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TARGET CORPORATION

(TGT)
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Target, Whole Foods, ShopRite and Other Retailers Look to Upgrade Their Store Brands -- Journal Report

05/21/2021 | 07:14am EDT

By Bruce Horovitz

In the Customer Experience report, we look at the many ways companies and consumers interact and how companies might make those experiences better for consumers. Previous coverage and new stories running this week can be found here.

Ask most consumers about retailers' store brands, and no doubt a handful of similar adjectives come to mind. Plain. Boring. Mediocre. Inexpensive.

Now, many of the nation's biggest retailers -- including Target, CVS, Whole Foods and ShopRite -- are out to change that image. They are seeking to accomplish a delicate balancing act, projecting upscale charm and a healthier lifestyle, while keeping the budget-friendly prices. Sometimes it's a question of the name. Sometimes it's the packaging. Sometimes it's the quality of the product. Sometimes it's a combination of all three.

For these retailers, the goal is to create a product line that looks, feels, tastes and smells premium, while undercutting on price because they aren't stuck with the fat advertising costs of the major labels.

Target's Good & Gather Signature Frozen Pizza line is a perfect example of a store brand gone upscale. Before starting the line, Target says, it surveyed 5,000 customers and did internal taste testing aimed at mimicking Italian Neapolitan-style pizza. The names bestowed upon each pizza sound special, too, like Good & Gather Select Wood-Fired Spinach and Goat Cheese Pizza. The product description on the box says the crust is "hand-stretched" and the dough is leavened for 24 hours. The "artfully crafted" pizza has the "irresistible flavors of Naples, Italy, " the box claims. The messaging on the box reminds consumers that, like all Good & Gather foods and beverages, there are no artificial colors or preservatives.

The company says the pizza typically retails for $5.99 for a 17.5-ounce box. By comparison, a 15.5-oz California Pizza Kitchen Crispy Thin Crust Margherita Frozen Pizza is generally priced at $6.99 at Target.

Not the '70s

Who would have thought that store brands -- also known as private-label brands -- would ever get so frilly?

"The younger generation doesn't give a hoot about brand names," says Jerry Cole, managing director of Starpoint Consulting Group, which specializes in private-label brand strategy. "But if you fail to deliver on the near-premium quality, it's a fail."

This is all a far cry from the 1970s, when store brands first gained traction. Then they were mostly targeted at helping consumers fight inflation. Along with budget prices, however, came a large piece of baggage: The quality was often suspect (and for good reason).

But a new generation of budget-conscious consumers with higher-quality expectations -- yet with little to no brand loyalty -- is changing the private-label game.

The numbers are impressive. Private-label product sales jumped 11.8% to a record $158.8 billion in 2020, according to a new study by NielsenIQ and the Private Label Manufacturers Association. At the same time, private-label unit sales jumped 7.2% last year compared with the year before, the report says.

"We want a high-quality product," says Rick Gomez, executive vice president and chief food and beverage officer at Target. "What we stand by is this idea of Tar-zhay" (the mock-French pronunciation of Target that implies it's a higher-quality store). The company says its Good & Gather line, which launched in 2019, generated $2 billion in sales last year.

The Good & Gather name came only after lots of internal brainstorming, says Mr. Gomez. The "Good" stands for the quality of the product and the "Gather" stands for family coming together, he says. But price matters: The majority of Good & Gather products are priced below $5.

Whole Foods is going after the same high-quality but modest-price-seeking customer with its newly named 365 by Whole Foods Market brand. The Whole Foods website calls it "The splurgiest way to save."

After 30 years under the simpler name "365," the company opted to expand the name to 365 by Whole Foods Market, says chief marketing officer Sonya Gafsi Oblisk, "to reinforce the connection back to our store and to reassure customers about product quality."

Ms. Oblisk says that sales of the line, which has expanded to more than 3,000 products, have grown by "double digits" in each of the past two years since it was introduced in 2020.

One specific product that Ms. Oblisk calls a "big winner" for Whole Foods is its new 365 by Whole Foods Market Oat-Based Whipped Topping.

Whole Foods internal research confirmed that its customers were looking for more plant-based versions of their favorite products. Whole Foods decided to make the topping with oat as a base, because it has seen a jump in sales of oat-based milk and yogurts on the dairy aisle. It then worked with a whipped-topping manufacturer to develop the new recipe. Its internal design team then made sure that the packaging would catch the eye of Whole Foods shoppers, says Ms. Oblisk. The 6.5 ounce can, which sells for $4.99 in many Whole Foods markets, features artsy illustrations of oats and colorful leaves -- and, of course, has the words "Dairy-Free Vegan" stamped in green on the front.

