Two Reasons Target Is Having Trouble Selling Groceries

Image courtesy of Steve

Following the crash of the housing market nearly ten years ago, some big box stores that had previously only dabbled in groceries started to give over more floor space to fresh and frozen foods. Walmart shoppers took to the idea of buying their food in the same store they purchase their TV, cleaning supplies, underwear, sporting goods, and just about anything else. Across the parking lot at Target, things aren’t as rosy.

Target sells around $18.5 billion in groceries a year, which may sound huge until you realize that it’s only around one-fifth of the company’s total annual revenue. Meanwhile, more than half of Walmart’s yearly revenue comes from groceries.

The Wall Street Journal recently took a look at Target’s fresh food woes and its efforts to course correct. Here are just a couple of the important takeaways:

1. Shoppers Just Don’t Visit That Frequently
While Target has many regular shoppers, they may not be regular enough to keep fresh meat and vegetables from spoiling.

One Target customer explains to the Journal that she shops at the store once or twice a month to purchase things like cleaning supplies and home décor, and she may pick up an odd food item here or there, but adds that “I don’t go out of my way to do grocery shopping at Target because there are so many other specialty stores.”

Data from Nielsen shows that shoppers favor traditional groceries over big box retailers regardless of whether they are buying a week’s worth of groceries or just doing some quick shopping to fill in the gaps. Meanwhile, it appears that Costco and other wholesale clubs are increasingly becoming a destination for shoppers looking to stock up their pantry, fridge, and freezer with food.

In 2015, Target’s chief operating officer acknowledged this outsider status: “We’re not really special and we’re not a full grocery. And so we’re sitting in the middle of no man’s land.”

2. Unwillingness To Invest
Target actually got into the grocery business more than 20 years ago when it opened its first SuperTarget. However, these mega-format stores with complete supermarkets only account for a fraction of all Target locations.

In fact, Target is increasingly looking toward smaller-footprint stores, where you can’t have rows up rows of groceries to choose from.

According to the Journal, previous disappointments in groceries have left the Target board of directors gun-shy about investing capital to improve this aspect of the business.

Which is problematic because Target’s supply chain has long been set up to handle transportation and distribution of home goods and non-perishable food items. If the company wants to better control the supply chain for fresh food, it will likely need to either go the route of Walmart and invest more money into systemic improvements, or pay more to a third-party provider.