Private Label Buyer

On Target

April 11, 2012
Target stores

 

Target At A Glance

Company:
Target Corp.

Headquarters:
Minneapolis, Minn.

Stores:
1,765

PFresh Locations:
About 900

PFresh Forecast:
Approximately 1,100 stores by the end of 2012

Key PFresh Brands:
Archer Farms, Market Pantry, Sutton & Dodge

The move by major mass-merchandisers to market fresh foods is becoming increasingly prominent.

While the world’s largest retailer, Bentonville, Ark.-based Wal-Mart Stores Inc., is forging perhaps the most formidable perishables presence by operating more than 3,000 U.S. Supercenter outlets with full grocery sections, it is not alone in creating enhanced competition for supermarkets.

Minneapolis-based Target Corp., which operates 1,765 stores across the U.S., is making stronger inroads into the perishables sector.

Target stated in March that by the end of the month it expected to have completed remodels of more than 100 general merchandise stores, which would then offer full selections of fresh foods.

The stores, which include outlets in Spokane, Wash., Oshkosh, Wis., and Chattanooga, Tenn., will have approximately 10,000 square feet dedicated to limited assortments of fresh produce (including bananas, seasonal fruit, berries, baby carrots and bagged lettuce), fresh packaged meats and pre-packaged baked goods (including dinner rolls and pies).

About 900 Target stores already have the expanded fresh food layout, known as PFresh, and the company reports that it expects to incorporate the layout in another 230 stores this year.

Jamie Bastian, a Target spokesperson, says the fresh food layout was created in response to research and requests from shoppers to have more fresh selections in Target.

In addition to national brands, the outlets also merchandise private-label foods.

The primary store brands are Archer Farms, a premium offering that includes more than 1,600 products; Market Pantry, a value-oriented brand that Target says offers the quality of national food brands at a price that is 10- to 30-percent lower; and Sutton & Dodge USDA Choice beef.

The company notes that it also offers more than 700 organic selections.

Ben Ball, senior vice president of Dechert-Hampe Co., a Northbrook, Ill.-based sales and marketing consultancy, says Target is positioning fresh foods as an important lure for getting more consumers to visit entire outlets.

He notes that supermarkets average more than one household visit a week, while mass-merchandise outlets only generate about a dozen visits a year.

“The challenge is trying to get people to shop the rest of the store because they need food more often than they need dry goods,” Ball states. “There will be a lot of food-only customers. But Target still is increasing the opportunity for them to wander over the line.”

Selling foods, however, can be a risky venture for mass-merchandisers.

Operators have to make large investments in fresh selections and refrigeration; they frequently lack expertise in food merchandising and food supply chains; and the stores must market items that typically have much lower margins than dry goods.

Spoilage also is a major threat for outlets that have fewer shopper visits.

“For fresh foods to turn, you need consumers in the store multiple times a week,” says W. Frank Dell, president of Dellmart & Co., a Stamford, Conn.-based retail consultancy. “Carrying more perishables without that turnover doesn’t do you a lot of good.”

Gene Hoffman, president of Corporate Strategies International, a Wayzata, Minn.-based retail consulting firm and the former president of Kroger Co, agrees: “Fresh foods turn sour and wilted when they don’t turnover rapidly. That kills sales and a retailer’s reputation.”

Dell notes, however, that Target’s expansion of its food layouts indicates that the concept is proving successful.



“They have a good produce mix; the private-label items are beautifully packaged; and the displays are great,” Dell says. “They are trying to fill a perceived customer need. The key is finding the right mix of elements.”

Indeed, Bastion notes that “guest feedback on the expanded fresh food layout has been overwhelmingly positive. We’ll continue to look to drive growth with our existing program and find new ways to drive association and loyalty with food at Target.”

Ball cautions, however, that Target has not reached the same level of shopper acceptance of food as Walmart, partially because its average customer tends to be more upscale with unique needs.

“It will be hard for such consumers to switch to a mass-merchandiser for their weekly food shopping,” he says.

Target reports that the median age of its customers is 40; the median household income is approximately $64,000; about 57 percent have completed college; and approximately 43 percent have children at home.

Yet, Ball notes that price will likely drive many food shoppers to Target instead of traditional supermarkets.

“There is the perception among consumers that you will find better food prices at Target than in stores such as Safeway,” he states. “Supermarkets are trying to fight back with added promotions and featuring in circulars.”

And he says Target’s greater foray into fresh foods seems prudent.

“It’s working for them and they have to go with it,” he states. “Particularly because Walmart smoked them bad in the food area, just like it did the rest of the industry.”
Hoffman, meanwhile, says a “strong and exciting” fresh foods program can be a major asset for Target, and that the operator is already successful in meeting the needs of its targeted customers.

“Target always delivers on what it promises the consumer,” he states. “It recruits and trains good employees who compliment the overall Target image. Not all supermarkets can claim that and, as a result, many have been closed or gobbled up.”

The company’s main challenge as a fresh food seller is making sure its assortments are contemporary with a sense of theater, Hoffman says.

“Nothing today is more superfluous or unneeded than another average presentation of fresh foods,” he notes. ‘This is an era when only the best, most unique and most targeted operators are surviving.”

Marcia Schurer, president of Culinary Connections, a Chicago-based food marketing and consulting firm, adds that Target will need to become an expert in marketing fresh foods, particularly because of increased competition from convenience outlets and drug stores.

“They will need to keep products fresh and turn inventory quickly, like Trader Joe’s does,” she states. “And make the shopping experience convenient and fun.”