BRIEF

Target needs big ideas to grow its struggling grocery division

AUTHOR

Jeff Wells@JeffWellsWH

PUBLISHED

Aug. 18, 2017

Dive Brief:

• Target’s recent earnings results show that grocery was the only major division not to see comp sales increases. The company has made investments in organics and supply chain management, but Bloomberg columnist Sarah Halzack writes that the retailer needs bigger ideas to grow its sales.
• Target needs to develop a differentiated position for its food and beverage selection, Halzack argues, pointing out Whole Foods’ quality and prepared foods selection, Aldi’s low prices and Lidl’s fresh-meets-cheap approach as examples.
• The company’s beer and wine business has seen sales grow thanks to localized selection and marketing, indicating that same approach could work in other departments. Target has also made key recent hires, including Jeff Burt, a former Kroger executive.

Dive Insight:

Deflation and increased competition have weighed on Target’s grocery sales in recent months, but the retailer’s woes in this department go well beyond common industry headwinds. Analysts have noted that Target’s lackluster fresh offerings, including higher-than-average perishable losses and subpar store merchandising, are putting a damper on sales. The overall sense is that the retailer hasn’t taken grocery as seriously as it has other divisions.

But Target seems to be changing its tune. The company has rolled out more organics and health-positioned products, and has made improvements to its supply chain so perishables are fresher and delivered more efficiently. Target also offers grocery items as part of its very popular exclusive productsreleases.

Recent hires are also set to drive change in the struggling division. Back in March, Target hired Jeff Burt away from Kroger to become its head of grocery. Then just this week, the company hired Mark Kenny from Walmart to oversee its meat, seafood, bakery and prepared foods departments; and Liz Nordlie, a former General Mills executive who will oversee private label branding and development.

Will all of this be enough? CEO Brian Cornell has said he doesn’t want Target to be a conventional grocer. That’s a good thing, considering the enormous competitive pressure conventional grocers are under right now. But it’s not clear what he thinks Target should be.

More localized marketing and selection could be one answer. Target has also focused on renovating its private brand selection, including Market Pantry and Archer Farms, and will likely build on those efforts as it introduces new brands in departments throughout the store. Offering more enticing prepared foods and grab-and-go offerings could also boost sales. A new store prototype set to open this fall in Houston seems to address the growing emphasis on quick trips with an expanded selection of fresh goods available at the front end.

Although grocery accounts for just 22% of Target’s sales, the segment drives traffic to the rest of the store, meaning improvements could have an amplified effect across departments. The company also has a sense of urgency to its mission, considering the customer overlap its shares with both Amazon and Whole Foods. Those two companies combined could compound Target’s grocery woes if it doesn’t effectively address them.

On the plus side, Target is seeing considerable success with its small format stores. The company plans to have 30 open by the end of this year and more than 100 over the next three years. As the retailer expands these locations, which can serve as effective test markets for new products and concepts, its evolving grocery strategy will be on display.