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10/12/2021

Target's Flair for Food

Retailer's new strategy is all about bringing 'Tar-zhay' cachet to its grocery aisles
Gina Acosta
Executive Editor
Gina Acosta profile picture
Target Gets Serious About Grocery
Target EVP and Chief Food and Beverage Officer Rick Gomez

If you’re wondering how Target has managed to increase sales, market share and profits this year while most other food retailers are still lapping last year’s pandemic-fueled gains, the answer is easy — just four words, in fact: “We are unapologetically Target.” That’s how EVP and Chief Food and Beverage Officer Rick Gomez describes his company’s successful approach to retailing, and to food retailing in particular.

“We’re growing our business and generating guest love in food and beverage by leaning into the strengths that differentiate us,” Gomez says, “and that has made us one of America’s strongest retailers over the last five years.”

Target’s value proposition of offering on-trend brands and products at affordable prices has always worked very well in its nonfood categories. The Minneapolis-based retailer has such a cult following, especially among Gen Z and Millennials, that some fans sell shirts (in the retailer’s signature bright-red color) on Etsy emblazoned with the words “Trips and Sips” (i.e., Target trips, and sips at the retailer's Starbucks cafes). Now the company is focused on applying the same kind of cool factor and value to its grocery assortment as it looks to become even more of a one-stop shop for trippers and sippers of every generation.

a store in a library
This spring, Target expanded its same-day service assortment to include adult beverage items at more than 1,200 of its stores across the country.

To that end, the retailer is making significant investments in its food and beverage business, specifically in fresh produce, meats and impressive private-brand — Target calls them “owned-brand” — assortments. As the company spends $4 billion annually to open dozens of new stores and remodel hundreds of older ones, fresh departments now feature updated lighting, a warmer wood grain design, an expanded assortment of perishables, innovative meal solutions such as meal kits and grab-and-go, and thousands of fresh food SKUs available for delivery or pickup. Meanwhile the retailer’s new grocery brands, including Good & Gather, have become so popular that YouTubers are raving about items such as Good & Gather Garlic and Olive Oil Quinoa online. 

So how is Target putting the “Tar-zhay” in grocery? In an exclusive interview with Progressive Grocer, Gomez details how Target is leveraging its unique flair for grocery by curating an assortment that celebrates food, hiring team members who are experts in food and beverage, creating a TikTok-viral owned-brand portfolio, and meeting the customer wherever they want to be met, whether that’s online, in store or even in the parking lot.

“Our food and beverage business has been doing phenomenally well,” Gomez asserts. “It’s really important to understand that we’re not just a grocer. Food and beverage represents about a fifth of our sales, and that enables us to create a one stop-shop destination for our guests.”

a large room
Despite impressive remodels of its beauty departments, Target plans to open Ulta Beauty shops in as many as 800 locations over the next few years.

A 'Sustainable Business Model'

In the past, CEO Brian Cornell has talked about what he calls Target's sustainable business model in earnings calls, but the momentum for the company at this time in history cannot be overstated. In 2020, the company grew its sales by more than $15 billion, which was greater than its growth during the prior 11 years. Target gained market share across its five core merchandising categories of apparel, home, food and beverage, electronics, and hardlines.

Specifically, food and beverage grew from 19% in 2019 to 20% of the retailer’s sales in 2020. (The percentage is 46% if one includes beauty, personal care and other “household essential” category sales, in keeping with the assortment one might find in a typical grocery store). All of this is pandemic-related, of course, but the growth has continued this year.

When the company reported second-quarter earnings in August, food and beverage had delivered double-digit growth, led by double-digit increases in fresh categories, benefiting from an expansion of the number of items available for Target’s pickup service, Drive Up (more on that later). 

In fiscal 2021, at the midpoint, Target’s revenue stands at $48.7 billion, meaning that the retailer is on track to become a $100 billion company by the end of fiscal 2021; that’s growth of 45% compared with five years ago. Today, Target also has more than 100 million members enrolled in its free Target Circle rewards program.

