Target's Food Business Will Grow in Steinhafel Era

While it won’t happen overnight, Target is likely to change subtly with Gregg Steinhafel as chairman, with food and consumables becoming more prevalent.

Steinhafel adds the chairmanship to his CEO title on Feb. 1, succeeding Bob Ulrich who is retiring from the company. Ulrich transformed what had been Dayton Hudson, a department store company with a discount arm, to Target Corp., a discount store company that shed its department stores but maintained a department store merchandising sensibility.

Steinhafel was named Target stores president in 1999 and began looking like Ulrich’s heir apparent. He was appointed Target Corp. CEO in May. Over the same 10-year period, Target’s supercenter business emerged as a major company component even as the food element of its standard discount stores expanded dramatically from a soft drinks and snacks orientation to one that adds a wide range of groceries, frozen foods, dairy and packaged deli items.

When Steinhafel was named president, Target operated 16 supercenters. By the end of fiscal 2007, it had 210 up and running. That in and of itself would make the company a major food retailer, and it has set a standard of having a third of its new store openings dedicated to supercenters. The company also has established its first food warehouse, which it will operate with distribution partner Supervalu.

In discount stores, Steinhafel has overseen two major food expansions in five years. The first gave food its own wing of the store. More recently, a new prototype began rolling out with about 100 clear glass doors showcasing refrigerated and frozen food in each store, and that’s a number that exceeds most supermarkets.

Target also seems to have settled on a strategy for positioning its food proposition to customers. For awhile, it seemed to be foundering, testing value private labels and developing designer brands then withdrawing them. Now, alongside a limited selection of national brands, it emphasizes its gourmet-at-a-value Archer Farms brand and a second private label, Market Pantry, developed as the quality equivalent of national brands but at a lower price. In doing so, it has chosen a way to execute its slogan – Expect More. Pay Less – in food.

While it still trails Wal-Mart in edibles, Target has become the number two supercenter operator in the United States under Steinhafel and an increasingly important food retailer through all its stores. Food may not have the margins apparel, electronics and housewares enjoy, but it brings consumers back to the store more frequently, and that represents another opportunity to sell folks the high-margin products. Expect to see food become an even more critical part of Target’s strategy in the days ahead. Some of its current television advertising emphasizes value over style and features Market Pantry, providing further evidence that, in the Steinhafel era, food will be put to even more uses.