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Target may ditch junk food at the counter

September 16, 2015

Inside A Target Corp. Store Ahead Of Earnings FiguresInside A Target Corp. Store Ahead Of Earnings Figures
Customers shop at a Target store in Seattle, Wash.Photograph by David Ryder — Bloomberg via Getty Images

Target (TGT) will soon start placing healthier foods near its cash registers at some stores and putting other snacks and soda elsewhere, a move aimed at bolstering its efforts to tap Americans’ growing interest in healthier wares.

The test, starting next month at 30 stores, will mean that items like KIND bars and Target’s Simply Balanced nutrition bars will get prime space in a part of the store where people make impulse purchases. The goal is to nudge shoppers toward healthier items as part of Target’s broader strategy of winning a bigger piece of the wellness pie that everyone is now chasing.

“There’s both a huge business opportunity here and a bit of a moral imperative,” Christina Hennington, SVP of merchandising told reporters on Tuesday at a briefing ahead of Target’s fall national meeting. “Our ultimate goal is to improve the health of the nation.”

Behind such a lofty goal is big business.

Wellness, which includes things like nutritious foods and athletic wear, is one of four categories that Target CEO Brian Cornell (himself a fitness nut who works out twice a day) has made clear he wants his company to win, along with style, kids and baby items.

In the second quarter, comparable sales growth in those areas were about 7%, three times better than the retailer’s overall performance. And success here is critical to differentiating itself from rivals like Walmart (WMT) and others, which are also doubling down on wellness.

An earlier, ongoing effort by Target to tap this growing area has done well: Made to Matter, a collection of 31 different healthier, more socially-conscious products that include GMO-free food and body wash, are on pace to hit $1 billion in sales in this third year since Made to Matter was launched. That’s a relatively small sliver of Target’s $75 billion in annual sales, but growth has been 30% in 2015.

The ultimate trick for Target will be to nudge customers without sounding like a nagging parent.

“They don’t want us to be preachy and they don’t want us to tell them how to live their life,” said Hennington.

Still, Hennington and Target have been using employees as something of a test market. At its cafeteria in headquarters, Target has seen a big difference in behavior since it started providing the calorie count for different items, she said. (Target also gives all of its employees a free original Fitbit, or a deeply discounted one if they prefer a new model.)

Competition is coming from all directions. Target’s efforts to direct customers to healthier food echoes those of CVS Health (CVS), which is moving junk food to less prominent parts of the store at 500 of its location. (CVS is in the process of buying Target’s pharmacy business, a deal expected to close in a few months.) Walmart also is ramping up its organic offerings, and Kohl’s (KSS) is in the mix by creating prominent space for athletic wear and Fitbits (FIT).

“Lots of competitors are going after similar spaces,” Hennington recognized. While Target had nothing specific to announce this week, Hennington did say some partnerships with other companies and organizations were in the works to help it differentiate its efforts.

With obesity rates being what they are, and life expectancy stagnating, Target says its current and prospective customers are more mindful than ever of what they put in and on their bodies, presenting an opening.

The art will be to find just how far it can push. Hennington says Target can gently steer people, like it is trying to do with the upcoming test.

“In order to enable a set of better choices, we feel like we need to make the healthy options the default option,” Hennington.