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Can Target Sail on a Whiskey River?

By Rich Duprey - Sep 7, 2015 at 5:40PM

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The retailer may become the new neighborhood night spot if in-store alcohol sales prove popular.

The news that Target will soon be selling alcohol at an in-store bar or cafe could give new meaning to consumers who say they got three sheets at the retailer.

Having an adult beverage with your meal is getting easier and easier. Whether you want to wash down your burger with a beer or chase a chalupa with a glass of wine, alcohol is being served everywhere, including at your favorite local fast-food joint.

Now Target (TGT 1.26%) is about to make it just as easy to imbibe while shopping for your groceries, following other unorthodox locations that have installed bars on their premises to attract adult customers. But for Target, it will mark a first -- it sells alcohol at a number of its stores, but until now, it hasn't sold it for on-site consumption.

Last month, Crain's Chicago Business reported that Target had applied for a liquor license at its new 24,000 square foot Streeterville location near Chicago's Navy Yard. The store is one of Target's new, smaller footprint stores that it used to call TargetExpress, a name it has since abandoned in favor of rebranding all its stores under the parent Target banner (another of its flexible format stores, CityTarget, also got folded in as well).

The retailer is still trying to recover from the disastrous customer data breach two years ago where some 40 million customers had personal information in their Target accounts compromised by hackers. The real problem was the retailer's response to the hack attack because it didn't let its customers know there was a problem, but rather quietly notified banks, which clamped down on consumers' credit card spending.

The episode badly damaged Target's reputation and broke the trust of its consumers, the fallout from which the retailer is only just managing to overcome.

In its second-quarter earnings report last month, Target met analyst revenue expectations of $17.4 billion, a near-3% increase year over year, but profits of $1.22 per share handily beat Wall Street's forecast as strong growth drove earnings higher. Still, even management recognized that one good quarter doesn't make a trend, with CEO Brian Cornell noting, "While the momentum in our financial results is encouraging, we have much more to accomplish."

Selling alcohol at an in-store bar is apparently one of those items it wants to cross off its bucket list.

Grocery shopping might not seem like such a chore once Target starts serving alcohol at one Chicago-area store. Source: Mohamed Aymen Bettaieb.

As noted, Target isn't unique in resorting to booze to help boost sales. Supermarket chain Wegman's, for example, operates about 85 stores in the northeast and serves beer, wine, and spirits in on-premise cafes at many of them. Similarly, grocery chains H-E-B and Hy-Vee also sell alcohol meant for in-store consumption, with even Whole Foods Market serving liquor at some 70 of its more than 420 supermarkets.

Consumers are getting used to seeing the alcohol flow in unlikely places. Starbucks (SBUX 2.03%), for example, isn't just a place to grab your morning cuppa joe anymore as food, and yes, alcohol, have become integral to its future. The coffee shop is radically reinventing itself into a nighttime destination spot, ramping up expansion of its Starbucks Evenings concept stores by opening 24 of them in different markets.

Burger King was one of the earliest fast-food chains to experiment with selling alcohol at its BK Whopper Bars, while Sonic has tested beer and wine sales to patrons wanting to wash down its mix of burgers, fries, and shakes. It was only in June that Taco Bell announced it was going to be serving beer, wine, and alcohol-laced freezes in several test markets.

But restaurants serving alcohol is one thing; they're trying to attract an adult crowd to their locations at times that might otherwise represent a slow traffic period for them. Any incremental sales the booze generates ought to go straight to their bottom lines, if not their heads.

While Target might not need to spice up any particular daypart, it still needs to respond to the changing habits of consumers, of which the smaller format store is just one part of. The former TargetExpress is about 15% the size of one of its traditional supercenters, and it caters to more urban customers who are looking to do more fill-in shopping. The stores also feature food to eat on the go, like salads and sandwiches, which also reflects consumers' desire for convenience.

Since the Chicago Target is just a single test location, in-store liquor sales won't move any needles, but it may prove to be a model for future growth that lets the retailer cater to customers looking for a more unique shopping experience.

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