Target’s food proposition remains ‘confusing’ says analyst, as chain posts lackluster Q4

Speaking as Target unveiled lackluster Q4 numbers this week (same store sales were down 1.5% although traffic edged up 0.2%), Neil Saunders, managing director and retail analyst at retail research agency and consulting firm GlobalData Retail, said that aside from its outdated store layout, “the other area that puts Target at a disadvantage is its grocery offer.”​

While Target has signaled its intention to stock more “locally relevant​​​” and “unique and differentiated products​,​​” coupled with a strong focus on natural and organic products​​ as part of a strategic plan to “reinvent​​​” ​its food offering, it has not currently got a distinctive enough proposition to become a destination store for food shoppers, he said.

Target is neither a full line grocer nor a player with lots of niche specialty products​

And unlike Walmart, which also combines food and non-food items under one roof (and posted positive comps over the latest quarter), “Target is unable to rely on grocery to pull in shoppers,” ​he added

“This is mainly because its food proposition remains confusing: Target is neither a full line grocer nor a player with lots of niche specialty products.”​

Moreover, he said: “It is neither a high-end player, nor a price focused discounter. Being in this nether-world means that Target remains a place where people come for something else and buy some food, rather than being a place where people come to buy food and end up buying something else. ​

“The latter is a much more powerful driver of trade, if only because of the frequency with which food shopping is undertaken.”​

Dr Kurt Jetta: Target does not have the store traffic to sustain a viable fresh produce section​

While the solution might therefore appear to be double down on the fresh offer, Dr. Kurt Jetta, founder of CPG analytics firm TABS Analytics, argued that Target should instead seriously consider abandoning its commitment to fresh food.

He added: “Products that have high spoilage need people to come into the store frequently in order to move merchandise.  According to household panel data from Nielsen, Target just does not have the store traffic to sustain a viable fresh produce section.  ​

"The average grocery store customer visits the store around 20-25 times per year.  Target’s average customer averages less than 10 trips per year.  There are way fewer opportunities to convert them to a fresh produce purchase.”​

As for organics, he said, “Target is a mass market retailer. Over a third of US consumers shop for food products at Target, but only 11% of US shoppers consider themselves regular organic buyer, so organics are a niche, and one that doesn’t sell very well in the mass market.  ​

“Sure, 20% of Millennials consider themselves heavy buyers of organics. The problem? Millennials aren’t the core target for food, nor are​ they Target’s core audience.”​

Target must offer more compelling promotions​

Finally, he claimed,​ by failing to more compelling promotions, Target had sacrificed “store traffic, incremental sales on the promoted products and larger market baskets, overall.​

“Heavy deal shoppers are the heaviest shoppers in the store.  If Target doesn’t want to meet their need for a good deal, there are any number of retailers out there that will.”​

Target CEO:  ‘We are embracing who we are; we’re not a full service grocery’​

Speaking to analysts on the Q4 earnings call on Tuesday, however, Target chief merchandising officer Mark Tritton implied that there might be a greater focus on fresh in future, adding that investment in fresh produce had paid off: “What we've learned in the test markets is the role of fresh and convenience in creating trips and that's been very powerful.”​

He also predicted that adult beverages - the fastest-growing category in all of Target - could represent a one billion dollar category in 2017.

CEO Brian Cornell, meanwhile, said he was well aware that “we don't have a full service grocery experience.”​

He added: “We don't have meat and seafood counters, we don't have deli counters, we don't provide a full assortment of experiences and services that many of our full-line competitors do. But we can offer a great self-service convenient experience. And that starts with the right quality, the right assortment, the right instore experience [and] great value.​

“So we are embracing who we are. We’re not a full service grocer. We don't have rotisserie ovens in our stores, but we do have the right allocation of space and selection to compete and be that convenient alternative in food and we're going to hold on to that going forward.”​

He was also pleased with the performance of test stores in Los Angeles and Dallas “where we enhanced that experience, where we improved the assortment,” ​he said.

Q4 and full year 2016 figures​

In the fourth quarter, Minneapolis-based Target posted a 4.3% decline in sales to $20.7bn, reflecting a 1.5% decline in comparable sales combined with the removal of pharmacy and clinic sales from this year’s results. Comparable digital channel sales grew 34% and contributed 1.8% points of comparable sales growth. Net earnings were down 42% to $817m.

Full year sales in the year to January 28, 2017, were down 5.8% to $69.5bn.