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Target’s grocery muscle may surprise you
Fresh Perspectives: Mass merchant has steadily climbed over supermarket chains onto the upper rungs of the grocery retail market ladder, Solomon Partners’ Scott Moses shows.
4 Min Read
In the U.S., Target now stands as the 6th-largest grocery retailer, the 4th-largest online grocer and the 5th-largest grocer by valuation. / Photo: Shutterstock
It’s not news that mass merchants have been siphoning grocery retail market share from conventional supermarkets for years. That push has been led by Walmart, but Target Corp. (its recent stumbles notwithstanding) also has kept hitting the bull’s-eye in drawing omnichannel food shoppers to its stores.
How? A powerful own brand called Good & Gather, a bigger serving of fresh and value-added products in a refreshed grocery presentation, and seamless in-store shopping and online ordering/fulfillment, the latter led by Drive Up curbside service. That has hoisted Target into the upper echelon of grocery retail industry players.
“We actually see food and beverage as a way to not just drive traffic, but build loyalty among our best guests,” Rick Gomez, Target’s chief food and beverage officer, told me in a late October interview in New York City. “So it’s almost like food and beverage has become a gateway to the rest of the store.”
And a lot consumers have been traversing that gateway, whether it be brick-and-mortar or virtual. This week, Scott Moses, managing director and head of grocery, pharmacy and restaurant investment banking at New York-based Solomon Partners, sent me an infographic illustrating just how potent Target has become in grocery retailing.
Source: Scott Moses, Solomon Partners, "5 Things You Might Not Know About Target" report.
Target now stands as the sixth-largest U.S. grocery retailer with grocery sales of $54 billion (as of November 2023), behind Walmart, The Kroger Co., Costco Wholesale, Albertsons Cos. and Amazon/Whole Foods Market, according to Moses. Among U.S. grocers, Minneapolis-based Target also holds the fifth-largest valuation at $63 billion, and it’s the third-biggest non-union employer, he noted.
Over the past 20 years, Target’s grocery sales have quadrupled, fueled in large part by 70% growth in its brick-and-mortar base to 1,955 stores, Moses’ infographic shows.
“We’ve been opening up more small formats recently, here in Manhattan and college campuses. And what we're seeing is food and beverage represents oftentimes 40% to 50% of the mix,” said Gomez. “And our fresh business is doing incredibly well. We’ve made big changes to specifications and quality control to deliver better, fresher product.”
Target also stands as the No. 4 U.S. online grocer, with digital grocery sales representing $10 billion of the retailer’s top line. While the company has touted the swift growth of Drive Up, Moses pointed out that its Shipt on-demand delivery arm fulfills orders for more than 200 other retailers besides Target.
Yet Good & Gather holds the top headline in Target’s latest grocery story. Introduced in September 2019, the brand—present in almost every category in food and beverages at Target—topped $1 billion in sales in less than a year and, in becoming the retailer’s largest private brand, now is “on its way” to $4 billion, Gomez said.
“In some ways, it has become a little bit of the crown jewel of our portfolio. It really represents Target at its best—high quality, on-trend products at an affordable price,” he commented. “I mean, that’s Target, and that’s what Good & Gather delivers.”
Food and beverages (dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and foodservice) accounted for about 21% of Target’s total sales in fiscal 2022. Including the roughly 28% share of sales for beauty and household essentials (personal care, baby gear, cleaning, paper products and pet care), supermarket-related merchandise represented 49% of Target’s overall 2022 sales. Moses pegged that percentage at 50% as of November 2023, up 30% over the last 20 years.
“Food and beverage has taken on a different role. I think, for many years, food and beverage at Target was a bit of a pain point, and our results were a little bit lackluster. And then, over the last several years, we have been investing in the business,” Gomez told Winsight Grocery Business. “What we’ve seen is not only has the business started to grow and to drive traffic, but it’s actually appealing to our most loyal guests.”
Target’s A-rated credit “facilitates extraordinary investment,” Moses highlighted in his infographic. That includes plans for another six distribution centers over the next several years, expanding one-day delivery coverage.
Supermarkets and other food retailers will be watching.
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