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Target Corp. To Expand Its Grocery Offerings

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Target shopping carts sit in the parking lot outside of a Target store in Daly City, Calif. (credit: Justin Sullivan/Getty Images)

Target shopping carts sit in the parking lot outside of a Target store in Daly City, Calif. (credit: Justin Sullivan/Getty Images)

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MINNEAPOLIS (AP) – Minneapolis-based Target Corp. plans to remodel about 400 of its general merchandise stores across the nation in 2011, building upon the discounter’s latest strategy to bulk up its grocery offerings.

That’s on top of the 350 general merchandise stores in the nation that Target remodeled last year in rolling out its “P Fresh” concept, which typically increased its grocery offerings by 40 percent.

At the same time, Target, which has about 1,750 stores in the nation, has scaled back new-store construction. The company was to open about a dozen new stores last year and anticipates opening 21 new stores in 2011, including one SuperTarget.

Target has about 50 stores in the Twin Cities area, including 23 SuperTargets and 27 general merchandise stores. The company remodeled most of its Twin Cities-area general merchandise stores in 2010, bringing to an end a two-year process in carrying out the work in this market, Target spokeswoman Amy Reilly.

Minneapolis-based Ryan Cos., whose business ties with Target go back 60 years, has headed up a significant number of the store-remodeling projects. In 2010, Ryan was the general contractor on 31 Target remodeling projects across the nation, including eight in the Twin Cities, according to a Ryan representative.

This year, Ryan Cos. expects to oversee remodeling of 29 Target general merchandise stores, including three in Minnesota (one each in Virginia, Brainerd and Moorhead).

A key challenge for Ryan Cos. is to do the work with as little disruption to shoppers as possible, because Target keeps its stores open during the renovation. A Ryan official said company construction crews undertake the noisy work during late night hours and the lighter, quieter work during the main shopping hours.

The cost to remodel each Target store averages from $2 million to $4 million and takes about 15 weeks to complete.

Industry observers have said that Target’s focusing of its capital spending mostly on grocery expansion makes sense because it can remodel several general merchandise stores for the same price as building a SuperTarget.

In earmarking about $2 billion on capital renovation for the store remodeling over two years, Target is hoping for increased customer traffic, more frequent shopper visits and bigger basket purchases per visit, Reilly said.

So far, early results are encouraging: Target’s same-store sales in stores with the expanded food offerings are up 6 percent to 10 percent, Reilly said. That range includes the boost Target is getting from a new reward program the company launched this past fall, she said. The reward program gives Target debit and credit card holders a 5 percent discount on purchases.

“Specifically, the 5 percent program is expected to add about one percentage point to same-store sales in Q4 and between 1 and 2 percent to same-store sales in 2011,” according to a recent Value Expectations report from the Chicago-based Applied Finance Group.

Meanwhile, Target is also gaining a bigger piece of the Twin Cities’ grocery pie. With its P Fresh initiative and several SuperTarget stores, which have full-scale grocery departments, the company now commands more than 10 percent of the market and is probably No. 2 behind leader Cub Foods, said David Livingston, a grocery analyst in Waukesha, Wis. (Livingston estimates Cub has about 22 percent of the Twin Cities’ grocery market, with Target’s ranking probably second now only to market leader Cub Foods.)

By expanding its array of groceries to about 34 sides of the aisles from the previous eight to 12, Target has strengthened its standing as a “one-stop shop” for consumers, Reilly said.

John Dean, a Twin Cities grocery analyst, said Target’s P Fresh conversions now give the retailer the space of about a 30,000-square-foot grocery store within the confines of its typical general merchandise store, which is about 126,000 square feet.

“It (the P Fresh program) makes it more convenient,” Reilly said, adding that shoppers can now get most of their groceries at a regular Target store.

Livingston said Target’s P Fresh initiative has raised its profile with shoppers as a go-to place for groceries. P Fresh includes fresh produce, meats, deli, dairy, frozen foods and dry staples at its general merchandise stores.

“They (Target) are getting stronger on price reputation,” Livingston said. “They are closer to being on par with Wal-Mart with pricing,” he added, noting that Target’s credit and debit card reward program has made the price of its groceries more competitive.

Target’s gains in grocery sales in the metro area are coming at a time when sales in that sector are flat but competition keeps on rising, said Dave Brennan, co-director of the Institute for Retailing Excellence at the University of St. Thomas in St. Paul.

Dean agrees. The gains made by Target and rival Wal-Mart, which also has been expanding grocery sections in its regular merchandise store, are coming at the expense of traditional and upscale grocers. Dollar stores also have joined the fray, with about 25 percent of their sales now coming from grocery products, Dean said.

Target initially tested P Fresh in a few stores in late 2008 and then implemented the program at 35 stores in the Philadelphia market in fall 2009 before rolling out the initiative across the nation this year.

Meanwhile, Target has used the P Fresh remodeling as a chance to update a few other departments, including beauty, home, electronics and shoes. Changes include the installation of LED lighting, as well as lowered shelves and widened aisles, Reilly said. For the most part, Target has improved design efficiency rather than downsized any departments, she said.

But whether any departments get downsized “varies from store to store” and market demands, Reilly said.

(© Copyright 2011 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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