Being '100% Unapologetically Target' Is Helping Make It an Omnichannel Grocery Powerhouse

Target covered a lot of ground in a nearly two-hour earnings call March 1—but then, the Minneapolis-based retailer had a lot to report on, after a fiscal 2021 that saw comp sales leap up 12.7%, comp traffic climb 12.3% and digital sales grow to account for 19% of all sales.

"We're growing on a bigger base than ever," Target Corp. chairman and CEO Brian Cornell told investors and analysts, saying that the company's fourth-quarter and full-year results prove that Target's deliberate focus on delighting guests, being a destination where they can get more done in one store, and delivering "a little bit of affordable luxury" continues to yield sales growth and share gains.

Target revenue hit $106 billion in 2021, an increase of 35% since 2019, the company reported. Revenue for Target's highly successful slate of owned brands (among them the grocery department's Good & Gather and Favorite Day labels) totaled $30 billion for the year, an increase of 18% over 2020. And the company's sales growth was spread across the store, with Target reporting double-digit comp sales gains in all five of its core categories. 

One of those core categories, of course, is grocery—an area in which Target has worked for years to move past also-ran status. Target's moves during the pandemic to make more of its grocery offering—specifically, more fresh, refrigerated and frozen items, as well as adult beverages—available for ordering online, with pickup in-store or via Drive Up, means that guests can get more of their shopping done using the company's extremely popular same-day services, said Food and Beverage Chief Rick Gomez. 

"We knew we could do so much more in this space," Gomez said on the earnings call. Those expanded (and no-charge, no-order-minimum) same-day grocery pickup options have helped turned Target into an "omnichannel grocery powerhouse," he said.

Target is now the fourth-biggest digital grocer in the U.S., Gomez said, adding that the company is seeing the grocery category drive up not only trips and basket sizes but also loyalty to Target. Target Chief Marketing and Digital Officer Cara Sylvester reiterated the company's finding from last year that omnichannel guests spend four times more than store-only guests.

In 2021, Good & Gather tallied more than $2 billion in sales, and the brand stands at nearly 2,500 items across food and beverage, Gomez noted. Further, Good & Gather is outpacing the industry average for private-label growth, he said.

Favorite Day, Target's treats-focused line that debuted last April, will feature its own holiday-themed assortment this year, supporting Target's positioning as a one-stop holidays shop. Gomez said Target is also "elevating our assortment by diversifying our assortment" and will end 2022 with more than 50 Black-owned brands in its food and beverage assortment. 

Being "100% unapologetically Target"—as through, say, Favorite Day mermaid ice cream or the ability to pick up a Starbucks order on a Target Drive Up grocery run—is part of the secret sauce for growth in grocery as it is throughout the store, said Gomez. And the company's emphasis on thoughtfully curated assortments in grocery and beyond, plus Target's partnerships with nationally recognized, destination retail names such as Ulta Beauty, Apple and Disney Store, only give guests more reason to choose Target, according to company leaders. Cornell said that's true even in an inflationary environment, because while consumers are clearly attuned to inflation and have some lingering COVID-19 concerns, they're also "looking for a touch of normalcy in their lives," he said.

"We continue to see a very resilient U.S. consumer," Cornell said, with both a "pretty healthy balance sheet" and "a desire to find something new and go back out and experience everyday life."

Target's work to position itself as a destination for those experiences is something that suppliers recognize and appreciate as well, Gomez suggested—benefiting Target when said suppliers are prioritizing order fulfillment. 

"We have tremendous positive momentum over the past couple of years" in food and beverage, he said. "Quite frankly, we are more credible in the grocery business."

Looking ahead, Target said it expects low- to mid-single-digit revenue growth for fiscal 2022, an operating margin rate of 8% or higher, and high-single-digit growth in adjusted EPS.