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Experts weigh in on Target’s PFresh model

Experts weigh in on Target’s PFresh model

Tuesday’s Supermarket News story on the impact of Target’s PFresh food sections, which are in 875 Target stores and typically cover about 17,000 square feet, quoted several industry experts. Here’s a sampling:

From Neil Stern, managing partner, McMillan Doolittle (Chicago):

– “The way Target has set up PFresh allows it to talk about a grocery offering without really competing in fresh. It’s more of a strategic move to give the appearance of being in the food business without actually committing the space and resources to doing it, which is a very deliberate and very clever strategy.”

– “If Target’s market share moves from 3% to 4%, that’s substantial in terms of dollars. But the fact that stores with PFresh are so spread out indicates that Target is getting those sales from a lot of players in a lot of different markets.”

– “The biggest challenge for PFresh is the ‘fresh’ part. Perhaps Target needs to put ‘fresh’ in quotes because it’s offering only a limited assortment of produce, meat and bakery items.”

– “Target’s aim is to achieve a balance where it can take advantage of increased traffic for food at low margins while selling fashion and home products at higher margins.”

From Mark Wiltamuth, managing director, Morgan Stanley (New York):

– “PFresh is just one of many alternate formats that are pressuring grocers with new capacity. It competes indirectly with supermarkets – it’s not a concerted strategy aimed at supermarkets, nor is Target trying to provide a full supermarket offering.”

– “There may be some markets where PFresh is exerting more pressure, such as Philadelphia, Minneapolis and parts of California… But for most operators, PFresh is just there – it’s not a debilitating factor for most grocery stores.”

From Jim Hertel, managing director, Willard Bishop (Barrington, IL):

– “Until the assortment is more credible, particularly in perishables, Target is not going to have enormous share numbers. As a result, any impact is only at a micro level because Target’s offering is quite a bit edited compared with a traditional supermarket… It’s not going to become a food destination.”

– “A Walmart supercenter is a food destination because you can do a full stock-up shop there. If Target were aiming to be a destination store for groceries, then the SuperTarget format would be better at driving traffic.”

– “Management feels a larger fresh offering would mean more shrink, more labor and more expense, and it decided there were better ways to deploy capital. The company obviously has internal benchmarks for how much it wants to invest in food. The thinking is, let’s enhance our business when people are already in the stores.”

From David Rogers, principal, DSR Management Systems (Deerfield, IL):

– “PFresh was intended to generate more traffic to help Target through the recession in good shape, and it’s doing its job. But I question the competitiveness of PFresh as a long-term offering because it lacks the range and selection to attract shoppers on a regular basis. It’s only a convenience offering, and Target is not a convenience store.”

From Bob Gorland, vice president, Matthew B. Casey (Harrisburg, PA):

– “I’ve been in stores on a Saturday morning where the out-of-stocks were as high as 50%. Target has a real problem with out-of-stocks in perishables, particularly meat, and that hurts, especially on advertised items.”

From Adrianne Shapira, analyst, Goldman Sachs (New York):

– “Target has confused shoppers by emphasizing food and low prices at the expense of its cool image. These were good moves during the recession, but the pendulum may have swung too far, attracting more medium- and low-income shoppers at the expense of the higher-end shopper.”