Bowl & Basket

Similarly, Wakefern Food Corp. -- the retailer-owned cooperative and merchandising and distribution arm for ShopRite stores -- has responded to the upscaling of store brands. "The competitive landscape changed," says Chris Skyers, vice president of Wakefern's private-label division. "We have to stay relevant to compete."

So, in November 2019, it replaced its existing portfolio of ShopRite and ShopRite Trading Company products with the newly named Bowl & Basket line of private-label products.

Wakefern hired an outside naming consulting firm, which started out with 1,200 names for the product line -- before finally selecting Bowl & Basket after intense consumer research.

The company next went category by category to update its Bowl & Basket products. In some cases, there were new formulations; in others, just packaging changes.

For instance, it created a premium kettle chip using higher quality onions, selecting an upscale-sounding name: Bowl & Basket Specialty Kettle Chips Sea Salt. And for its Bowl & Basket chip line, it changed the bag design it had previously used on its store-brand chips from a shiny finish to a matte finish "that gives more of a premium feel," says Mr. Skyers.

Wakefern also revamped its private-label line of paper products from napkins to paper towels to toilet paper, renaming it a more environmentally friendly sounding Paperbird.

Store-brand products aren't just changing at the grocery store. At pharmacy giant CVS Health, store-brand products now account for almost 25% of CVS Health sales, says Brenda Lord, vice president, private brands and quality assurance at CVS Health. The company recently created the Live Better private-label line.

Live Better, which launched in June 2020, started with about 80 products in nine categories. Ms. Lord says its provides full disclosure to customers on everything from product packaging to where the products are made, she says.

Consider the Live Better Bamboo Toothbrush. The packaging features bamboo illustrations, and features three decals that call out "Cruelty-Free," "Vegan" and "No BPA." What's more, says Ms. Lord, the Live Better Bamboo Toothbrush is even panda-friendly.

Panda-friendly?

The bamboo that's used to make it is a very specific type of bamboo, she says, "that's not part of the panda diet."

Mr. Horovitz is a writer in Falls Church, Va. He can be reached at reports@wsj.com.

Corrections & Amplifications

This article was corrected at 6:18 p.m. ET to reflect that Whole Foods introduced its 365 by Whole Foods Market product line in 2020. The original version incorrectly said the line was introduced in 2019. Also, Rick Gomez, Target executive vice president, said, "We want a high-quality product. What we stand by is this idea of Tar-zhay." The article misquoted the second part of his quotation as "We want it to stand for Tar-zhay," and didn't make clear that the mock-French pronunciation originated with customers.

(END) Dow Jones Newswires

05-21-21 0914ET

Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM, INC. -7.56% 3327.59 Delayed Quote.2.17%
CHEESE FUTURES (CSC) - CMG (ELECTRONIC)/C1 -0.06% 1.597 End-of-day quote.-2.74%
CLASS III MILK FUTURES (DC) - CMG (ELECTRONIC)/C1 0.00% 16.48 End-of-day quote.4.30%
CLASS IV MILK?FUTURES (GDK) - CMG (ELECTRONIC)/C1 0.13% 16.01 End-of-day quote.15.95%
CVS HEALTH CORPORATION -0.84% 82.36 Delayed Quote.20.59%
DJ INDUSTRIAL -0.42% 34935.47 Delayed Quote.14.63%
DRY WHEY?FUTURES (DY) - CMG (ELECTRONIC)/C1 0.08% 60 End-of-day quote.35.63%
NONFAT DRY MILK FUTURES (GNF) - CMG (ELECTRONIC)/C1 0.00% 125.7 End-of-day quote.11.34%
OATS FUTURES (O) - CBR (FLOOR)/C1 -3.67% 446.75 End-of-day quote.23.84%
S&P GSCI CLASS III MILK (USD) 0.62% 124.2217 Delayed Quote.-6.46%
SHOPRITE HOLDINGS LIMITED 1.43% 160.4 End-of-day quote.14.57%
TARGET CORPORATION -0.23% 261.05 Delayed Quote.47.88%
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Financials (USD)
Sales 2022 102 B - -
Net income 2022 6 315 M - -
Net Debt 2022 5 319 M - -
P/E ratio 2022 20,8x
Yield 2022 1,10%
Capitalization 129 B 129 B -
EV / Sales 2022 1,32x
EV / Sales 2023 1,30x
Nbr of Employees 409 000
Free-Float 99,2%
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Number of Analysts 30
Last Close Price 261,05 $
Average target price 247,19 $
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Brian C. Cornell Chairman & Chief Executive Officer
Michael J. Fiddelke Chief Financial Officer & Executive Vice President
Michael E. McNamara Chief Information Officer & Executive VP
Rich Agostino Chief Information Security Officer & Senior VP
John J. Mulligan Chief Operating Officer & Executive Vice President
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