Target loves food in the U.S. What about here?
If you heard a loud cheer from this country’s border cities last month, it was probably due to the announcement that U.S. discount retailer Target is coming to Canada. While the news excited the many consumers who’ve crossed the 49th to shop for chic yet cheap fashions and decor, it also has many in the grocery industry carefully watching to see how the company will compete for hungry customers.
Target already does quite well with groceries in its American stores and sees food as a way to grow same-store sales and attract shoppers. In the Minneapolis, Minn.-based company’s third-quarter conference call, Kathryn Tesija, executive vice-president of merchandising, revealed that the grocery part of Target’s businesses is growing at a double-digit pace.
Grocery growth is partly due to its large SuperTarget locations, which carry a full grocery lineup. But the newer PFresh format, which boosts a typical Target’s food selection by at least 50% with meats, baked goods and produce, has also contributed. Bill Bishop, chairman of Illinois- based retail market strategy firm Willard Bishop, says food has become an important part of Target’s business and will probably be sold at the new Canadian stores.
The selection Target will offer remains to be seen. With the retailer leasing 220 Zellers stores starting in 2013, it’s unlikely there will be room to open a massive SuperTarget. But it’s safe to assume Target will at least sell canned and frozen foods, he says.
Target will probably sell more groceries than Zellers
In the U.S., Target is spending furiously to fit PFresh into existing discount stores. It allocated US$500 million to the task last year. It now has groceries in 450 of 1,750 stores. Another 400 are to be renovated this year.
Still, Edward Jones analyst Brian Yarbrough doesn’t think Target will pose an immediate threat to the Canadian grocery industry. Even if Target opens here with PFresh, the selection will be limited. A time will come, however, when the company opens a SuperTarget. But that, he says, is around 10 years away. As with any foreign retailer coming to Canada, Target will take time to tinker.
Anthony Stokan, head of Toronto-based retail consulting firm Anthony Russell, says Target’s priority for the next few years will be figuring out which retail formats work in Canada. “How are they going to tweak their merchandise mix and what percentage of their overall business will be food?”
In the meantime, grocers shouldn’t let down their guard. Even without trying hard, it’s almost certain Target will sell more grocery items than Zellers. The troubled Bay-owned business is known for its aisles devoid of customers. But Target will certainly see more traffic than Zellers, which will translate into higher food sales almost from the get-go.
“Canadian retailers will have to continue sharpening every aspect of their business, from logistics to merchandise mix,” says Stokan. “We’ve seen it with Joe Fresh in Loblaws. Grocery retailers will have to keep refining themselves.”