Consumers are having an increasingly difficult time making ends meet as rampant inflation refuses to cool.
In January, the broad Consumer Price Index was up 3% on an annual basis. Shelter and food were big drivers of that increase, rising 4.4% and 2.5%, respectively. Within the food category, grocery prices increased 1.9% year over year while restaurant prices rose 3.4%.
Because inflation doesn’t seem to be easing, consumers are being increasingly cautious with how they’re spending their money. Many are seeking out cost-cutting measures, like reducing discretionary purchases. And consumers are also more apt to “grocery splurge” these days rather than blow a wad of money on a single restaurant meal.
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Of course, consumers can only afford to splurge so much in the course of filling their pantries and fridges at a time when staples like eggs and meat are almost unbelievably expensive. But at a time when restaurants are marking up menu items and sticking diners with surcharges to account for these higher costs, it won’t be surprising to see an even more notable shift toward cooking at home.
Target is honing in on consumer needs
At a time when consumer spending is tighter than usual, big-box stores like Target are in a prime position to thrive. These stores offer the convenience of a wide array of items under one roof.
And for better or worse, that vast selection can lead to customer impulse purchases. That’s not good for consumers’ wallets, but it’s great for sales.
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Unfortunately, Target has not been faring as well as expected given its loyal fan base and range of hip, trendy products. During its most recent earnings call, the company reported decent numbers but warned that it expects profits to decline during the upcoming quarter due to factors that include broad economic uncertainty and the impact of tariffs.
Stubborn inflation will also continue to be a factor for Target, not to mention the loss of goodwill that followed its decision to end DEI-focused initiatives.
Target expands a key product line
Target has been taking steps to get back in customers’ good graces and bring back the “Tarzhay” factor. To that end, the company is expanding its line of beauty products by adding 2,000 items to its shelves and online inventory. It also recently announced a partnership with Warby Parker to introduce shop-in-shop stores for the famed eyewear brand.
Now, Target is going all in on the elevated grocery shopping experience with plans to add about 600 new items to its Good & Gather and Favorite Day labels. A good 90% of those products will be priced under $20.
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“We’re moving with a sense of urgency to deliver the kind of compelling newness that makes Target a place for discovery, delight and joy,” Chief Commercial Officer Rick Gomez told investors on the company’s last earning call.
Target also announced Good & Gather Collabs, which will be sold under the private label and created by partnering with notable chefs. The first round of these items includes frozen pizzas and appetizers from James Beard Award-winning chef and restaurateur Ann Kim, whose contributions feature flavors that reflect her Korean heritage.
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In recent years, Target has expanded its grocery offerings, including private label products. The Good & Gather brand currently has more than 2,500 items.
Target has the ambitious goal of increasing sales by more than $15 billion by 2030. Focusing on new and exciting grocery products is a strategic move for Target at a time when consumers are being forced to choose between splurging on apparel and beauty, two big sellers for the company, versus making sure their households are fed.
Gomez called the move “a big step forward in our journey to make Target a retailer that doesn’t just sell food but celebrates food.”
Maurie Backman owns shares of Target.
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