By Paul Ziobro
Several top suppliers summoned to Target Corp.'s headquarters
early this year left digesting some difficult news: Their brands
were no longer special.
Representatives from Campbell Soup Co., General Mills Inc.,
Kellogg Co. and others were told that the retailer doesn't want to
put as much money and effort into promoting some of their products
as it did in the past, people familiar with the matter said.
Bottom line: Target said it wants to do less with Cinnamon Toast
Crunch and Corn Flakes and more with granola and yogurt. Canned
soup, a category facing a long decline, will be de-emphasized. The
processed foods sold by Kraft Foods Group Inc. and others will move
down the totem pole, while fancy sauces and oils will move up, the
people said.
Shoppers have long been shifting to fresh and healthy-sounding
foods at the expense of canned and bagged goods in the aging center
of the supermarket. But the move by Target's new chief executive,
Brian Cornell, who runs one of the 10 largest grocery businesses in
the U.S., is among the starkest signals yet that the changing
tastes of American consumers will leave some big brands in the
lurch.
"That doesn't mean that mac and cheese is being eliminated, but
clearly assortment is being shaped around what consumers are
looking for," Mr. Cornell said in a recent interview. The CEO has
personally attended some of the meetings with suppliers ahead of an
expected physical restructuring of Target's grocery areas.
Under Mr. Cornell, Target--which reports earnings on
Wednesday--is segmenting goods throughout the store into three
categories. The top ranking goes to the broadly defined "signature"
categories of baby, children, style and wellness. Food products
tied to those categories will get outsize resources and
attention.
The other categories for products will be "outperform" or
"perform."
In grocery, the company has a clear idea of what will fit in
"signature" and "perform," but is still working out what will
qualify for the middle category. The difference is crucial. Brands
that fall into the bottom "perform" category will remain on the
shelves but won't get featured as frequently in circulars or in
stores. They will also likely face more competition from Target's
private-label brands, which the chain plans to push heavily.
Ultimately, shelf space could be trimmed, said Amy Koo, senior
analyst at consultancy Kantar Retail.
Kellogg Chief Executive John Bryant, while declining to discuss
talks with any retailer, said in a recent interview that Kellogg
needs to do more to ensure the room devoted to cereal doesn't
shrink meaningfully. "We need to grow the business over time if we
expect to hold shelf space, " Mr. Bryant said.
Target's verdict was a surprise blow to suppliers, which had
spent much of the past decade helping the company build a grocery
business. They expanded sales offices near Target's headquarters in
Minneapolis, created exclusive products for the chain and shared
extensive consumer research. Target in return gave them millions of
dollars in sales and a relatively upscale customer.
Now, several suppliers are considering whether to shift the
money they spend on in-store marketing like signs and displays to
retailers that are willing to give them more support, people
familiar with the matter said.
Target is unapologetic. The chain feels its food aisles have
lacked the distinctiveness that underpins its success in areas like
apparel and home goods. Like all grocers it is strongly courting
younger shoppers who favor smaller, organic and natural brands.
Instead of largely leaning on vendors to determine its
assortment, Target is now commissioning its own consumer research
and plans to do more curating of products. That may not sit well
with suppliers.
"Will all of them be happy? Absolutely not," Mr. Cornell said.
But returning Target to growth should help everyone, he added. "At
the end of the day, growth is a very important element regardless
of what seat you sit in," said the executive, who in his
three-decade career has worked on both sides of the
supplier/retailer divide.
Target began a big move into grocery in 2008 under former Chief
Executive Gregg Steinhafel. The goal was to give recession-battered
customers a reason to come into stores. The strategy did boost
sales--grocery now accounts for about a fifth of Target's $73
billion in revenue--but some executives worried that aisles stuffed
with cheap soda and chips were making the stores less special.
Mr. Cornell, a former grocery executive who previously led a
massive PepsiSHYCo Inc. food division, has repeatedly said food is
important but needs to be reimagined. He recently hired a former
colleague from Safeway Inc., Anne Dament, to run grocery.
After months of research, Target no longer has the suburban mom
in its bull's-eye. Instead, it is focusing on what it calls the
"demanding enthusiast," a shopper defined as younger, multicultural
and living in cities. In light of that, the company plans to lean
on Greek yogurt, bagged coffee, and craft beers in an effort to
make its grocery aisles feel less like Wal-Mart.
While Target stores will be less reliant on packaged and
processed foods that are out of favor with many millennials, there
will be openings for old-line food companies that are keeping up
with changing tastes. Target's focus on baby products and fresh
food matches well with new Campbell acquisitions like Plum Organics
baby food and Bolthouse Farms, which sells carrot sticks and fresh
juices. General Mills' Yoplait business aligns with Target's desire
to be a destination for yogurt.
Some suppliers outside grocery are embracing Target's ranking
process. Newell Rubbermaid Inc. makes Graco car seats and other
baby gear that is going to be a big part of Target's strategy. But
large Rubbermaid storage bins and garage organizers aren't as
important at Target--and even at Newell itself.
Newell has scaled back its storage bin business and repurposed
some production lines to make more food storage, where it can be on
trend with portion-control containers, something that could
potentially fit with a broader Target pillar of wellness.
"We tend to have aligned ambitions," Newell Chief Executive
Michael Polk said. "If there's a segment of our business they're
not interested in, there's a reason they're not interested in
it."
Annie Gasparro contributed to this article.
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