To increase foot traffic into its shops, Target is taking a leaf out of Walmart’s playbook and investing in its food section (or in its web platforms). The retailer discussed the category’s recent growth on a conference call with investors to discuss the company’s second-quarter financial performance.
According to CEO Brian Cornell, Target’s food and beverage (F&B) sector has grown by $1.8 billion, or more than 50%, since the second quarter of 2019. He asserted that the company had invested in increasing its grocery offerings despite reducing inventory in other, less significant categories in reaction to inflation. The benefits the company’s F&B sector provides to other categories have contributed to this development.
However, Cornell noted that “our safe one-stop shopping experience provides an opportunity to sell items in every one of our categories on every guest visit, regardless of whether a Target run begins with a need for a food and beverage or household essentials item, to see what’s new in our beauty assortment, the choice of a toy for a birthday party, or a piece of luggage for an upcoming trip.”
In line with industry-wide trends to private-label, Cornell observed that the retailer’s own-brand food items have been doing well, with Good & Gather being a “$2 billion brand that continues to enjoy really significant growth.” According to the most popular rankings, Target has elevated itself to a top-10 grocer as a result of this investment in the company’s F&B division.
As Walmart observed in its results conference, the emphasis on groceries can have advantages for traffic but disadvantages for profit margins.
According to Walmart CEO Doug McMillon, “the cost of food and fuel, as well as a larger mix of sales in food and consumables, were among the most problematic factors for us at the time.” “In several of our areas, we continue to see a greater mix of sales in food and consumables, which puts pressure on margins overall.”
Given that these big-box retailers strive to undercut competitors on price, this is especially pertinent. Target CFO Michael Fiddelke said during the conference call that the company is “extremely careful to make sure that we feel comfortable about our price gaps,”, especially in the grocery sector. Executive vice president and chief growth officer Christina Hennington added that the company has “a maniacal focus” on finding the ideal pricing balance with “a little bit more flexibility to move with the market” in the F&B categories because these products are “domestically replenished and bought every single day.”
