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Here's What Target Is Doing to Build Its Grocery Business

By Motley Fool Staff – Sep 23, 2019 at 3:30AM

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And here’s where the rest of the industry may be going.

Target (TGT 2.29%) has sold groceries for about a decade, but its offerings have been less than spectacular. That's something the company has been working to change, and Target's food and beverage president, Stephanie Lundquist, spoke about what it's doing at the second annual GroceryShop convention. Target has some advantages over smaller rivals, but that's something that's changed as more technology gets offered on a white label basis industrywide.  

In this segment, host Shannon Jones talks Target with contributor Dan Kline. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Sept. 17, 2019.

Shannon Jones: One thing I want to go back to is on Target. Target, I think, is so interesting in the grocery space. Compared to some of the other bigger players, Dan, Target has not really carved out a name for itself just yet in the grocery space. It's got the grocery section, but there's not necessarily a brand or anything that lures me there other than the fact that I just happened to be in the store for a pair of shoes for my daughter, and I realize I need to pick up something. But, that's changing, right?

Dan Kline: That is changing. A story that's on today is, Stephanie Lundquist, the President of Food and Beverage for Target, was one of the keynotes. And she talked about exactly that. Target was a place that had groceries, but they didn't have a Target approach to groceries. The headline of her speech, and of my article, is How Target Plans to Bring the "Tar-zhay" Magic to Grocery. What they're doing is they're launching a company-owned brand that pulls together a whole bunch of other brands they have, and has a quality standard. They're looking at their shelves and saying, "OK, this is why people like shopping at us for other things. How do we do that in grocery? How do we make it more distinctive?"

I'll say that the store redesigns -- we've talked about on the show before -- there is a completely redesigned Target near my second home in Davenport. That sounds better than it is. Davenport, Florida, near Disney World. That Target is optimized. You walk in, and the things you need right away are right up front. Because it's a vacation area, there's a lot of grab-and-go vacation stuff. The wine section is amazing. The liquor store. All of the produce looks good. Everything is Target-ized in a nicer way. That's where the whole brand is going. They're putting a distinct Target feel on grocery. And they're not there, but they clearly have a strategy for it.

Jones: Yeah, a lot to watch there. Going back to the conference as a whole, Dan, what would you say from a high level is the overarching theme of this conference?

Kline: There's two things. One, I would say, the democratization of technology. What I mean by that is, you remember when a few years ago, it was a completely unique thing that Starbucks had mobile order and pay. Now, there's white-label mobile order and pay. If you and I open a coffee shop tomorrow, that could be an option we could integrate, and we could use Square and essentially have most of what Starbucks has without investing the money Starbucks put in. Well, there's companies here offering things like cashier-free checkout. Now, when Amazon first launched that at Amazon Go, it was 1,000 stories. It was, "Oh, my God, you can just walk in and it knows what you're buying? And it charges your credit card?" Well, that's something a local convenience store can offer.

The biggest challenge with all of that is, if I'm a local convenience store, is that where I put my money? Is it delivery? Is it some sort of next-generation driverless technology to deliver orders? Is it high-end coffee? We don't know the answer. That's what everyone is talking about. As we're making investments, what should it be? Yep, I could automate my whole back end. I saw this technology at a show put on by the same people, Shoptalk, earlier this year. At Shoptalk, what we looked at was a 10,000 square foot unit that could automate picking of a lot of these orders, get rid of some of the human part. That's being used by some grocery chains. Now, is that where it makes sense for them to invest their money? Or, should they be automating delivery? Or, do they have to do both? So, there's really an open question. That boogieman of getting rid of people from some of this, which takes out cost in the long run -- not in the short-term -- that's hanging over everything, and nobody really talks about it that much.

Jones: Yeah. Big investments being made in this space.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. Shannon Jones owns shares of Amazon, Square, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Square, Starbucks, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, and short September 2019 $70 puts on Square. The Motley Fool has a disclosure policy.

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