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Target launches a new grocery brand to grow food business

The grocery department of a redesigned Target store in Duarte, California.

Source: Target

After many years of rolling out private label brands in clothing and home goods, Target is launching a grocery brand.

Products from the new Good & Gather line will hit Target stores starting September 15th. The retailer said that by the end of 2020, the brand will have more than 2,000 items – ranging from organic pizza crusts, milk and eggs, hazelnut and peanut butter spreads, frozen vegetables, salad mixes and pasta. Target said it expects Good & Gather to be a multi-billion dollar brand ̵

1; and the largest of its private labels.

"We've been working hard [on this] for the last couple of years," said Stephanie Lundquist, director of food and beverage at Target. "Food and drink play such an important role for Target's business … for the Target experience."

Today, almost 75% of Target shoppers add at least one item to the baskets in stores, she said, and when they do, basket sizes are two times larger.

"One of our greatest strengths is the fact that we are a store for our guests," Lundquist said.

Still, analysts have often criticized Target's fresh food offerings as lackluster and thoughtful. Shoppers can find national snack brands there, such as Frito-Lay chips, Chobani yogurt and Cheerio's cereal. But people do not often seek out the destination as a destination for all their groceries, as they can at Walmart. Instead, a bread or box of granola bars has become accessories to target baskets that are already filled with makeup and cleaning and office supplies.

Target will expand the Good & Gather label to include more than 2,000 items. [19659002] Source: Target

"Grocery is the one place in stores they haven't fixed yet," said Brian Yarbrough, an analyst at Edward Jones. "But they're in a much better place than they were four or five years ago."

The potential is there. Walmart gets more than 50% of its grocery business versus about 20% for Target, Yarbrough added. And consumers are increasingly willing to buy private label products in grocery stores.

A wave of store-owned brands

Target's grocery business has had seven consecutive quarters of positive sales growth in the same store, according to Lundquist, with a six-quarter gain in market share. A newer series of store rebuilds has helped increase the category, while sales of the same store across the company have been positive for eight straight quarters.

The Good & Gather launch follows a period of much investment from Target in other parts of the store and in its own labels. The company will end the year with more than 25 new owned and exclusive brands, such as A New Day for Women's Clothing, Project 62 for Furniture and Hearth & Hand with Magnolia for Home Goods. It began making investments in 2017 as part of its bid to keep buyers coming to Target for things they can't find anywhere else but Amazon. It has also helped pull Target out of a sales decline.

In 2018, Target's sales increased to $ 75.36 billion from $ 71.88 billion in 2017. Sales had fallen more than 5% in 2016, to $ 69.45 billion from $ 73.79 billion in 2015. Analysts demand after sales for $ 77.44 billion in fiscal year 2019, according to FactSet.

Target shares have largely outperformed the industry and are up more than 27% this year. The S&P 500 Retail ETF (XRT) is down almost 6%.

"I think the reason they haven't done so much food so far … is food is much more competitive," said Neil Saunders, CEO of GlobalData Retail. "Food is also much higher risk because margins are lower. … I think the staples are what they are, and for everyday life you need, Target does a reasonable job."

As part of the Good & Gather launch, Target will also phase out two food brands, Archer Farms and Simply Balanced. It will also scale down the number of items sold under the Market Pantry, which makes basic items such as sandwich breads, cooking oils, sauces and canned vegetables. The addition of Good & Gather to Target stores also means that it will increase the amount of shelf space it uses for private-branded products versus national ones.

As a result, Target's penetration of store-owned brands in the grocery category will climb. But Lundquist said national brands will still serve an "important role" in the space.

& # 39; Crash away & # 39; in the market

Target's investment in a new private label grocery brand may come at the right time. [19659002] Private brands in grocery stores show more momentum than manufacturer brands, across all income levels for buyers, according to a recent report by the Food Marketing Institute in collaboration with IRI.

In 2018, sales of private label brands at grocery stores, which will include locations such as Kroger and Publix, were $ 75 billion, up 1.5% from a year earlier. For online retailers, private brand sales increased an incredible 80.2% in 2018, the report said. In convenience stores, like 7-Eleven, they were up 12.5%.

In mass markets, such as Walmart and Target, private label sales totaled $ 5 billion and increased 7.4%, the report states. Private food brands in the US totaled $ 153 billion in 2018, up 5.5% from a year earlier.

"I think there is a much greater acceptance of private brands across the board than historically," said Mark Baum, senior vice president at FMI. One reason for this is "younger people do not grow up with the same nostalgia as their parents did." Second, "It has not been the kind of innovation in national brands that has made consumers excited." like Great Value, to focus on low prices.

"What Target shouldn't do is take Walmart directly on [in grocery]," Saunders said. "What Target is all about is good products … at reasonable prices. There is room for Target to gnaw away at the market."

We must be addicted, we must be plentiful and healthy, and we must be relevant.

Stephanie Lundquist

Food & Beverage Manager, Target

Good & Gather will be Target's new flagship brand, but will then be divided into different categories: children, organic, seasonal and signature. For example, the seasonal brand will include pumpkin-spiced flavor snacks, and the signature line will have more premium items for more people with discerning tastes.

In working with this brand in recent years, Target has also made sure it gets the "taste" just right, Lundquist said. She said that when Target polled consumers, taste was something they thought about most when navigating the grocery store. All Good & Gather products will be made without artificial flavors and sweeteners, synthetic colors and high fructose corn syrup.

When it comes to stores next month, the brand will also have prime spots in stores, with displays at the end of the hallways. The presence will be difficult to miss.

Refurbished stores, faster shipping

For those who still doubt Target's skill in grocery shopping, the launch of Good & Gather may be just what Target needs to be aware of in recent efforts. [19659002] Analyst Yarbrough said that Target's store rebuilds include renewed grocery products that fresh produce appear in slender wooden bins. Grab-and-go-mat has greater presence. The lighting is brighter and the tiled flooring is a neutral hue, making the space more welcoming.

Target also offers same-day grocery delivery via the Shipt subsidiary and has pickup on the street at 1400 stores.

But Target knows there's still more work to be done.

"We must be addicted, we must be plentiful and healthy, and we must be relevant," Lundquist said. "We've taken days from the [our] supply chain. We're getting faster from field to shelf. Having an end-to-end team now can really build on the momentum we've got."

The target is set to report quarterly earnings before the market opens on Wednesday.

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