Retail

Target to add fresh food and alcohol to same-day pickup at nearly half its stores by the holidays

Key Points
  • Target has been focused on making it quicker and easier for customers to buy items, whether they're browsing aisles in a store or driving to a child's soccer practice.
  • It will start testing fresh food pickup and drive up in the Twin Cities in late March and then in Texas and Florida stores.
  • It will sign the first lease for an approximately 6,000-square-foot store this year and open that store in 2021.
The grocery section of a redesigned Target store in Duarte, California.
Source: Target

Target is adding fresh food staples and alcohol to same-day services at hundreds of its stores this year. That means along with paper towels and bags of chips, customers can pick up a gallon of milk, a bunch of bananas or a six-pack without getting out of the car.

The Minneapolis-based retailer also plans to test convenience store-sized brick-and-mortar locations in some markets.

Target announced the new offerings in a Tuesday earnings call. It will start testing fresh food pickup and drive up in the Twin Cities in late March and then add it to Texas and Florida stores. The company said it will expand the fresh food service to nearly half of its stores by the holiday season.

The retailer will test pickup and drive up of alcohol in Florida and Oregon in late March and plans to roll it out to most stores by the fiscal fourth quarter of 2020.

Target has been focused on making it quicker and easier for customers to buy items, whether they're browsing aisles in a store or driving to a child's soccer practice. Same-day services have played a significant role in the retailer's growth. Customers can pick up online orders inside the store, by drive up or through Shipt, a delivery service owned by Target. The company is also using tools, such as robots and machine learning, to reduce out-of-stock items.

Target's same-day services grew more than 90% and accounted for nearly three-quarters of the company's comparable digital sales growth in 2019. Its same-day drive up service had sales growth of more than 500% and its order pickup service had sales growth of about 50% in 2019.

Target CEO Brian Cornell said same-day services have inspired greater customer loyalty. When a customer tries a same-day service, he said 3 out of 4 times they'll do it again within 3 months. And, he said, nearly 1 in 3 people who placed same-day orders had never shopped on Target.com.

Target is adding fresh food items and alcohol to same-day pickup and drive up services as its growth rate for online sales slows. The company's comparable digital sales were up 20% in the fiscal fourth quarter, down from the 31% growth it had in the prior quarter and the same period a year earlier.

With the expanded focus on fresh food, Target is encroaching on competitors' turf. Walmart, in particular, has used grocery pickup and delivery to fuel its e-commerce business. Other companies, such as Instacart and FreshDirect, deliver groceries to customers' doors, but don't have brick-and-mortar stores to use for order fulfillment or same-day pickup.

Target has bulked up its grocery business in recent years. It's redesigned and emphasized its grocery department as it's remodeled stores and opened new ones. It launched Good & Gather, a new food brand that's made without artificial flavors, synthetic or sweeteners, in mid-September and plans to have more than 2,000 food items available by late 2020. The brand includes a wide range of items for the refrigerator and pantry, including turkey breast, white cheddar baked puffs and kid-friendly, squeezable applesauce pouches.

By making it faster for customers to buy eggs or pick up a bottle of wine, Target hopes customers visit stores more frequently and add more items to their baskets, said food and grocery analyst Phil Lempert. e said Target is using food to strengthen its customer relationships.

"There's nothing more personal than food," he said. "There's not a lot of emotion when you buy a T-shirt. There is a lot of emotion when you buy a steak."

He said Target has a built-in advantage: It owns Shipt, the same-day delivery company it bought in 2017. One of the trickiest aspects of grocery delivery is picking food like fruits and vegetables. Shipt, which has years of experience, knows how to do it and its employees can serve as "great teachers."

Target said it's growing another part of its business: Small-format stores aimed at customers in densely-populated cities and on campus campuses. 

Target Chief Operating Officer John Mulligan said it will open nearly three dozen new small-format stores in 2020. The small-format stores are an average of 40,000 square feet, but can be as small as 12,000 square feet. They contributed more than $1 billion in total sales in 2019.

It plans to open them near three major tourist attractions, too: Times Square, Disney World and the Las Vegas Strip.

This year, Mulligan said Target will shrink that footprint even more. Target plans to open an approximately 6,000 square foot store -- roughly half the size of its smallest small-format stores.The company plans to sign a lease for the store this year and open it in 2021.

He did not say where the store will be, but said it will sell a mix of items, such as grab-and-go food and beauty products. It'll be another place where customers can pick up online orders, too.

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