Why grocery growth is central to Target’s strategy

Target’s grocery offering was in a bit of disarray nearly nine years ago when Brian Cornell took over as the retailer’s CEO, he told analysts Wednesday.

The food and beverage aisles were underperforming as Target continued to lose market share in grocery.

“But rather than turning away from that part of our business, we decided to lean in,” Cornell said.

And for good reason: In a market like the current one, consumers have demonstrated they’re less likely to shop for fluffy pink pillows or a new sundress or a pair of sandals when they’re devoting a big chunk of each paycheck to bread, milk and bananas.

Last year, food and beverage purchases made up 21% of Target’s total sales—a category that has grown by more than 61% between the first quarter of 2019 and the same period this year, he noted.

The Minneapolis-based retailer has now seen three years of “unprecedented” growth and market share gains in grocery, Cornell said, growth that has been fueled by better vendor relationships, private-label investment, supply chain boosts and revamped in-store labor models.

“Much of that work happened behind the scenes, and it took time before business trends in food and beverage started to change, but the work paid off over time,” he said.

Walmart, meanwhile, which shares its first quarter results Thursday morning, remains a grocery goliath, with about 59% of its fiscal year 2023 sales coming from grocery, according to its federal financial filing.

Target on Wednesday reported “softening sales trends” during its first quarter but said food and beverage sales grew in the “high-single digits” as same-store sales increased just 0.7% during the quarter.  

With discretionary spending uncertain for the foreseeable future, Target is looking to be more like Walmart—emphasizing its value-priced offerings while playing up seasonal food and drink and own-brand products. (In fact, the word “value” came up 21 times during the retailer’s earnings call Wednesday, according to a transcript from financial services site Sentieo.)

Target recently launched more than 100 new private-label Good & Gather grocery items, including Cherry Cream Sparkling Water, Frozen Lobster Mac and Cheese Bites, and Hot Honey Cashews.

“We have the advantage of a nice balance between national brands and the continued strength we see in owned brands, particularly at a time when our guests are looking for that affordable joy from Target,” Cornell said.

Plus, a solid grocery offering lures Target shoppers in to explore some of that discretionary merchandise that has been a tougher sell amid high food prices, the retailer’s Chief Food and Beverage Officer Rick Gomez told CNBC recently.

“It’s actually a gateway to the rest of the store,” Gomez said. “It drives traffic to the store. It drives traffic to our site. And while they’re picking up what they need food- and beverage-wise, they’ll browse through the rest of the store and maybe pick up a few things at Ulta [Beauty at Target] or a few things in apparel.”