In August, Cornell gave a bullish outlook for the fall and holiday quarters, despite all of the risks related to COVID-19, labor and supply chain challenges, and rising costs. “We are seeing growth on top of growth,” Cornell says. “We are seeing tremendous resilience in the consumer today and our traffic patterns. And we’re seeing that, as we start the third quarter, that traffic pattern and that resilience is continuing.” As the retailer reports “growth on top of growth,” however, Gomez points to opportunities for even more growth, especially in grocery. 

website
Target’s flagship food and beverage owned brand, Good & Gather, launched in 2019 to replace most Archer Farms, Market Pantry and Simply Balanced items, has become the retailer’s No.1-selling owned food brand.

Putting the 'Tar-zhay' in Grocery

Target’s grocery ambitions can be traced back to its 2009 PFresh initiative, which saw the retailer add fresh grocery to hundreds of stores.

Fast-forward to today, and the vast majority of the 1,915 stores in the Target footprint now feature an expansive food assortment, including perishables, dry grocery, dairy and frozen items. Nearly all of the company’s stores larger than 170,000 square feet offer a full line of food items comparable to those found at traditional supermarkets. Its small-format stores, under 50,000 square feet, offer more edited food assortments. Target’s food evolution since PFresh has meant expanded fresh and dry grocery assortments, the launch of several premium owned and national food brands, and the adoption of an ultra-fast omnichannel fulfillment strategy – all of which makes food an even bigger opportunity for the retailer going forward.

“We think of the Target experience as truly omnichannel, which means our stores are just as important as our e-commerce business,” Gomez says. “Our stores are important because they serve as hubs that enable us to get products to our guests in a really fast, easy way. They also create an experience that’s differentiated, and incredibly special. I can’t tell you how many guests tell me they come to Target to just wander the aisles, because they love the experience. So how that experience comes to life is really important. It needs to be clean. It needs to be easy. It needs to be inspirational.”

In 2020, Target’s food and beverage business generated $18 billion in sales, and more than 70% of Target guests shop for foods and beverages. A key part of Target’s strategy is providing a curated assortment of national, emerging and owned brands. Approximately one-third of Target’s 2020 sales were related to owned and exclusive brands, some of which are part of its pledge to spend $2 billion with Black, Indigenous and people of color (BIPOC)-owned businesses by 2025.

Speaking of such companies, Gomez says: “We've made a commitment to make Target even more inclusive through our assortment, specifically by elevating BIPOC-owned businesses. When people shop at Target, we want them to feel welcomed and represented, with a curated assortment that’s relevant, compelling and differentiated.” According to Gomez, the retailer is also looking at smaller startups that might not be ready for Target but that have a ton of potential.

"One of the ways we’re taking steps to build on our efforts to make Target more inclusive through our assortment is by participating in Target Takeoff, a business accelerator program designed to help diverse suppliers and emerging brands scale their business for success in mass retail," he said. "We had 11 emerging food brands participate in a recent session, and we’re committed to using this program as a pipeline opportunity for new business to get into Target.”

As for the retailer’s owned brands, the flagship food and beverage brand Good & Gather, launched in 2019 to replace most Archer Farms, Market Pantry and Simply Balanced items, has become Target’s No.1-selling owned food brand, generating $2 billion in sales last year. The company says that it saw 36% growth in owned-brand sales in 2020, its strongest performance on record. Gomez attributes the success of Good & Gather to the company’s research on consumer trends. 

“We spent a lot of time listening to guests, and what their wants and needs are in shopping for groceries,” Gomez said. “And what guests told us is they were looking for a brand that could offer affordable, high-quality, easy options. And above all it had to deliver on taste. And that's what Good & Gather does. Good & Gather products are great tasting, affordable, and made from high-quality ingredients that you can feel good about feeding your family.”

Target has extended the brand by launching Good & Gather Seasonal, Good & Gather Organic, Good & Gather Signature, Good & Gather Kids, and Good & Gather Plant Based. The brand now features more than 2,000 products, with most priced below $5.

a screen shot of a store
Target’s digital comps jumped 10% in the second quarter of 2021, building on record growth of 195% last year.

