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 "There is an opportunity to use some partners who may be able to do
things a little bit better," Chief Operating Officer John Mulligan
said in a recent interview.
Target's supply chain evolved over time as it expanded its
offerings, including more fresh food, he said, leading to a
patchwork system. "I said to my team this looks like Frankenstein.
We have made this thing out of a bunch of parts."
Mulligan said Target has increased food sales by bringing its edible
products more into line with the 'cheap chic' ethos of other store
offerings, such as clothing and housewares. That strategy has meant
a greater focus on such things as organics, fat-free yogurts and
other healthy food trends.
But, he said, the company's supply chain for fresh food isn't fully
reliable in many parts of the country.
EXPANDING E-COMMERCE
The potential shift to relying on outside partners comes as Target
pushes to revamp its food business with newer offerings and aims to
get a bigger slice of online grocery sales, which will put new
pressures on its food supply chain.
Target has lagged behind competitors such as Walmart Stores Inc<WMT.N>
and Amazon.com<AMZN.O> in e-commerce, but is now stepping up its
emphasis on such sales. Recently, the company signed a deal with
online delivery service Instacart to pick up Target groceries and
deliver them to customers in some cities.
In March, the Minneapolis-based chain told investors it intended to
spend $1 billion to improve its supply network and online sales
technology. In August, it promoted then-CFO Mulligan to the new
position of chief operating officer to oversee the efforts.
Mulligan declined to detail the company's plans, but Burt Flickinger,
managing director of retail consultancy Strategic Resource Group,
said that depending on what Target has in mind, the partnerships
could mean billions of dollars for wholesalers, food distributors,
and food and grocery manufacturers who have existing infrastructure
to store and ship food products to Target stores.
Target declined to provide a timeline for when it will make a
decision about working with outside companies and would not provide
names of likely partners in the event it moves forward.
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But Flickinger and other analysts and consultants suggested that
likely candidates might include Minneapolis-based retail chain
SuperValu Inc, which also acts as a wholesaler and distributor for
independent retailers around the country; distributors such as North
Carolina-based MDI; regional wholesale co-operatives like Affiliated
Foods Midwest and URM Stores Inc from Washington state.
SuperValu declined comment and the other companies did not
immediately respond to Reuters requests for comment.
Amy Koo, principal analyst at consultancy Kantar Retail said Target
has long struggled to stand out with its food offerings and localize
assortments in its stores. "It is good they are talking about
getting help."
THE CHALLENGE
Mulligan said his hope is to ultimately make Target competitive with
rivals like Wal-Mart Stores Inc and Amazon.com Inc without following
their capital-intensive strategy of rolling out multiple warehouses
and distribution centers. "We will not be building $200 million
fulfillment centers all over the country," Mulligan said. Target
stores nationwide have some 8 to 9 billion items on store floors, in
transit or in warehouses at any given time, he said. The company has
tripled the number of stores from which it ships online orders
directly, but acknowledges that implementing the strategy isn't
easy.
"The challenge of where you put inventory is going to be much more
difficult in the future as we ship products from stores," Mulligan
said.
(Reporting By Nandita Bose in Minneapolis, editing by Peter
Henderson and Sue Horton)
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