Target Goes Small on Food Business

Paul Ausick

In March of 2018, a rumor circulated of merger talks between big-box merchandiser Target Corp. (NYSE: TGT) and grocery giant Kroger Co. (NYSE: KR). The rumor was quickly denied, but it did raise some interesting questions.

For example, how do Target and Kroger compete with market leaders like Inc. (NASDAQ: AMZN) and Walmart Inc. (NYSE: WMT)? Amazon’s acquisition of Whole Foods gave every grocery store chain the shivers, and while Kroger’s food business is still strong, 2018 sales of $121 billion were still second to Walmart’s U.S. grocery sales, which accounted for 55% of last year’s total net sales, or about $184 billion. Amazon finished the year a distant 10th, with Whole Foods sales of nearly $16 billion.

Both Walmart and Target wrangled delivery services, and Target on Monday launched a new food label, Good & Gather, that will be available in stores and online for same-day delivery beginning September 15.

Stephanie Lundquist, Target’s president of food and beverage and a corporate executive vice president, said:

Our guests are incredibly busy and want great-tasting food they can feel good about feeding their families. We saw this as a huge opportunity for Target to help. So our team got to work on our most ambitious food undertaking yet, reimagining our owned food brands to serve up convenient, affordable options that don’t cut corners on quality or taste. Good & Gather is our way of helping even the most time-strapped families discover the everyday joy of food.

The announcement goes on to say that the brand assortment will include many “new and trend-forward” products, including avocado toast salad kits and beet hummus. While both are tasty, neither is exactly the hot, new, trend-forward delight.

Target has struggled to match either Walmart or Amazon in e-commerce. Even in the delivery end of the business, it finishes in the pack following the two leaders. According to e-commerce research firm eMarketer, 33% online grocery shoppers purchased groceries from Walmart in 2018 and 31% bought from Amazon. eMarketer also noted that only 1.6% of all online sales (about $24 billion in 2018) came from grocery sales. The firm expects that total to more than double to nearly $60 billion in 2023.

Target has to have a dog in the grocery hunt, and to do that it has chosen to build on its “investments in [the] Food & Beverage business to enhance the in-store presentation and assortment, increase product reliability and expand fulfillment options.”

Some new wine, some new wine in old bottles. Small ball.

Investors pushed shares higher Monday, up nearly 2% in the late morning to $85.86, in a 52-week range of $60.15 to $90.39 and with a 12-month price target of $89.65.

Target reports quarterly results before markets open Wednesday, and analysts are looking for earnings per share of $1.62 and revenues of $18.34 billion.