MINNEAPOLIS — Though improved performance in discretionary categories headlined the second quarter, Target Corp. sees plenty of runway for its burgeoning food and beverage business, said Brian Cornell, chairman and chief executive officer.

“We think we have significant opportunity for growth in that space, led by the unique combination of great national-brand partnerships and some really strong owned brands that are connected with the consumer,” Cornell said in an Aug. 21 analyst call on fiscal 2024 second-quarter results. “So we think we’re still in the early days of building out our food business.”

Target’s food and beverage sales have increased nearly $9 billion over the past four years to become a $24 billion business. Food and beverages represented about 23%, or $23.90 billion, of Target’s fiscal 2023 sales of $105.8 billion, up from 21% ($22.92 billion) in 2022, 20% ($20.3 billion) in 2021, 20% in 2020 ($18.14 billion) and 19% ($15.04 billion) in 2019.

Food trips spur traffic

Low-single-digit comparable sales growth in food and beverages during the second quarter contributed to an overall comp-sales uptick of 2%, which marked Target’s first such gain in over a year. Cornell said the category benefited from a plan Target announced in May to lower the everyday prices on thousands of popular products.

“On the frequency side of our assortment, both our food and beverage and essential categories saw traffic growth in the quarter, as consumers are responding to our offerings in an environment where they are focused on value,” he said. “Over the summer, we reduced our prices on about 5,000 frequently purchased items in many markets, and we saw an acceleration in both our unit and dollar sales trends in these businesses.”

Because of their purchase frequency, food and beverages have been a big contributor to traffic. Target’s traffic rose 3% overall in the second quarter, and during the call Cornell singled out traffic growth as the chief factor behind the comp-sales increase.

“While it was fantastic to see top-line growth in the second quarter, it was even more gratifying that was driven by traffic, as more guests choose to make more trips to Target, following unprecedented growth during the pandemic,” he said. “Altogether, over the first six months of 2024, our guests have already made nearly 1 billion trips to Target, a number that’s grown by more than 20% since 2019.”

Assortment expansion

Target’s seasonal merchandising has provided a key growth vehicle for food and beverages, and that was no different in the second quarter, said Rick Gomez, chief commercial officer. In early July, Gomez was promoted to that role after serving as chief food and beverage officer since February 2021. Lisa Roath, currently chief marketing officer, is slated to become chief merchandising officer for food, essentials and beauty in early 2025.

“In food, comp sales growth in the low single digits was led by seasonal moments, with hundreds of new items across snacking, grilling and entertaining,” Gomez said in the second-quarter call. “With exclusive-to-Target items like Bubly’s Melted Ice Pop flavor (sparkling water), which quickly grew to be the highest-selling item in its category, we help guests celebrate summer with fun, new flavors and items.

“We’ve also pushed ourselves to rethink assortment strategies that have been tried and true for years. For example, we transitioned our candy aisles, leading into some of the most popular trends like better-for-you options, including lower-sugar treats and wellness candies. While this category is already growing, these changes raise the bar, accelerating comp growth into the double digits.”

Formula based on affordability, differentiation, convenience

Responding to an analyst’s question, Gomez sketched out the growth picture for Target’s food and beverage business.

“We believe there is continued runway for the business to deliver growth, driven by a few things,” he said. “The first is continued emphasis on affordability. As we talked about, the 5,000 price reductions across everyday items was incredibly well-received. We’ll continue to lean into value on food and beverage, not just through everyday pricing but also through personalized promotions on Circle (Target’s loyalty program), as well as with our own-brand portfolio, which offers incredible value. The second thing that we’ll continue to lean in to drive growth for food and beverage will be newness. Just going into the fall season, right now we have a ton of new products coming, over 150 new own-brand products and over 500 new national-brand products, leveraging those flavors that everybody loves for the fall. I’m talking about pumpkin spice, apple, pecan pie. That will continue to fuel growth.”

The fall food assortment will span “sweet to savory” flavors, Gomez said, with new private label and national brand offerings ranging from pumpkin donut holes and jack-o-lantern sandwich cookies to pecan pie ice cream and turkey stuffing-flavored potato chips from Target’s Good & Gather brand. Launched by Target in 2019, Good & Gather — now covering nearly every food and beverage category — took less than a year to top $1 billion in sales and currently is on its way to $4 billion. Target followed up in 2021 with indulgent brand Favorite Day, designed to offer premium flavor at affordable prices.

Strong digital traction also has lifted the food business, Gomez said. Digitally originated sales account for over 18% of Target’s sales by channel, and in the second quarter the retailer tallied double-digit growth in Drive Up curbside pickup and same-day delivery via the Target Circle 360 online membership program.

“The last opportunity to continue to drive growth in our food and beverage business is around ease and convenience,” Gomez said. “Consumers have a lot on their plate, and they’re looking for simple solutions. We’re very excited about the continued growth that we’re seeing on both Drive Up as well as same-day delivery, which achieved double-digit growth in Q2, and we continue to see runway on that going forward.”