Target’s grocery business may be an order of magnitude smaller than its competitor Walmart, but in terms of growth rate, it is the clear winner. Its food and beverage category saw low double-digit growth in the second quarter of 2021, the retailer announced on Wednesday (Aug. 18), compared to Walmart’s 6 percent increase.
A huge portion of this growth came from improvements to Drive Up, the retailer’s curbside pickup program.
“[We] saw double-digit growth in our fresh categories, benefiting from an expansion in the number of items available for Drive Up,” Christina Hennington, executive vice president and chief growth officer, told analysts on a call. “In fact, nearly half of this year’s growth in our produce business has been driven by the growth in Drive Up orders.”
To that point, Drive Up grew 80 percent year over year, following a 700 percent increase the previous year. The retailer’s CEO Brian Cornell added on the call that the Drive Up channel increased sales in the quarter by almost $1.4 billion (out of $24.8 billion in total sales during the quarter).
John Mulligan, EVP and chief operating officer, noted that the chain made 5,000 more items available for Drive Up during the quarter, improved suggestions for out-of-stock items, and completed a “chain-wide rollout” of new parking spaces for Drive Up customers.
Shipt, Target’s grocery-delivering Instacart competitor, grew about 20 percent year over year, following 60 percent growth in 2020. Late in the quarter, Shipt added a feature with which shoppers could browse by dietary preferences, increasing the platform’s personalization. Hennington added that customers who use the service make larger purchases overall.
Related news: Grocery Roundup: Chobani Goes Public, Shipt Goes Personal
The bakery, café and deli business grew over 50 percent — which makes sense, given that these departments were closed for much of the previous year’s Q2. The retailer’s own brands also continued to drive grocery sales.
“The food and beverage business has been a real source of strength for us and continues to do exceptionally well, including our own brands that we’ve launched,” said Hennington. “Good & Gather and Favorite Day are growing, because they’re just so relevant. They taste delicious, they look great, they’re across the whole portfolio, and guests are finding them easily amongst the assortment.”
The retailer’s private-label brands saw growth in the mid-teens during the quarter, and penetration increased by around 70 basis points. At the start of Q2, Target expanded its Good & Gather brand to include a plant-based line — and now, going into Q3, the chain has added a private-label pet food brand, Kindfull. These own-brand offerings provide an opportunity for the retailer to boost profits in the notoriously narrow-margined grocery category.
Read more: Grocery Roundup: Private-Label Brands Take On Plant-Based Category
“Our commitment is to continue to accelerate our own brands at a faster rate than our base, and that is exactly what you saw in the second quarter,” said Hennington. “As long as we continue to find unique opportunities to meet the guests’ needs, that’s going to persist … own brands represent a big portion of our sales mix, but even a bigger portion of our gross margin.”
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