Target Expands P-Fresh Rollout

ELLIOT ZWIEBACH

MINNEAPOLIS — Target Corp. said last week it plans to roll out its expanded grocery and perishables format, called p-fresh, to 350 more discount stores in 2010 and ultimately to the majority of its base following encouraging sales results at 108 stores.

P-fresh — or prototype-fresh — is a format that adds 90% of the food categories and approximately 60% of the SKU count available at the company's SuperTarget stores.

Gregg W. Steinhafel, chairman, president and chief executive officer, said the majority of SKU increases are in dry groceries, dairy and frozen.

“Clearly we've added perishables, but the perishables section is still relatively small in comparison to how deep we went in those other categories,” he pointed out during a conference call with analysts to discuss financial results for the third quarter and nine months that ended Oct. 31.

Target initially tested the p-fresh program at 40 stores in the Minneapolis area earlier this year, added it subsequently at new and remodeled locations and expanded it last month to 30 stores in the Philadelphia market.

Target is experiencing “the same kinds of strong performance characteristics” in Philadelphia as it recorded in its initial pilot stores in Minneapolis and at other stores where the p-fresh format has been implemented, Steinhafel said.

“The same kind of shopping dynamics exist, with very, very strong sales in grocery, slight increases in the crossover categories, and basically flat or slightly increased sales in discretionary categories,” he pointed out.

Doug Scovanner, executive vice president and chief financial officer, said Target still needs to determine what kind of sales lift the stores will sustain in the second year after the p-fresh format is installed. “It's a bit premature to decide how much of [that] lift will occur outside food and crossover categories related to food,” he explained.

“That's what we're trying to learn that will inform our thinking as we move forward beyond 2010 with this program.”

Steinhafel said, “There have been a lot of learnings so far, [though] we hesitate to get into much detail as it relates to what's in the basket and the frequency and things like that.”

He said Target expects to share more details on insights and shopping dynamics at an analyst meeting scheduled in Philadelphia in mid- to late January.

Target plans to put the p-fresh format into stores in high-priority markets first but not into all stores within a market at the same time, Steinhafel noted.

“We are going to be doing the majority of stores in [high-priority] markets and then come back to those markets in 2011 and 2012, and over time we expect to get through the majority of the chain,” he explained.

For the third quarter, net income increased 18.4% to $436 million, while sales, excluding credit card revenues, rose 1.4% to $14.8 billion and comparable-store sales fell 1.6%.

For the nine-month period, net income fell 3.3% to $1.6 billion, while retail sales dropped 0.3% to $43.7 billion and comps fell 3.9%.

Scovanner said it's possible Target will deliver positive comps in the fourth quarter, “though we think it's more prudent to plan for a modestly negative result,” he noted.

Steinhafel said third-quarter results exceeded Target's expectations and reflected a “somewhat more stable environment” and more compelling merchandising and marketing. He said traffic increased modestly.

Q3 RESULTS