Perhaps the last thing that the food-distribution industry needs is for a player that's currently on the margins of the business to decide to jump in feet first. But that's just what Target Corp. seems to be up to.
You'll see a news article about Target and its ambitions concerning the food retailing business on Page 16 of this issue. Much of that information replicates what SN reported in the June 17 issue. But since Target is so reluctant to disclose any of its strategy at all, it might be worthwhile to piece those two articles together to learn as much as is possible about its intentions.
Let's look at the numbers first, as they were reported in the two news articles. Target currently has some 1,500 stores under three banners, Target, Mervyn's and Marshall Field's. About 1,100 of that number are conventional Target discount stores and 94 are SuperTargets. It's the last that are the combination food and discount units. Target's top line is about $40 billion.
Target executives have said that they intend to increase store numbers at a steady pace for 10 years. Specific to food retailing, plans call for opening 30 to 40 SuperTargets each year for that period. So, by extrapolating forward it can be seen that at the conclusion of a decade, Target could have a business in SuperTargets alone that exceeds its current top line by $5 billion, or a total of $45 billion in SuperTarget business.
How big is that? By comparison, Wal-Mart's supercenter business alone has a top line of more than $65 billion. Kroger Co., the nation's largest conventional supermarket chain, has a top line of more than $50 billion. This week's news report fixes a market share of 8% to 9% to that $45 billion.
That probably overstates the actual share of food produced by such a sales volume, in a supercenter, by four times or so, but it's still huge. Indeed, it will be no small task to layer another chain of food stores of such a magnitude onto the marketplace, even if Target has a decade to tinker with it.
Let's take a look at a few of the hurdles that separate Target from its food target: Distribution: Target has no captive distribution system for food. If the chain opts to continue to pull from conventional wholesalers, it can't possibly compete on a price basis with major conventional chains, let alone Wal-Mart. It could only do so by subsidizing the food side with nonfood sales, which is not a long-term formula for success.
Trend: Target is seen as something of a fashion-forward merchant, although the promise of its clever advertising campaign doesn't seem to be quite realized at store level. Nonetheless, Target will have to have some sort of trend element in its food presentation, a fact that was acknowledged in the June news article. That won't be easy, and can be accomplished only at a cost, further taxing price.
Traffic: This week's news article bares the fact that Target has a much lower repeat business than does Wal-Mart. Some 12% of Target shoppers go there weekly against 35% for Wal-Mart. Moreover, 53% of Target shoppers patronize Wal-Mart while just 27% do the reverse. Not propitious numbers.
