hang on to both.
If delisting is indeed part of their strategy, it is very risky. While most retailers experience the 80-20 rule, wherein 20 percent of the SKUs drive a disproportionate amount of the business, significantly cutting off a major portion of slower-moving items can lead to a “variety” problem, especially if it effects major brands. If shoppers begin to sense they cannot complete their full basket shopping at Target, traffic count and basket size will most likely suffer much more than any gains realized from growth in their priority categories.
Conversely, if Target places their focus on their four priority categories by expanding space, SKUs and promotions without dramatically shifting resources away from major CPG brands, they may enjoy some success with this new initiative.
However, In my view, Target has other fundamental issues on the grocery side of their business that are begging to be addressed before they see dramatic improvement in their food side results, regardless of any new shift in category emphasis.
“If only we could see ourselves as others see us.” Oh Target.
If Target were a basically nice young man who was dating our child we’d say he was unfocused and flailing to “find himself” without much actual obvious positive result.
If Target were a basically nice girl dating our child we’d say she was flighty and more superficially image-conscious than grounded or reliable.
In either case, based on what we observe, we’d not be very optimistic about them/Target ever pulling it together enough to assure long-term future success or stability.
This move is stupid almost beyond belief. Stores like Target readily hit a “traffic ceiling” because it is a fact that you do not need anything Target sells as often as you need air, water and food, to get basic about it. Beverages and food attract people to grocery stores more often than ANY other retail category.
So when Walmart hit the wall in the late ’80s they moved into groceries in a big way. With a chorus of hoots and hollers from the commentariat about, “what do these fools know about grocery retailing?”
Apparently more than any other food retailer IN THE WORLD knew, since Walmart is now the number one grocery retailer in the world.
So you can just see some in Target management thinking, “we need to get back to what we really know, and maybe selling groceries like a Martha Stewart line, is our key to the food business!”
But then I know my suggestion to Sears a decade ago that they stick their toes in the food business went nowhere. Of course, since Sears is really a real estate company, maybe they will be more successful at offloading their “parked capital” to other retailers. See: “The Problem: “Parked” Capital.“
I really expect better from Target.
Are we seeing the evolution from Target to Whole Target or is this Target taking aim at Aldi’s market share? We can and most likely will speculate on this move until it bites the dust like so many of the company’s recent initiatives. Whatever the case may be it will not disguise the fact that consumers won’t be able to shop whole grocery orders and will need to spend time looking for reasons to shop there for “what’s in that bag anyway?”.
What they should do is challenge “big brands” in each category to own the shelf with no competition vs penalizing all “big brands.” Category management like this should then be leverage to gaining Target a better pricing strategy with key brands vs their unique brands. In a business that needs retailers and manufacturers working together, they both find ways to screw things up. Sounds like the model our government displays?
While Millennials are growing as purchasers, only appealing to their needs won’t be enough to sustain sales. And while Target’s grocery selection was limited to begin with, it certainly will be even less so now. Proceed with caution.
I love that Target is rethinking their food business and I love that they are looking for unique products to bring to the mix. Much in line with the old Tar-chez chic. (Yes, that’s how I spell it) The problem I see is that they still need many of the staples.
The consumer has to have a reason to come in and browse for fun new products. And that’s my 2 cents.
I think it is brilliant. Carry must-have grocery items like a convenience store while developing a must-have destination for the burgeoning health and wellness population. There are enough grocery stores—and most of them are adding healthy eating departments because they see the future. So why not lead change as Target purports to do? It’s a fabulous way to differentiate and establish a shopping population that knows where to go to find the healthy foods. I wish them the best.
Yes, it is an opportunity (see Aldi). They should use their sales data to start with the least “brand” sensitive categories, moving along as they learn. Target’s private label is a great value and should be exploited as a differentiator. Target has bigger mountains to climb in their overall food effort than this one!
Target needs to differentiate itself from a regular grocery store. Its collaboration with designers helped it get its mojo and “tar-jay” back recently. As it moves to differentiate from Walmart and other discount retailers, taking some chances in the grocery department is needed as part of the overall strategy to attract a different kind of shopper. It worked for Trader Joe’s.
Being different can be good.
Does the article imply dropping major brands or just reducing support for them? Either way, this is very risky. Big brands drive traffic and average order size. Target is not Trader Joe’s. Given Cornell’s background in big brands and retail, this is a very surprising right turn.
Removing any type of mix that is selling, may alienate those people that shop, but are not social media addicts. There are a lot of people that voice their opinion on social media, but are a small fraction of the purchasing pool. Be careful because once you lose a customer, it takes twice the effort to get them back.
It appears that what Target is doing in regards to food may not be providing ample return on investment. Dropping the proliferation of skus in favor of organic and healthy makes sense. This would be a direct tie in with the recent marriage of Target and CVS.