Target struggles in grocery department
Aug. 18, 2016
by Monica Watrous
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Target's efforts to elevate its grocery business failed to beat fruit in the recent quarter.
MINNEAPOLIS — Target Corp. is “playing to win in food,” said Brian Cornell, chairman and CEO of the Minneapolis-based retailer. However, efforts to elevate the grocery business failed to bear fruit in the recent quarter.
|Brian Cornell, chairman and CEO of Target
“In grocery, despite improvements in assortments, quality, freshness, presentation and in-stocks, we were disappointed with our sales performance, as we saw a small comp sales decline in the second quarter,” Cornell said during an August 17 earnings call with financial analysts. “While our grocery business was negatively impacted by food deflation, which accounted for about 20 basis points of pressure, we clearly have more work to do to unlock the growth potential in this important category.
“Given our recent performance in the increasingly competitive food environment, we are revisiting our second-half grocery efforts from presentation to assortment to promotion to improve our competitive position.”
The company plans to apply its learnings from 25 test stores in Los Angeles, where enhancements to the grocery department have resulted in stronger comparable food sales, Cornell said.
Target's team is focusing on how it flows product to improve freshness.
“Grocery sales in these stores are trending two to three percentage points higher than the comparison stores,” he said. “Relative performance in produce is even stronger, driving perishable comps that are more than five percentage points higher than the comparison stores. Guests have told us the new food area now feels more intimate and separate from the rest of the store, providing a distinct grocery shopping experience they prefer.
“We’re very encouraged with these initial observations, and we’ll continue to leverage learning from these stores as we work through grocery performance across the chain.”
Over the couple years, Target has added thousands of new products to its food selection, including more organic and natural, gluten-free and local, on-trend items, Cornell said. The company also has made changes to its supply chain to improve the freshness of its perishable offerings.
Over the past couple years, Target has added more organic, natural, gluten-free and local items to its grocery selection.
“Our team is absolutely going, literally item by item, commodity by commodity, to look at how we source, and how we flow product to improve freshness, and the quality we present to our guests,” Cornell said. “So we’ve got to make sure we have the right assortment, the right presentation, the right quality. We have to have the right promotional strategy to compete, but we’re playing to win both short and long term. We think that it’s very important that we continue to make progress in this space. We’re going to make sure we do it in a very focused manner…
“But we are playing to win in food. We’re going to continue to roll up our sleeves, and make sure that we’re into the details, finding ways to unlock the growth potential in that critically important category.”
Net earnings for the second quarter ended July 30 were $680 million, equal to $1.17 per share on the common stock, which compared with $753 million, or $1.18 per share, in the prior-year period. Sales were $16,169 million, down 7.2 percent from $17,427 million.