MINNEAPOLIS — Target Corp. is focusing on organics, private label and meal solutions as it expands its food offering, the company said last week at a meeting with analysts.
Private label, led by the upscale Archer Farms brand, currently represents 15% of sales in the categories in which it is offered, and plans call for growing store-brand penetration about 2% to 3% per year for the next three to four years. New private-label products are expected soon in condiments, rubs and spices, frozen organics, and breakfast items. Plans also call for an organic children's meal to be added to the in-store food-service menu.
“Archer Farms is focused on quality and innovation,” said Greg Steinhafel, president, Target. “We believe Archer Farms is going to be one of those high-quality brands that people will seek out.”
In what it said was a move toward more convenience offerings, Target also said it would soon roll out pre-seasoned steaks under the company's own Sutton & Dodge brand, as well as more offerings in the chain's self-serve delis.
The company has been expanding the food, HBC and baby care offerings in its traditional discount stores in addition to its ongoing rollout of SuperTarget stores, which include a full grocery component.
By the end of this year, the company anticipates operating 200 SuperTargets among its fleet of 1,500 locations. It plans to add 100 net new stores — mostly its traditional discount format — in each of the next three to five years.
As previously reported, by the end of next year Target plans to begin self-distribution of perishables in the Southeast from a new distribution center in Lake City, Fla. It will operate the facility in partnership with Supervalu, Minneapolis, its current perishables supplier.
“We have a terrific relationship with Supervalu, and we envision Supervalu being our partner in our perishables distribution centers,” said Robert Ulrich, chairman and chief executive officer.
He said Target will provide the infrastructure for the Lake City DC, while Supervalu will provide the “human capital that runs the facility.” Target already self-distributes most of its dry grocery products.
In 2006, about 32% of the company's sales were tallied in consumables. Sales in those and other low-margin categories are growing at twice the rate of higher-margin offerings, the company said. However, Ulrich said that as long as Target can continue to generate 4% sales gains in its higher-margin products, they will offset the faster growth of categories like groceries.
“We have a number of levers we are using to offset the growth in our lower-margin businesses,” he said.
Although cash-flow margins on food products are lower than the average 32% margins on the company's products overall, they have improved over what they were several years ago, he added.