Target: More Fresh DCs on Tap

ELLIOT ZWIEBACH

MINNEAPOLIS — Target Corp. here expects to handle perishable distribution completely on its own “within a time frame earlier than four or five years,” Gregg Steinhafel, president, told analysts last week.

Until then, he said, “we will have a hybrid network for the foreseeable future where we are dependent on our own facilities and on Supervalu and C&S [Wholesale Grocers].”

He reiterated plans for the company to convert a Supervalu grocery warehouse in Lake City, Fla., to a Target-owned semi-automated dedicated perishables facility later this year in which Target will own the building and inventory and Supervalu will oversee the logistics.

The company reportedly plans to open its second perishables facility in Cedar Falls, Iowa, sometime next year, industry sources told SN.

“By asserting greater control of the perishable food component of our supply chain, we will improve our food margins, manage freshness and enable continued rapid growth of our own brand in our food assortment,” Steinhafel said.

“I would expect this would continue to evolve over the next three or four years, and that we would handle all of our own perishable food distribution within a time frame earlier than four or five years,” he said.

Steinhafel also made reference to two other distribution facilities Target expects to operate in conjunction with Supervalu — one due to open in early 2009 and another to open later in the year.

Although Steinhafel was not specific regarding the locations of those facilities, sources told SN the company plans to convert a Supervalu distribution center in Fort Worth, Texas, to a Target-owned grocery facility early next year, and another Supervalu warehouse, in Phoenix, later in the year.

Target believes there is “some gross margin upside” in these types of conversions, Steinhafel indicated, based on its experience distributing groceries from some of its general merchandise warehouses.

He said Target will expand its private-label offerings to include more natural and organic brands.

He also said Target expects to add between 200 and 300 basis points in terms of its own-brand food penetration on an annual basis, “and that's exactly what we experienced in 2007, when we moved from about 15% or so to just over 18%, and we expect to be in the 21% range by the end of 2008.”

In response to a question, he said Target doesn't anticipate accelerating the pace of that penetration. “We think 200% or 300% is the appropriate level, and it's more dependent on how fast we initiate our own network vs. using an outside third-party facility,” he explained.