“We’ve also launched meal solutions, which is a meal in a bag for under $15,” Gomez says. “They’re great recipes like sesame teriyaki chicken stir-fry. They’re really good, and they’re really easy to make. But what our guests are saying with Good & Gather is they love newness.”

The retailer plans to launch hundreds of new Good & Gather items this fall.

“My favorite one is a frozen flatbread with arugula and prosciutto, that comes with a balsamic vinegar to drizzle on top once it’s baked,” he said. “We’re going to continue to bring new items under the Good & Gather brand, as there's a lot of runway for our owned brands as we work to meet guests’ evolving needs.” 

Good & Gather joins other new owned brands such as the indulgence-oriented Favorite Day (items priced under $15) and Kindfull, a pet product line. Favorite Day has more than 700 items, while Kindfull features more than 50 items. Gomez says that the company is launching dozens of new items this fall under the Favorite Day brand.

“We have an outstanding food scientist and recipe development team, as well as packaging, marketing and sourcing teams,” Gomez said. “And when these products launch, they are, to me, the epitome of Tar-zhay. They’re delicious, they’re on trend, and they’re incredibly affordable.”

Of course, providing an elevated grocery experience requires specialized team members to merchandise the retailer’s food and beverage departments, and that’s why the company has brought in a growing squad of what it calls food and beverage coordinators.

These employees “are a game-changer for Target,” Gomez says. “They bring food and beverage expertise. But even more than that, they bring food and beverage passion. Many of them oversee a handful of stores and they partner closely with that store, helping them understand how to manage and grow a food and beverage business, while elevating our standards and meeting guest need. They bring a tremendous amount of expertise to our guests and the teams they lead.”

In September, the retailer, which has about 350,000 employees who are trained to provide an elevated service experience, said that it plans to hire more than 100,000 seasonal workers for the holidays and give employees more hours. Target, which raised its starting wage to $15 an hour last year, is also offering employees debt-free college tuition programs, among other benefits.

An Omnichannel Strategy That Clicks

Target’s strategic thinking led the company to invest in omnichannel optimization long before COVID-19, and that strategy has paid off in spades over the past year. Target was ready when the pandemic hit and e-commerce demand accelerated, with the majority of its food and beverage assortment available via several contactless pickup services.

“Prior to the pandemic, we were making investments in our same-day services,” Gomez observes. “When the pandemic hit, we were set up to deliver on our guests’ needs to create a safe and easy shopping experience.”

In August, the retailer said that its Q2 sales grew 9.5% to $25.2 billion, while comps increased 8.9% and digital comps jumped 10%, building on record growth of 195% last year. Target’s digital channel is led by same-day services such as Order Pickup, Drive Up and Target-owned Shipt, which Target reported during its Q2 2021 earnings to have grown 55% this year, on top of more than 270% in Q2 2020. Target specifically credited Drive Up with double-digit growth in its fresh categories in the second quarter. This spring, Target expanded its same-day service assortment to include adult beverage items at more than 1,200 of its stores across the country.

“We’re winning in digital because we don’t force our guests to shop on Target’s terms; instead, Target serves guests on their terms,” Gomez says. “There’s no minimum order requirement, no arbitrary pickup times, and when you click ‘I’m here in the parking lot,’ we’ll see you in two minutes or less — it’s that easy.” Target’s online investments haven’t come at the expense of physical stores, however, which remain an integral part of the retailer’s strategy. In fact, Target says that digital engagement drives more engagement in stores, providing more opportunities to surprise, delight and inspire guests.

“That frictionless experience is why we continue to grow our digital business,” Gomez said. “Even as guests are shopping instore more often, we continue to see guests use our same-day services in record numbers. And we’ll continue to expand on those fulfillment options to help our guests do their Target run safely and easily, however they choose to shop.”

