Target’s grocery business is racing perilously close to its expiration date.
Eight years after Target began testing its PFresh grocery format in its native Minnesota, reports indicate the company is still struggling to stay ahead of spoilage — a dilemma due in large part to a scarcity of customers making regular visits for perishable foods. In fact, insiders say Target's perishables losses are higher than the industry average.
Target is responding to the challenge by assembling dedicated grocery teams trained expressly to deal with packaged and fresh food, and more effectively interact with grocery customers. There are also plans to increase grocery promotions and marketing efforts.
But those initiatives won’t come to fruition under Anne Dament, Target’s senior vice president of grocery merchandising. Dament, a close ally of Target CEO Brian Cornell during his tenure as CMO at supermarket chain Safeway, was appointed to head up the retailer's grocery business in April 2015. Last week, reports surfaced that she will exit Target on Nov. 18 after only 18 months on the job, with Chief Merchandising Officer Mark Tritton assuming her responsibilities during the search for a replacement.
Dament’s departure follows less than a month after Cornell made it clear that Target does not harbor aspirations to rival Wal-Mart and other major grocers, instead focusing on a list of key categories including style, baby, kids and wellness. “Groceries has never been on that list... We’ve been able to drive traffic without having a sushi chef,” Cornell said.
In the aftermath of Dament’s exit, discussion forum RetailWire asked its BrainTrust panel of retail experts the following questions:
- What would it take to fix Target’s grocery business?
- Should the retailer scrap groceries altogether?
Here are eight of the most provocative and insightful comments from that discussion. Comments have been edited by Retail Dive for content and length.
1. No easy fix
Dick Seesel, Principal, Retailing In Focus LLC: It’s hard to judge Ms. Dament’s performance based on fewer than 18 months on the job and the possibly insurmountable challenge she faced. Maybe she underperformed, maybe it was a bad cultural fit or strategic clash — who knows? Anybody trying to turn this around quickly has not been dealt a winning hand.
Brian Cornell wrote off the Target Canada fiasco very quickly, but I’m not sure he can walk away from the grocery business so easily. The company spent billions on remodels and infrastructure to establish the business and it doesn’t appear to have a replacement strategy waiting in the wings.
But how does Target fix it? It’s not a “top of mind” business and doesn’t have the critical mass needed to draw weekly shoppers. Perhaps Target should hire somebody from a more disruptive grocer (think Aldi or Trader Joe’s) who can offer up a more innovative, curated approach to the category.
2. Identity crisis
Dave Wendland, Vice President, Hamacher Resource Group: Getting it right at retail in any segment is an ever-changing goal. And the grocery segment has been rapidly evolving (consolidation, Amazon Fresh, Aldi, Lidl, convenience channel expansion, etc.) during Ms. Dament’s watch.
That said, I don’t believe Target should give up on grocery. Why? Because the shoppers in the store have found benefit in the one-stop shopping environment. The challenge, in my opinion, is that the assortment is too broad in some categories, too narrow in others, and not organized for convenience. I’d prefer that Target make a decision to either be a full-line grocer (this is going to present the biggest challenge), a private brand destination (e.g., Aldi-esque), or a convenience store (think “7-11 inside”). Once identity is determined, Target must rally around that focused business and return to its more effective marketing roots … I guess I’m the eternal optimist and would rather see this phoenix rise from its own ashes.
3. Trapped in limbo
J. Peter Deeb, Managing Partner, Deeb MacDonald & Associates: Target has been half-pregnant in grocery for many years. They are trapped somewhere between a limited-assortment retailer and a conventional supermarket. In addition they hid their offering as far from the door as possible making it more difficult for shoppers to get in and out of the store. They further compounded this, in my opinion, with no or little cross-merchandising with higher-volume items near the higher-margin general merchandise area (i.e. Wal-Mart’s power alley).
Target might be better served to carry only non-perishable household items and soda and snacks, etc., and devote more space to their strengths in higher-margin apparel, toys and other like categories.
4. No middle ground
Mark Price, Managing Partner, LiftPoint Consulting: The challenge of the grocery business is the depth of the product assortment that is required by today’s upscale customer segment. Target has attempted to replicate European grocery stores in creating a higher-end store brand, but American consumers are more attached to their own brands and do not see the value in the store brand to create a premium price.
Target can be a small private label grocery provider or a larger branded grocery provider — there really are not any other choices.
5. Commit or quit
Lee Peterson, EVP Brand, Strategy & Design, WD Partners: Target should commit or get out of grocery for sure. And by committing, I mean making grocery a priority, like their competition does — better fresh, more space devoted to the category, warmer design (grocery customers don’t like “sterile,” just ask Whole Foods), feature grocery up front vs. the dollar area, meals to go, devoted staff, BOPIS, on and on. Grocery just doesn’t feel like it matters in Target and customers can sense that.
Then there’s the whole issue of not doing it well for the past 30 years. Customers get that, too.
So here’s my suggestion: Take it all online. Do online grocery in select markets only and store it in the back of key locations for BOPIS and shipping. It’s just too big of an investment for front of house during this era of shrinking physical retail. Why bother when most likely you’ll be closing a lot of stores in the years coming up. You’re going to wind up competing with online grocers anyway, why not start now?
6. Easier said than done
Ross Ely, President and CEO, ProLogic Retail Services: It’s easy to say that Target should exit the grocery business, but grocery now accounts for 20% of Target’s revenue and the retailer is in no position to absorb a loss of this magnitude. Target needs to continue to explore how to apply its value proposition successfully to grocery. Exclusive brands at affordable prices has worked in the fashion category and a differentiated grocery model along these lines may succeed as well.
7. Course correction
Susan O'Neal, CEO/Founder, Adjoy: The strategic purpose of having grocery in Target is to increase frequency of visits — that purpose goes away if grocery is culled back to either household goods (longer purchase cycle won’t drive frequency) or convenience (insufficient selection to drive an incremental trip). The investment in infrastructure is too significant to walk away from grocery altogether. These are all negative reasons for Target to stay the course (the alternative isn’t pretty).
On the positive side, Target has some solid assets to build upon. The brand equity Target has built in the Archer Farms label is strong, and they have some unique products that their shoppers will go out of their way to buy — this points to the potential for the success of a Trader Joe’s approach. What should they do more of to be successful? Target’s brand is a strong and a positive one for CPG companies to be associated with and co-op marketing programs do drive meaningful impact on consumer awareness and intent to buy. If Target increases investment in mutually beneficial co-marketing solutions with those CPG companies, as they are doing with Cartwheel, this could also help.
My net takeaway — Target can be successful in grocery. It will take doubling down on their investment in partnership with CPG manufacturers.
8. Two rules
Christopher P. Ramey, President, Affluent Insights & The Home Trust International: The first rule is reinforce your DNA. The second is give those who are your best prospects and customers what they want.
So far, zero out of two.