In a presentation to financial analysts on Tuesday afternoon, chief merchandising and supply chain officer Kathee Tesija said: “What our guests see today isn’t what they expect from us… At nearly $20bn food is an undeniably important business to us, but overall we lack a clear positioning, and the shopping experience hasn’t matched what our guests expect of our brand.
“Food is something our guests shop for while they are at Target, but it’s not why they are at Target, and that has to change.”
Groceries are transactional, food is emotional
To address this fundamental challenge, a “strategic shift” is required, and it begins with “talking about and thinking about food versus grocery”, said Tesija,” because groceries are transactional, and food is emotional”.
She added: “We’ve spent the past six months talking to our guests trying to understand what matters most to them, and how we can bring joy to their lives, so we’re redesigning our food strategy with the 'demanding enthusiast' at the center.”
To these shoppers, she said, “wellness is a must, [along with] organics and naturals, but they [also] want help simplifying their choices.”
What’s for dinner tonight?
Crucially, she said, Target has to have a more inspirational answer to the question: What’s for dinner tonight?
But the size of the prize is huge, she said: “One extra trip every three months is worth $2.5bn in incremental sales annually.”
It starts with delivering freshness
So what’s the plan?
Said Tesija: “We’ll spend 2015 testing ways to improve the assortment and the presentation for these specific categories so we can connect emotionally with our guests.
“It starts with delivering freshness, cutting our transit time from farm to store by 30% and displaying products in a way that signals freshness and abundance.
“We’ll also help guests discover new product option for tasty easy better for you meals through our recipe portal. Nowhere is localization more important than in food, so we’ll segment local brands for all categories and incorporate presentation and signage.
“We’ll be using Chicago as a test market and we’ll have it re-merchandised by this summer."
Unique and differentiated products
Another key focus this year will be developing unique products, said CEO Brian Cornell: “Our guests would like us to offer more choices to support their wellness goals, more natural products, more organic, more gluten free items that have simpler cleaner ingredient labels.
“In addition they would really like us to be more specialized in food, inspiring them with unique and differentiated items in our assortment."
We have a very clear idea of where we need to go
He added: "We will help our guests celebrate the joy of food. With very clear guest insights we have a very clear idea of where we need to go with food and I can tell you that the transformation has already started.
"We will make progress in this space in 2015, but the biggest changes in our food assortment and presentation will be completed next year.
Do we have too much of the grocery items and not enough for the perimeter?
Speaking at the Bank of America Merrill Lynch Consumer & Retail Conference on Wednesday, chief financial officer John Mulligan added: "We heard the [consumer] feedback very clearly, be more specialized and ...drive the assortment through wellness and wellbeing ...with yogurt, healthy snacks... along with improving our perishable offering. Do we have too much of the grocery items, middle of the store stuff, and not enough for the perimeter?"
In the fourth quarter, Minneapolis-based Target, which operates 1,790 stores, posted a 13.4% rise in earnings before interest expense and income taxes (EBIT) on a 4.1% rise in sales to $21.8bn. However, pre-tax losses topped $5.1bn owing to the costs of exiting Canada.
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