Target teams with D'Amico & Sons, Freshii to bring fresh appeal to its in-store cafes

As she waited at a counter for her carrot apple ginger juice, Katy Hays shuddered when she recalled what she used to eat during her shopping trips to Target.

"I got the pretzel with the nasty cheese and a pop every time," she said. Then she quickly added, "Well, not every time."

So she was intrigued when the cafe at her Target store in northeast Minneapolis got rid of the popcorn, hot dogs and Pizza Hut pies it sold for years and replaced them with food from Freshii, a fast-growing chain from Toronto with a menu built around fresh ingredients and devoid of anything fried or served on a bun.

Freshii, which has also gone into eight Chicago-area Target stores, is one of a handful of dining concepts the Minneapolis-based retailer began testing a couple of months ago. It's an attempt to breathe new life into an often-neglected part of the store that has become to feel out of sorts with Target's stylish sensibility as well as the recent health kick it has embarked on under CEO Brian Cornell.

Other recent notable health-focused initiatives include an overhaul of its grocery department still in the works that entails adding more natural, organic and gluten-free items. In some stores in Minneapolis and Denver, Target also recently began piloting a healthier check-out lane, stocked with fewer candy bars and chips and more nuts and dried fruit.

In another cafe trial that is also tapping into Target's aim to be more localized, the retailer has put a spin on D'Amico & Sons into its stores in Edina and Maple Grove. The Minneapolis-based purveyor of Italian sandwiches and pastas created a new concept called D'Amico & Sons Italian Kitchen for the experiment with its own menu that include flatbreads and gelato in addition to salads and pastas.

Lynn Ulrich, director of D'Amico's operations, said the firm also made a concerted effort to keep all of the prices below $9.50, lower than its restaurants. It also added many personal touches to give the cafes a more homey feel, such as having a lower-to-the-ground kid's table with toys and books and decorating the walls with old D'Amico family photos from Italy.

"People have been thrilled with the changes," she said. "They're really happy to see us here."

In another test, Target is trying out some more artisanal pizzas from Pizza Hut at a few stores in New York, New Jersey and Iowa.

Target executives aren't saying much yet about whether they will roll out one or all of these concepts across the chain. About 1,650 of its 1,800 U.S. stores have cafes. Analysts are intrigued by the potential rewards if Target proceeds with an overhaul of its cafes.

"I don't think it's going to be a one-size-fits all approach," said Sean Naughton, a retail analyst with Piper Jaffray. "They're clearly going to be very targeted in what they put in which store."

If Target does go down this road, he said it would be one more way for the retailer to hand over control of a noncore part of its business to someone else who can do it better and more profitably — and potentially bring more customers to its stores as a result without having to invest a lot of its own resources. Under Cornell, Target recently closed a deal to sell its pharmacies, which were unprofitable, to CVS.

"I would venture to say that the Target cafe is probably not a very profitable part of the store either," Naughton said.

While Target employees staff its cafes, Freshii and D'Amico & Sons use their own workers in the pilot programs, which would be another way for Target to reduce its operating costs, he added.

In-store cafes have been a part of big-box stores for decades, offering customers the convenience of one-stop shopping. The eateries are also often a way to entertain children — or other members of the family — who are not as interested in shopping.

Wal-Mart has Subway in many of its stores. Meanwhile, Costco has its own food court with a popular $1.50 hot dog and soda deal.

In 1995, Target became a licensee of Pizza Hut and now sells its branded pizzas in about two-thirds of its cafes. Target is also a licensee of Starbucks and operates coffee shops in nearly 1,400 stores.

"In our stores, one of the first things a guest encounters is our food service operations," said Katie Boylan, a Target spokeswoman. "So it's part of their first impression."

So much so that the smell of popcorn near the entrance has become something many customers associate with the beginning of their Target shopping trips.

Target does not publicly break out the sales of its cafes. Nation's Restaurant News, a trade publication, lists it as the 85th largest chain restaurant in the U.S. with $503.7 million in sales. That's less than 1 percent of Target's $73 billion in overall sales but bigger than well-known food chains such as Auntie Anne's, Noodles & Co., and Einstein Brothers Bagels.

The changes being tested at Target's cafes haven't sat well with everyone. Some people miss the popcorn and other cheap snacks.

"Don't take away the Pizza Hut!" exclaimed Erica Wilson as she snacked on some breadsticks in the cafe inside the Target store on Nicollet Mall in downtown Minneapolis. "We still need pizza and breadsticks."

Target could turn off some consumers who prefer more indulgent items and may not like the higher-priced menu items, said Darren Tristano, president of food consulting firm Technomic.

"There's definitely a risk," he said. "The higher price point might appeal to the more affluent consumers, but they are a smaller portion of the demographics."

Matthew Corrin, chief executive of Freshii, has heard many of these arguments before. He noted that when he opened its first location a decade ago, the vast majority of his clientele — about 95 percent — was women. Today, men make up nearly half of Freshii's customers.

"You can see how healthy eating has evolved and become more mainstream," he said.

He built his business around the thesis that if you give consumers affordable and convenient options, they are more likely to choose the healthy item.

"We've got a very bold mission to bring heath and wellness to the masses," Corrin said.

Freshii has about 200 locations in 15 countries and has plans to double in size in this year.

By joining forces with Target, Freshii could take its expansion to a new scale.

So if Target decided to put a Freshii location in each of its stores, Corrin said he would be more than happy to oblige.

Kavita Kumar • 612-673-4113