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Target Expands into Organics

Target Big Box Chain Stores Expanding into Organics

Slow, organic growth for Target Playing catch-up, Target introduced a line of organic foods six months after Wal-Mart pushed into the market.

By Star Tribune Staff
Minneapolis Star Tribune, September 28, 2006

Wal-Mart may be six times the size of Target, but its behavior of late has seemed decidedly Target-like. Meanwhile, Target has been put in the rare position of following Wal-Mart's lead on two recent consumer initiatives.

On Thursday, for instance, Target introduced its own line of organic foods, six months after Wal-Mart launched an aggressive push into organics.

And last week, Wal-Mart said it planned to cut the prices of almost 300 prescription drugs, starting in Florida's Tampa Bay area. Hours later, Target issued a news release saying that it would match Wal-Mart's pricing on generic drugs in Tampa.

"For the time being, Wal-Mart is 'out-Targeting' Target," said Patricia Edwards, managing director of Wentworth, Hauser & Violich, a Seattle-based investment firm that owns about 725,000 shares of Target stock.

Both retailers are hoping to capture a share of the nation's burgeoning organic foods market. Last year, organic food sales nationwide rose 16 percent, about five times the growth rate of overall food sales.

This month, Target began offering a wide range of organic items, including whole-grain pizzas, pastas, dinners and fruit strips, under its Archer Farms brand at all SuperTarget stores and some of its regular discount stores. In addition, the produce departments at all SuperTarget stores are now certified organic, which means all organic vegetables and fruit must be clearly labeled and stored separately from conventional produce.

By certifying its produce departments as organic, Target has gone beyond many supermarkets and health-food stores, noted Barbara Haumann, a spokeswoman for the Organic Trade Association. "The fact that [Target] jumped through these extra hoops to meet [USDA] requirements shows they're serious about this," she said.

Though both Wal-Mart and Target are known for their low prices, the move by the two giant retailers could drive up the price of some organic food items, analysts warned. This spring, for instance, the surging demand for organic milk created shortages; the Byerly's grocery chain hung signs in its milk cases for several weeks, telling customers it was out of the milk.

Target's move was seen by many retail analysts as a reaction to Wal-Mart, which introduced more than 400 organic items in March and began an aggressive advertising campaign to highlight the products.

Not everyone was pleased by Wal-Mart's push into organic foods. For instance, some health advocates said the company was buying the food from factory farms that violated the spirit of organic farming and sustainable agriculture. But even critics of Wal-Mart agreed that the company's move would help raise the awareness of organic food and possibly improve public health.
"The fact that Wal-Mart took the lead in organics, ahead of Target, was pretty surprising," said Ronnie Cummins, national director of the Organic Consumers Association in Finland, Minn.

It's unclear whether Wal-Mart's recent behavior has done much to improve the retailer's perception with shoppers, many of whom still associate the Bentonville, Ark.-based retailer with overly aggressive business practices. A September poll by the Wall Street Journal and NBC News found that 31 percent of Americans had a "somewhat negative" or "very negative" view of Wal-Mart, compared with 10 percent for Target.

 Even so, some retail analysts believe that Wal-Mart's recent actions should help to soften its image with the public, and help it attract more sophisticated, urban shoppers. "They are definitely narrowing the image gap," said David Keuler, portfolio manager at Mason Street Advisors, which owns just more than 1 million shares of Target stock.

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