By Nicholas P. Brown and Juveria Tabassum
NEW YORK, Aug 20 (Reuters) - Target's bet on groceries helped drive its fastest growth in that business in three years, but a lasting turnaround hinges on whether it can persuade shoppers who come for milk and snacks to buy higher-margin goods elsewhere in the store.
Food and beverage sales grew 7% in Target's quarter ended August 1, building on gains in the prior period after many quarters of tepid growth, as new CEO Michael Fiddelke pushes to make grocery
a bigger draw. But food carries lower margins than apparel, home goods and other discretionary merchandise, meaning the strategy ultimately must translate into broader spending, investors and analysts said.
"It's mission-critical," said Sarah Henry, managing director at Target shareholder Logan Capital Management. Grocery purchases bring shoppers into stores more frequently than most discretionary purchases, she said, making food a key traffic driver for a retailer trying to regain momentum.
Rather than simply adding products, Target has revamped large parts of its grocery department around higher-growth categories, giving more prominence to protein snacks such as Misfits bars and Khloud chips, and redesigning aisles and displays to encourage browsing and impulse purchases.
Grocery accounts for less than a quarter of Target's merchandise sales, well below rival Walmart's 59%. Euromonitor data seen by Reuters showed Target held about 5% of the U.S. grocery market at the end of 2025, compared with Walmart's 27%.
But matching Walmart's scale is not the goal, said Jacob Aiken-Phillips, consumer research director at Melius Research. "The right measure of success is whether Target's food business grows faster than the category and pulls incremental visits," and the strategy "only pays off if those trips carry into the rest of the store," he said.
PRIVATE-LABEL EXPANSION TARGETS GROWTH
Target plans to add about 600 private-label food and beverage products over the next two years, including 400 under its Good & Gather banner. The company expects its moves to drive more than $2 billion in growth over the next few years, a Target spokesperson told Reuters.
The effort is part of a strategy to "make food a destination, not simply a category guests shop while they're in our stores," Chief Merchandising Officer Cara Sylvester told analysts on Wednesday following strong quarterly earnings.
The strategy appears to be gaining traction. Traffic rose 3.6% in the latest quarter, while snacks, one of Target's strongest food categories, grew 15%.
Growth in membership and advertising revenue in the latest quarter, along with nearly $1 billion in tariff refunds, gave Target some cushion to lean into low-priced groceries, said Logan Capital's Henry. The real test, however, will come in the second half of the year, which includes back-to-school and holiday shopping, Henry said.
Target's growth in other categories has been uneven. Its hardlines business, Fun 101, jumped 10.6%, and beauty sales rose about 7%, but home furnishings and apparel, two key categories, were roughly flat.
CAUTION OVER REVIVAL BOUNCE
Mari Shor, senior equities analyst at Target stockholder Columbia Threadneedle, expects changes in home and apparel to "start to resonate in the second half of the year and beyond."
Some analysts caution that merchandising overhauls can produce a temporary lift.
"When a retailer renovates a store or improves its assortment and merchandising, it can lead to an immediate improvement in customer traffic and sales" that often moderate after two or three quarters, said Freedom Global analyst Georgy Vashchenko.
Even so, Vashchenko said Target's grocery changes have "materially improved the customer experience," a view increasingly shared by investors who see early evidence that Fiddelke's turnaround efforts are taking hold.
(Reporting by Nicholas P. Brown in New York and Juveria Tabassum in Bengaluru; Editing by Sayantani Ghosh and Matthew Lewis)
