Target Moves Into Wal-Mart Territory

Check out the special Retail Report that Businessweek.com has put together this week. Below is an excerpt from their look at Target.

Wal-Mart has been selling food for years, using groceries to boost store traffic. But selling food is a difficult, low-margin business, and Target had refrained from pushing as hard into groceries as its rival.

Yet the retailer was (is) desperate for traffic. And Steinhafel (Target’s CEO) couldn’t ignore two facts. Target’s working-mom customer was obsessing not about thigh-high boots but about the price of milk. Plus, industry and in-house research showed she was popping into the grocery store twice a week but visiting Target only three times a month.

Last fall, Steinhafel began testing a prototype grocery that sold fresh food, which typically commands higher margins than packaged groceries. The company commandeered part of an existing store and quickly turned the space into a sleek, rock-bottom-price grocery with everything one could possibly need to fill the family pantry. The rollout was done stealthily, with almost no publicity. Before long, the food marts were lifting sales at test stores an average 5% to 10%.

When retail chains launch a concept, they usually back it up with a national advertising campaign. But often the items are available only at “select stores.” With this effort, Target is going hyperlocal. Instead of a gradual rollout across the U.S., it focused on one market, Philadelphia. In September it began putting food marts in all 30 urban Philly stores. Once they were ready to go online in October, Target carpet-bombed the city with its message of “Fresh food for less green” and “Quality cuts, lean prices.”
The blitz was everywhere: e-mail, radio, newspaper circulars, TV, and what seemed like nearly every billboard in town. “If you don’t know about it and you live in Philly, you have to be living under a rock,” says Citigroup retail analyst Deborah Weinswig. By testing in a single market, Target was able to measure immediately the efficacy of the marketing. The results have been promising, with sales exceeding expectations.

Target plans to roll out the concept to 350 more stores in 2010.