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Target Brings Its Private-Label Strategy to Groceries

Target (NYSE: TGT) has made developing private labels a key part of its strategy. The company creates and owns the brands (sometimes in conjunction with celebrity partners), and has thus built a product line that can't be found anywhere else.

This approach has worked for the retailer, giving consumers a reason to visit its stores, and it shows that having a brick-and-mortar presence remains important. By contrast, Amazon, which has also introduced hundreds of its own brands, has struggled to make any of them a success (aside from its self-branded Amazon Basics line).

It's a simple strategy: create attractively packaged brands, sell them at reasonable prices, and let customers see them on store shelves. Now, Target plans to apply that same strategy to groceries, and it could be a game changer.

Target is introducing a new private-label grocery line. Image source: Target.

What is Target doing?

The retailer has introduced Good & Gather, a grocery line, to its owned-brand portfolio. Starting with 650 products, the new offering will begin appearing in the chain's stores on Sept. 15, and it will grow to 2,000-plus items by late next year, according to a press release.

"The idea behind Good & Gather is great food -- from dairy and produce to ready-made pastas, meats and more -- made for real life," according to the press release. "It's all the good stuff you love without artificial flavors, synthetic colors, artificial sweeteners, and high fructose corn syrup. Plus, there are plenty of everyday staples like milk, eggs and other favorites that never have those ingredients anyway."

Store brands are not new to groceries, but Target has amped things up a bit. Much like its other company-owned brands, these are products that look top quality but are sold at value prices.

"Our guests are incredibly busy and want great-tasting food they can feel good about feeding their families," said Target Executive Vice President Stephanie Lundquist in the press release. "We saw this as a huge opportunity for Target to help. So our team got to work on our most ambitious food undertaking yet, reimagining our owned food brands to serve up convenient, affordable options that do not cut corners on quality or taste."

Target, of course, already had a number of house brands in its grocery section. It plans to phase out its Archer Farms and Simply Balanced brands, and cut back the Market Pantry line. The company will bring new versions of the most popular products in those lines to Good & Gather.

Will this work?

Target has built its brand around being cheap-chic. Good & Gather brings that strategy to groceries. It gives consumers a house brand that looks like a higher-end product, which fits the company's value model.

Adding this line shows that Target wants to make grocery a key part of its strategy. That makes sense, given that the company has been leaning on grocery to push its same-day delivery service.

Having an expansive owned grocery brand should drive sales for the retailer, taking away some volume from the company's vendors. Good & Gather will likely become a default choice for many Target customers. People will still pick name brands when they have favorites, but they'll probably opt for the house brand where they don't.

Assuming Target delivers products people like, this strategy should work. It will allow the company to strengthen its connection to its customers and build goodwill by offering attractive items at value pricing.

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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. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.


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