Retail

Target revs up its grocery game with hundreds of new products, including gourmet pastas and coffees

Key Points
  • Target is adding hundreds of new items to Good & Gather, a grocery brand that's exclusive to its stores.
  • The retailer is also launching Good & Gather Signature, a line of premium foods like small-batch Italian sauces, gourmet pizzas and specialty coffees.
  • The company is approaching the grocery segment with a similar strategy as its home decor and apparel merchandise: Launch a brand, develop unique products and try to win a fan following.
Target is adding more products to Good and Gather, its private label for food and beverage. It's also adding a line of signature products, such as small-batch sauces and gourmet coffee.
Source: Target

Target has benefited from Americans turning into chefs and bakers during the coronavirus pandemic.

The big-box retailer wants those consumers to see it as a grocery destination now and in the future. This month, it is adding hundreds of new food and beverage items that shoppers can only find at its stores and website. It's also launching a new premium line, Good & Gather Signature, with about 60 small-batch Italian sauces, gourmet pastas and pizzas and specialty coffees that cost $2.99 to $9.99.

They are all part of Good & Gather, its private label that debuted a year ago and recently reached $1 billion in sales. With the expansion, the brand will have about 2,000 items, making it Target's largest in-house brand by assortment.

The effort is a bid at winning more market share from competitors like Walmart and Kroger. Target has lagged behind its rivals in the grocery aisle. According to UBS, the company was the seventh largest grocer by market share in 2019, with nearly 3% of market share. Walmart and Kroger dominated the category with respective market share of about 21% and 10%.

It's also taking a page from its own playbook. Target already has well-loved exclusive brands in other categories, such as Cat & Jack for children's apparel and Hearth & Hand, a home decor line developed with Chip and Joanna Gaines of HGTV's "Fixer Upper." By offering its own food varieties and flavors, it hopes to develop a fan following with Good & Gather.

Stephanie Lundquist, the company's president of food and beverage, said the items will hit store shelves at a fortuitous time. She said families and even foodies have gotten tired of cooking week after week but still want to have unique and delicious meals.

"They are looking for inspiration," she said. "They are looking for products and ideas that can help them particularly with the dinnertime rut."

She said some customers feel cash-strapped, too. That may attract them to the private label.

"One of the things we're seeing is they want to create dinner moments," she said. "They want to create special moments because they aren't able to get out as much, and so those inspiring solutions paired with great value is what they're looking for."

Target is one of the retailers that widened the gap with competitors during the pandemic, as other retailers have had furloughs, layoffs and store closures. In the second quarter, the company reported eye-popping gains in e-commerce and its overall profits jumped 80%. CEO Brian Cornell said Target has gained 10 million new digital customers and picked up $5 billion in market share in the first half of the year.

One of those categories driving growth is grocery. Food and beverage comparable sales grew by 20% year over year in the second quarter. They rose even more for Target's own food and beverage brands. Comparable sales of those brands, including Good & Gather, has jumped by 30% this year, Lundquist said.

Food and beverage makes up about 20% of Target's revenue, according to its annual report. The company does not break out the profitability of its five merchandise categories, but grocery is a notoriously low-margin business with items like milk and cereal driving less profit than a lipstick or a sundress.

Even though milk and eggs are less profitable, Lundquist said they drive trips to the store. As consumers shop for staples, she said, they tend to fill their basket with other nonedible items.

"Our guests can come in planning to get some decor items for their home and pick up a T-shirt and then they may come in for essentials and grab some food and beverage items and everything in between," Lundquist said. "That really is one of our biggest diffentiators."

She said 75% of Target customers shop its food and beverage area. When they do, she said, they spend twice as much on average.

Lundquist said its private label helps increase profits versus selling other brands, too.

All Good & Gather items are made without artificial flavors and sweeteners, synthetic colors and high-fructose corn syrup. Target is phasing out two other private labels: Archer Farms and Simply Balanced. It will keep Market Pantry, another food and beverage brand, but slim it down and limit it to basic items like baking supplies.

Along with launching Good & Gather and expanding its assortment, Target announced in June that it's adding fresh and frozen items to its same-day order pickup and drive up services at hundreds of stores. By the holidays, the company plans to offer them at more than 1,500 stores.That's roughly 80% of its 1,871 stores nationwide.

With Good & Gather, Target said it has seen double-digit sales gains in categories such as sparkling water, granola, dried fruit, nuts and nutrition bars. Good & Gather's best-selling items include staples like milk, cheese and meat and some of its unique items like Strawberry Mango Sparkling Water, its Avocado Toast Chopped Salad and its Himalayan Salted Dark Chocolate Almonds.

Lundquist has gotten to sample Target's new grocery items early. She said she counts cremini mushroom and truffle oil thin-crust pizza among her favorites and caramel macchiato coffee can be found in her own kitchen.

"That's for sure in my pantry, as I drink more coffee at home these days," she said.

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