Target Sweetens Private-Label Grocery Offerings To Boost Margins, Attract Partners

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On Tuesday (March 9), Target announced its new ‘Favorite Day‘ brand of indulgent foods and beverages. The brand’s 700+ products, which primarily cater to shoppers with a sweet tooth, offer a sugary (and sometimes savory) counterpoint to the retailer’s Good & Gather brand, launched in 2019, which offers more grocery staples and tends to emphasize health and quality of ingredients.

The addition is no surprise, given the retailer’s private-label success both in grocery and more generally. As Chief Executive Officer Brian Cornell explained on a recent call with analysts, “we cleared 2020 with 10 of our own brands each generating $1 billion or more, and four of those crossed the $2 billion-per-year threshold. Any one of these brands alone would be a sizable retailer, and as you know, their contribution to profits is outsized.”

With this success, Target announced its intention to add more private-label brands throughout 2021. The expansion further into grocery makes sense at a time when the retailer has been driving grocery spending with expanded pickup options, and its private-label groceries have been in high demand. As Cornell explained on the call, “Good & Gather is … a multi-billion-dollar brand in a short period of time. It’s been well-received by our guests, great quality at a great value, and I think it typifies the things we do with our own brands.” On the call, Target painted a vision of its future in which there would be, in Cornell’s words, a “balance between our own brands and national brands.”

Additionally, Chief Growth Officer Christina Hennington said, “our own brand portfolio, which spans all categories, is vital to the success of our business. It represents about one-third of our total sales and even more of our gross margin, which helps to sustain key enterprise investments.” She added that the goal is to create “brands that are the reason why they’re shopping at Target in the first place.”

The addition of an indulgent food line makes sense, as the emotional burden of the pandemic has led to a shift in appetite toward indulgent foods. In PYMNTS’ How We Eat report in June, researchers found that consumers’ diets are polarizing, with both more nutritious choices and more familiar comfort foods increasing in popularity: 39 percent of those surveyed are eating healthier foods and 40 percent reported eating more “indulgent” fare. The mix that Target can offer now with its private-label grocery brands — Good & Gather to provide the former and Favorite Day the latter — can cater to the changing tastes of today’s grocery shopper.

In addition to using these brands for higher sales and margins, Target also aims to use them to attract premium national brands. Discussing the retailer’s private brands’ success, Hennington said, “this focus on making Target irresistible through our products and our experience also applies to how we work with our national brand partners, and it’s an approach that has made Target a place where national brands thrive.”

This mix is showcased in the grocery section of the retailer’s online store, where Good & Gather products are featured alongside those of Coca-Cola, Impossible Foods, Kellogg’s and Starbucks, among others. However, it is possible that the “balance” that Target strives for is tipped more toward the private-label brands and their “outsized” contributions to profits than the retailer is letting on, given that it appears — both on home pages and in searches — that the private-label products are being pushed to the front wherever possible.

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