Target’s Canadian food strategy

The biggest new competitor for Canada’s supermarkets since Walmart’s arrival, in 1994, will be here in less than two years. When it opens as many as 150 stores in 2013, Target will feature not only the chic and cheap apparel and general merchandise it is famous for in the United States, but also more than a smattering of fresh food.

The growing interest by supermarket retailers here in Target’s grocery plans follows the Minneapolis-based company’s $1.8-billion acquisition of the leases of up to 220 Zellers stores from Hudson’s Bay Co. in January. These stores will be rebranded with the Target banner and represent the initial phase of a program that is expected to result in more than 200 stores across Canada posting revenues of $6 billion within six years.

“We are very excited to bring our broad assortment of unique, high-quality merchandise at exceptional values and our convenient shopping environment to Canadian guests coast-to-coast,” said Gregg Steinhafel, chairman, president and chief executive  officer of Target Corporation.

The average converted Zellers will be about  100,000 square feet, or some one-third smaller than the typical Target store south of the border. Target executives say the company isn’t a supermarket, but they will compete against them for a share of the grocery dollar.

In the U.S., traditional Target stores carry many aisles of dry groceries. The retailer has two formats with fresh groceries: SuperTarget, which has a broad assortment of food items; and PFresh, a relatively new format that is being rolled out across the U.S. and features everyday shopping items such as strawberries, bananas, and bagged lettuce; ground beef, chicken and pork; baked goods and dairy.

Target isn’t planning to open any of the double-size Super-Target stores in Canada yet, sticking to its more traditional format. But a recent Globe and Mail article confirmed that Target will offer “an array of foods such as fresh vegetables and fruit.” Further, Tony Fisher, president of Target Canada, said the merchandising will be similar to the retailer’s PFresh locations.

U.S.-based consultant W. Frank Dell II, president of Dellmart & Company, describes Target’s PFresh offering as “core plus a reasonable range. It is not intended to duplicate a supermarket, but to take core-item sales away from the supermarket in a one-stop shop.” He warns Canadian grocers that products at Target tend to be fresher than Walmart, indicating higher retail turns. Pricing also follows the retailer’s good value positioning with better quality than competition.

Perry Caicco, a retail analyst at CIBC World Markets in Toronto, confirmed this assessment in a recent report, writing: “The issue for Canadian supermarkets will be new food square-footage entering the playing field–any new square footage is bad square-footage. Just as we saw with Walmart’s Supercentres, the weaker competitors will suffer most.”

Too often, companies think Canada is an extension of the U.S

Industry experts are full of advice for Canadian grocers about to face direct competition from new Target stores. “The very first thing Canadian grocers should do in the face of Target’s market entry is to take a deep breath and do exactly nothing. This isn’t to say they shouldn’t mount a defense but rather to suggest that it’s always better to think before one acts–especially if that action is a response to an event that hasn’t yet occurred,” explains Ryan Mathews, CEO of Black Monk Consulting, a Detroit-based analyst of consumer trends.

The second step, says Mathews, is to consider what Target is planning. “They are talking about a limited selection of fresh products. There are several effective strategies to counter this offer. So emphasize the broadness of your perishable offering,” Mathews suggests. This does not mean add items so you can claim the broadest selection. Broader will do just fine.

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Mathews continues, “Next, assume Target will go for the low-hanging fruit (and vegetables): bananas, potatoes, lettuce, etc. If you want to play with prices, which I wouldn’t necessarily suggest, key the discounts to the highest-demand items. I’d also emphasize the fact that when it comes to fashion items, while you may not know whether apricot is the new lemon, you are the expert on apricots, lemons and all other things edible.”

Mathews concludes, “It also never hurts to play the ‘local produced’ or ‘product of Canada’ card (even if Target is sourcing from the same suppliers). Local implies ‘fresh’ in a way no mass merchant can ever claim. And finally, take another deep breath. The temptation to overreact will always be there. Just make sure you don’t give in.”

Execs say the company isn’t a supermarket, but they'll compete

Another series of suggestions comes from Bob Phibbs, who calls himself the “Retail Doctor” and was formerly CMO at the It’s A Grind coffee chain. Phibbs says don’t “be afraid of shopping Target on the first day and for three weeks running to see how their supplies are holding up, demand and merchandising. Then steal what you can in ideas. Target is a forward-thinking company, so use their newest information to improve your operation. After all, Ron Johnson, who led the development of Apple’s retail stores and innovative “genius bar” within, came to the computer company from Target.

Phibbs adds that if Target locates nearby, grocers should “take that as a vote of confidence in your area. It doesn’t have to mean less for anyone. Find ways to encourage your Facebook fans to shop and post their reviews on your site–unedited. If you are doing things right, you have nothing to fear. If you aren’t, fix them.”

Finally, retail consultant Ian Percy, president of The Ian Percy Corporation and a Canadian by birth, has a warning for Target. “Far too often, American companies think Canada is just an extension of the U.S., only they talk funny and get free health care,” he notes. “That is one fatal mistake. Even Walmart had some struggles until they woke up to this point. Corporate ego can really mess things up sometimes.”