Following a pandemic pause on store openings last year, the company still managed to remodel more than 130 stores and open 30 new stores in 2020. This year, Target aims to complete about 140 remodels and open as many as 40 new stores. After experimenting over the years with large and small formats, the retailer has adopted a more localized strategy, ranging from a planned 132,000-square-foot store in Yonkers, N.Y., to a planned 12,000-square-foot store in Ann Arbor, Mich. To add capacity to Target’s fulfillment operation and further scale its stores-as-hubs model, the company opened two new distribution centers this year and has signed leases for four more “sortation” centers. These facilities collect online orders from local stores various times a day and sort them into efficient routes for carrier delivery. This pulls the sorting activity out of store back rooms so it can be consolidated more efficiently at one facility, giving store teams more time and space to fulfill additional orders, while reducing the load on external carriers. This process increases store fulfillment capacity and speeds delivery to guests, making it pivotal to the Target value proposition.

“We recognize there’s plenty of work in front of us,” Gomez admits. “We’re definitely in the midst of this journey, but our food and beverage business has a ton of momentum right now, and our team is not resting on our laurels. We are committed to rewarding the trust our guests have placed in us by raising the bar on ourselves, so that we can deliver an experience that only gets better and better.”

    Target's Format Flexibility

    An opportunistic approach to real estate and emphasis on smaller stores has created new expansion opportunities for Target, and put the operator of 1,915 stores on a trajectory to surpass 2,000 locations by 2023. The retailer's flexibility is evident in recent and planned openings, which range from a new 12,000-sq.-ft. store near the campus of the University of Michigan in Ann Arbor to a 145,000-sq.-ft. store planned for Katy, Texas. Target has disclosed 49 upcoming store openings on its website, and 28 of those are less than 50,000-sq.-ft., compared to eight stores that are greater than 100,000-sq.-ft. The shift to smaller stores is notable considering the majority of stores in Target’s fleet are legacy discount stores that averaged about 125,000-sq.-ft and over the past decade underwent a major remodeling initiative to expand grocery assortments.

    Location                       

    Size (sq.-ft.)

    Ann Arbor, Mich.     

    12,000

    Costa Mesa, Calif.         

    37,000 

    Huntington Beach, Calif.

    34,000

    Inglewood, Calif.

    34,000

    Huntington Park, Calif.

    54,000

    San Diego, Calif.   

    36,000

    Scotts Valley, Calif.

    55,000

    Denver, Colo.

    30,000

    Fort Collins, Colo.

    45,000

    Bradenton, Fla.

    49,000

    Orlando, Fla.

    29,000

    Grove Station, Fla. 

    49,000

    Miami Beach, Fla.

    30,000

    Downtown Miami, Fla.

    49,000

    Miami, Fla.

    77,000

    Kauai, Hawaii

    122,000

    Moscow, Idaho

    60,000

    North Quincy, Mass.

    40,000

    Kent Island, Md.

    95,000

    Auburn, Maine

    105,000

    Kill Devil Hills, N.C.

    80,000

    West Lebanon, N.H.

    86,000

    Eatontown, N.J.

    60,000

    Kearny, N.J.

    90,000

    Somers Point, N.J.

    101,000

    Wall Township, N.J.

    91,000

    Manhattan UES, N.Y.

    55,000

    Bronx, N.Y.

    21,000

    Brooklyn, N.Y.

    28,000

    Manhattan Chelsea, N.Y.

    28,000

    Manhattan Harlem, N.Y.

    44,000

    Lake Success, N.Y.

    115,000

    Long Island City, N.Y.

    31,000

    Manhattan Soho, N.Y.

    27,000

    Manhattan Union Square, N.Y.

    33,000

    Port Chester, N.Y.

    89,000

    Queens Astoria, N.Y.

    47,000

    Manhattan Times Square, N.Y.

    33,000

    Yonkers, N.Y.

    132,000

    Cedar Mill, Ore.

    49,000

    Pittsburgh, Pa.

    22,000

    Lebanon, Pa.

    117,000

    Wynnewood, Pa.

    30,000

    Charleston, S.C.

    30,000

    Katy, Texas

    145,000

    Pentagon City, Va. 

    34,000

    Madison, Wis.

    15,000

    Glendale, Wis.            

    128,000

    Jackson Hole, Wyo.

    70,000

    Source: Target Corp. (as of Sept. 27, 2021)

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