Target CEO weighs in on trouble in grocery aisles

While sales and traffic in Target's grocery aisles have suffered recently, Chief Executive Brian Cornell remains upbeat about the changes underway.

He added that they have owned the fact that they are disappointed with their performance so far this year.

"One tough quarter — we've got to rebound from that," he said.

"It's just going to take time for us to get credit for those changes," he told a group of reporters at Target headquarters Wednesday morning before the retailer's big fall national meeting Thursday afternoon. "It's not going to happen overnight."

Customers who might have been turned off by shopping at Target for groceries a few years ago might not realize all of the changes that are taking place, he added. So the company is also starting to highlight food more in its Wednesday circulars.

In recent months, Target has been adding hundreds of new items to its shelves including a number of organic, natural and gluten-free products and bolstering key categories for its fill-in grocery trips such as snacks, yogurt, and craft beer. It has also been going commodity by commodity to enhance its fresh produce in terms of supply chain and sourcing.

But the disruption in the stores and not enough emphasis on promotions and low prices in its messaging was one of the reasons Target cited last month for disappointing sales results last quarter. Store traffic dropped more than expected.

The challenges, along with softer electronics sales and other hiccups with the transition of its pharmacies to CVS, are expected to continue in the second half of this year with the company forecasting sales to be flat to down 2 percent.

But while there has been a lot of consternation among analysts about whether Target can fix its food issues, especially with Wal-Mart vowing to lower prices and overall food deflation affecting all grocers, Cornell emphasized that it's not one of the most critical categories for Target. Those categories are baby, kids, style and wellness.

"It's not one of our signature categories nor will it be," he said. "We're not a grocer. We provide a convenient assortment of food."

He added that Target isn't looking to create a full grocery with butchers, rotisserie ovens and sushi chefs. It's not a Kroger or a Safeway or Wegmans. It's a place where you can pick up a few items for the weekend while also grabbing some paper towels and an outfit for a weekend event.

"We offer a self-service grocery experience," he said.

In the coming months, Target will be rolling out enhanced grocery presentations with cosmetic changes to the flooring, lighting and store displays that it has been testing in Los Angeles and the Dallas market. The upgrades are aimed in part at signaling to customers that the department has had a makeover in substance, too.

In seven markets, Target has also created dedicated grocery teams in its stores to focus on just that department instead of working the whole store. Those markets also now have grocery directors to help oversee issues such as replenishment and trends.

Every fall, Target flies in thousands of store leaders from the around U.S. to attend the companywide meeting in advance of the all-important holiday shopping season. While it used to be just a one-day event, in recent years, the company has expanded it into a week of speakers and events for headquarters employees that it dubs "Redtalks."

This week, some of those speakers have included Alan Mulally, the former chief executive of Ford Motor Co. whose success turning around the carmaker is often held up as a road map for other companies; and Gopi Kallayil, chief evangelist of brand marketing for Google, who spoke about the formula for inspiring innovation within his company. Actress Jessica Alba stopped in to speak about her Honest Company baby brand and Beth Comstock, General Electric's first female vice chair, also gave a talk.

But the pinnacle of the week will be on Thursday when about 14,000 employees will pile into the Target Center decked out in red and khaki for a pep rally of sorts to get them fired up for the holidays. In addition to executives who will lay out the company's strategic plans, the employees will be treated to performances from A-list stars that in previous years have included the likes of Taylor Swift, Coldplay and Justin Timberlake. The list of performers is always kept secret until the event itself.

"It's probably the best week of the year," Cornell said.

This time last year, Target was riding a wave of momentum with sales on an upward trend. But this year, the retailer is still reeling from a setback with a 1.1 percent drop in comparable sales last quarter, its first decline in that metric in two years, and a lowered forecast instead of the to 2 to 3 percent growth the company had been hoping for.

Still, Cornell said the purpose of the meeting is to get the team revved up about rising above its conservative guidance and of hopefully finding a way to yet find positive growth this year.

"We're not going to be sitting there saying we've thrown in the towel," he said. "This is about improving our performance."

Kavita Kumar • 612-673-4113