Target puts food suppliers on notice

Target's (NYSE:TGT) continued push for differentiation in all categories, particularly grocery, is causing some casualties, namely big brands with household names such as Kellogg and General Mills. It's all part of the retailer's plan to offer more natural, organic and specialty foods.

The retailer is putting larger suppliers, including Campbell Soup, General Mills and Kellogg, on notice that their traditional product assortments won't receive as much shelf space or promotional attention as the focus shifts to a more natural/organic assortment.

Representatives from these three companies and others were given notice, people familiar with the matter told the Wall Street Journal. It's part of Target's strategy to woo younger shoppers and address the changing tastes of U.S. shoppers.

"That doesn't mean that mac and cheese is being eliminated, but clearly assortment is being shaped around what consumers are looking for," CEO Brian Cornell said in a recent interview.

Cornell has broken brands on offer into three key categories, signature, outperform and perform, to determine which get the most attention. The signature category is broken into four groups itself: baby, children, style and wellness. Food items tied to those categories will get more resources and attention, according to the report.

Changing the food assortment is also a key part of Target's strategy to recreate the kind of unique shopping environment and assortment that drove its success for more than 40 years.

While Target's recent collaboration with designer Lilly Pulitzer was a success and sold out fast, it didn't deviate much from the retailer's tried and true merchandising strategy. Which, in fact, seems to be the point. Management is now more focused than ever on returning to that core strategy of offering a perceived higher-end product at value pricing. That's true of apparel, home and kids, and now groceries will have to fall in line.

Target entered the grocery category reluctantly in the 1990s, with a scattering of pantry or convenience items including milk, bread and dry groceries. As the company developed its supercenter format (originally called Archer Farms Market, a name that quickly disappeared from all but the premium private brand developed for the concept), it began expanding the grocery assortment inside the discount stores.

Growing grocery has boosted sales and now represents a significant portion of Target's overall revenue: approximately a fifth of Target's $73 billion annual sales, according to the Wall Street Journal.

Grocery, including fresh produce, is critical to growing frequency and basket size. But the assortment Cornell inherited from his predecessor Gregg Steinhafel was largely uninspired. Now that differentiation is on the priority list, that is changing to keep up with the preferences of Target's core customer, especially younger shoppers.

Target isn't necessarily looking to eliminate national brands, according to the report. Rather, it will focus on those brands that better resonate with the younger, more urban shopper Target is now courting. Much of this is in line with manufacturers' own strategies, such as Campbell growing Plum Organics and General Mill's Yoplait appealing to the growing number of Greek yogurt consumers. And while this is a strategy that likely makes large manufacturers anxious, it's also confirmation of the current consumer trends nationally.

For more:
-See this Wall Street Journal story (subscription)

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