Minneapolis-based retail giant Target could face an uphill battle as it seeks to improve the performance of grocery departments at its nearly 1,800 U.S. stores.
Target announced recently a number of changes aimed at enhancing grocery in its stores: staff members who only work in grocery, executives charged with examining the supply chain, more items that are organic and gluten-free. The company is also testing presentation changes in Los Angeles and Dallas.
The changes were spurred in part by Target’s second-quarter earnings report, which showed comparable sales were down 1.1% from the previous year, and grocery was spotlighted as an area in need of improvement.
What complicates the company’s grocery efforts to some degree, Kantar Retail analyst Amy Koo said, is that Target has limited interest in grocery.
“They’re straddling the line right now where they don’t really want to be in grocery fully, but they also don’t quite know what to do with it,” Koo said. “The idea is ... it’s not about the grocery — it’s about getting people into the store to look at other things.”
Target has made no secret of this strategy, but it hasn’t been working particularly well, Koo said.
“Ironically, Target has never been able to use food as a trip-driving mechanism,” Koo said. “It’s really almost on the other side, that they go in for general merchandise or other items, and then they happen to stop by and pick up groceries — kind of opposite effect of what they were hoping for.”
Bill Bishop, chief architect at Brick Meets Click, a firm that studies and consults with grocery retailers, suggested it would be beneficial for Target to define what role it wants its grocery departments to fulfill for customers.
“They need to answer, in my opinion, more thoroughly and more definitely than they have, (the question), ‘If we are not a full-service grocery store, what are we, and how should we be used?’” Bishop said. “An awful lot of what they are doing still looks like a full-service store. It may not perform that way, but it still looks that way. So when and how do they decide what the role of groceries are in their offering and how they want people to think about them and use them in buying those groceries? You might say, ‘Okay, that’s hard to do, and I would agree.”
Whatever Target decides on as the identity of its grocery departments, Bishop said, should be unique.
“If they said, for example ... that their groceries allow people to buy 500 of the fastest-moving items that would be available only in wholesale clubs like Sam’s and Costco, with no club membership ... then people would begin to say, ‘Well, that’s a really handy place’ — and maybe they would be priced very aggressively — ‘That’s a really good place, periodically, to go when we’re also thinking about doing other things, and it’ll expand how much we spend at Target.’
“That kind of defines more clearly what people should be thinking about,” Bishop said.
Koo said another challenge for Target is that customers approach shopping for discretionary items differently than they do shopping for groceries. At the Los Angeles stores in which the company tried out some presentation changes, shoppers commented favorably about the separation between the revamped grocery departments and the rest of the stores. That might not be positive for Target, Koo said.
“I don’t think that’s really ideal because it psychologically also separates Target shoppers from visiting the rest of the store,” Koo said. “They’re very much in the mindset of ‘I’m getting my groceries.’ They’re not thinking about, ‘I’m going to take a look at these dresses,’ or ‘I’m going to swing by the electronics section,’ or anything else of that nature. I think it is they’re optimizing the different parts of the store but they don’t necessarily work well to optimize the full experience.
“They’ve been putting up vignettes or mannequins (in other departments) to make the experience more shoppable and upscale, and (what) they did in the L.A. stores (in grocery departments), which is different wood flooring, just the look and feel being slightly different, that’s also making the experience of shopping that area better, but it is not helping the cross-shopping,” Koo said, “and I think that’s ultimately the tension that Target is going to have. They want it both ways, but they can’t.”
Grocery as Target does it now simply doesn’t fit comfortably into what the company does, but Koo said grocery will be critical due to Target’s emphasis on health and wellness.
“Because Target is pivoting toward this health and wellness front ... food does have to be part of that discussion,” Koo said. “Perhaps they need to reevaluate how that integrates, but food is so critical in general to when we think about wellness, it has to be part of it.”
Just because Target hasn’t found its footing in grocery yet, of course, doesn’t mean it won’t do so at some point.
“They’re behind the general industry for being able to manage these food aspects, but that doesn’t mean that there isn’t expertise that they are either able to hire or train, which they seem to be doing right now,” Koo said. “Nevertheless, this is not a strong suit on Target’s part, and I think it’s very much noting in the last two quarters that this particular challenge of getting people to find it convenient or a regular trip, shopping trip, is a little more challenging when you have that limited assortment.”
Koo said changes in operational aspects of the grocery department will be more likely to influence customers than wider offerings or presentation enhancements.
“They are doing things that are improving just general performance, like having staff that is going to be trained in knowing how to handle produce, how to rotate, how to make sure all those items are treated the way they need to be,” Koo said. “That’s just going to inherently improve just the operational aspect, which frankly will move the needle at least a little bit in terms of a shopper picking up those items — or having them in stock, for example, or in good condition (so that people) even want to buy them.”
Bishop agreed that having staff specialize in grocery should make a meaningful difference.
“The nature of work in the grocery store is very different from the nature of work in a general merchandise store, so to have people who are knowledgeable, expertise and skilled ... is undoubtedly a very important component of being successful,” Bishop said. “It’s hard to say how long it would take for that to occur. A lot of depends on the type of management they have supervising and developing those work teams.”
Target didn’t respond to a request for comment for this article.