TARGET EXPANDS FOOD TO DRIVE CUSTOMER TRAFFIC

MINNEAPOLIS -- Target Corp.'s new key initiative for the coming year is to pump up customer-visit frequency, company executives said at the annual shareholders meeting here last week.During the brief meeting, at the Minneapolis Institute of Art, food was identified as being among the product lines Target will expand and promote to further its goal of attaining higher customer traffic. Others include

MINNEAPOLIS -- Target Corp.'s new key initiative for the coming year is to pump up customer-visit frequency, company executives said at the annual shareholders meeting here last week.

During the brief meeting, at the Minneapolis Institute of Art, food was identified as being among the product lines Target will expand and promote to further its goal of attaining higher customer traffic. Others include pharmacy, one-hour photo, mom-and-baby merchandising and the bull's-eye logo Target Visa.

The company remains committed to its grocery SuperTarget format, planning to open about 30 supercenters -- about one third of its total retail expansion -- in 2003. There are currently 102 SuperTargets in the 1,167-store chain.

"Our SuperTargets have been highly successful in attracting the same guest who shopped at our discount stores to come to our SuperTarget with sharply higher frequency," Doug Scovanner, chief financial officer, divulged in a press conference after the meeting. "Overnight, guest frequency increases between 50% and 100%."

In a conference call with analysts discussing its first-quarter earnings the previous week, Target said it will add more drinks, beverages, frozen foods, dairy products and dry grocery items to new and remodeled traditional Target stores beginning this fall. It will also double the food offerings at about 80 existing Targets that are not being completely remodeled.

Male-oriented categories like boys' apparel, sporting goods, automotive and home improvement will erode to make room for the expansion of consumables and other growth product lines. Footwear is also going to be scaled back.

The company also said during the conference call that it planned to double the current penetration of its Archer Farms and Market Pantry private-label food brands by adding new stockkeeping units and rolling the products out to more Target stores. The company currently generates about 5% of its grocery sales from private label, but hopes to increase that level to about 10%, said Gregg Steinhafel, president, Target Stores.

Although food sales generate weaker margins than other categories Target offers, the company said higher volumes and increased sales of high-margin items compensate for the shortfall.

"Over the last five to 10 years, we have typically seen, in isolation, a 10- to 20-basis-point decline in gross margin rates per year due to faster growth of these lower-margin categories, but no decline in overall gross margin," said Scovanner. "Gross margin overall is up several hundred basis points because of all the other levers we are pulling."

During the past nine months, the company also has shifted its marketing strategy for groceries at its SuperTargets, phasing out its four-page promotional circulars in favor of an everyday-low-price strategy and in-store handouts touting special deals, the company said during its earnings conference call.

Asked at the annual meeting whether an emphasis on food potentially puts Target on a collision course with Wal-Mart Stores, Bentonville, Ark., Scovanner responded: "We go head to head with Wal-Mart every day of the week, every week of the year."

The company will continue to use third-party distributors and has no plans to build food distribution centers a la Wal-Mart, said Jerry Storch, vice chairman. Supervalu, Minneapolis, and Fleming Cos., Dallas, remain the company's primary distributors. It also self-distributes some dry grocery goods.

Asked during the earnings conference call if the company was considering shifting all of its business to Supervalu in the wake of Fleming's April bankruptcy filing, Scovanner said the company was "watching that situation very carefully," although he added that the company also doesn't want to consolidate all its grocery business with one supplier.

"We don't view this as a long-term critical event," he added.

Several hundred people walked through security scanners to attend the perfunctory, 15-minute annual meeting, held in sight of Target's glassy tower headquarters.

A handful of shareholders lingered outside afterward, expressing disappointment that Bob Ulrich, chairman and chief executive officer, Target Corp., adjourned the meeting without the customary question-and-answer session.

"In today's environment, where there is corporate fraud going on right and left, it's giving the wrong message to the public when they won't allow people to ask questions," complained shareholder Aaron Epstein, who'd flown in from North Hollywood, Calif., to question the company about its credit operation.