Target benefits from fresh food, CEO says

Published on 06/14/2010 at 03:57PM by Bruce Blythe

Gregg Steinhafel, Target Corp.'s chief executive officer, said adding fresh food has benefited Target.

Target opened PFresh food departments in 108 stores last year and plans to add another 350 this year, the Minneapolis-based company said previously.

While traditional Target stores carry no perishable items, the PFresh stores sell fresh produce, including bananas, seasonal fruit, berries, bagged salads and baby carrots.

General merchandise retailers such as Target and Wal-Mart Stores Inc. have expanded fresh food offerings in recent years, gaining share on traditional supermarkets.

It's debatable, however, whether general merchandises can execute a fresh food game plan as effectively as the supermarkets, retail consultant Jeremy Diamond said.

Diamond, who runs the Diamond Group, a Baltimore-based firm, says he's skeptical how effective Target will be as a volume merchandiser of fresh produce, meat and dairy products.

"When you sell so much volume, the quality tends to not be as good" compared with smaller retailers or traditional supermarkets, Diamond said. "I'm very leery of that."

In many traditional supermarkets, the first thing customers see when they walk in is the fresh produce section, which has a certain look and smell designed to connect with consumers, Diamond said.

"I just don't see that effect happening at Target," Diamond said. "I don't know if they're going to keep control over quality, given that much volume."

Target introduced PFresh at two stores in 2008 in response to customer requests, company spokeswoman Jenna Reck said. After seeing "strong results and incredible guest feedback," Target added PFresh to more stores, Reck said.

Target may add more PFresh departments after this year. The company has expressed interest in rolling out expanded food offerings to a "substantial portion" of Target stores over the next three years, Reck said in an e-mail.

Steinhafel offered an upbeat outlook for Target during the retailer's annual shareholders' meeting on June 9.

Target expects to open 13 new stores during the second and third quarter. Those openings will be the low point in the company's expansion efforts, Steinhafel said, adding that Target will step up new store openings in 2011.

While Target's store count is less than half that of Wal-Mart, Target is posting better sales performance. Analysts say that partly reflects Target's more affluent customer base, which is spending more as the economy improves.

During the first quarter, Target said comparable store sales rose 2.8% compared with the same period a year earlier. Wal-Mart's comparable sales fell 1.1% in the most-recent quarter, the fourth consecutive quarterly decline.

Target operates 1,740 stores in 49 states.

Still, Steinhafel has expressed caution over the U.S. economy's direction. The company's May comparable store sales were "somewhat below our expectations," Steinhafel said in a June 3 news release.

"Our recent experience reinforces our belief that we will continue to experience volatility in the pace of economic recovery," Steinhafel said in the release.

Target's comparable store sales reflecting stores open at least a year, a key measure of retailer performance rose 1.3% during the four weeks ended May 29. Total sales rose 3.7% to $4.62 billion, the company said.