Target Puts Some Food Suppliers on the Back Burner

Target Puts Some Food Suppliers on the Back Burner

Emphasis on healthier options means less support for other packaged products

By Paul Ziobro in the Wall Street Journal

Several top suppliers summoned to Target Corp.’s headquarters early this year left digesting some difficult news: Their brands were no longer special.

Representatives from Campbell Soup Co. , General Mills Inc., Kellogg Co. and others were told that the retailer doesn’t want to put as much money and effort into promoting some of their products as it did in the past, people familiar with the matter said.

Bottom line: Target said it wants to do less with Cinnamon Toast Crunch and Corn Flakes and more with granola and yogurt. Canned soup, a category facing a long decline, will be de-emphasized. The processed foods sold by Kraft Foods Group Inc. and others will move down the totem pole, while fancy sauces and oils will move up, the people said.

Shoppers have long been shifting to fresh and healthy-sounding foods at the expense of canned and bagged goods in the aging center of the supermarket. But the move by Target’s new chief executive, Brian Cornell, who runs one of the 10 largest grocery businesses in the U.S., is among the starkest signals yet that the changing tastes of American consumers will leave some big brands in the lurch.

 “That doesn’t mean that mac and cheese is being eliminated, but clearly assortment is being shaped around what consumers are looking for,” Mr. Cornell said in a recent interview. The CEO has personally attended some of the meetings with suppliers ahead of an expected physical restructuring of Target’s grocery areas.

Under Mr. Cornell, Target—which reports earnings on Wednesday—is segmenting goods throughout the store into three categories. The top ranking goes to the broadly defined “signature” categories of baby, children, style and wellness. Food products tied to those categories will get outsize resources and attention.

The other categories for products will be “outperform” or “perform.”

In grocery, the company has a clear idea of what will fit in “signature” and “perform,” but is still working out what will qualify for the middle category. The difference is crucial. Brands that fall into the bottom “perform” category will remain on the shelves but won’t get featured as frequently in circulars or in stores. They will also likely face more competition from Target’s private-label brands, which the chain plans to push heavily.

Ultimately, shelf space could be trimmed, said Amy Koo, senior analyst at consultancy Kantar Retail.

Kellogg Chief Executive John Bryant, while declining to discuss talks with any retailer, said in a recent interview that Kellogg needs to do more to ensure the room devoted to cereal doesn’t shrink meaningfully. “We need to grow the business over time if we expect to hold shelf space,” Mr. Bryant said.

Target’s verdict was a surprise blow to suppliers, which had spent much of the past decade helping the company build a grocery business. They expanded sales offices near Target’s headquarters in Minneapolis, created exclusive products for the chain and shared extensive consumer research. Target in return gave them millions of dollars in sales and a relatively upscale customer.

Now, several suppliers are considering whether to shift the money they spend on in-store marketing like signs and displays to retailers that are willing to give them more support, people familiar with the matter said.

Target is unapologetic. The chain feels its food aisles have lacked the distinctiveness that underpins its success in areas like apparel and home goods. Like all grocers it is strongly courting younger shoppers who favor smaller, organic and natural brands.

Instead of largely leaning on vendors to determine its assortment, Target is now commissioning its own consumer research and plans to do more curating of products. That may not sit well with suppliers.

“Will all of them be happy? Absolutely not,” Mr. Cornell said. But returning Target to growth should help everyone, he added. “At the end of the day, growth is a very important element regardless of what seat you sit in,” said the executive, who in his three-decade career has worked on both sides of the supplier/retailer divide.

Target began a big move into grocery in 2008 under former Chief Executive Gregg Steinhafel. The goal was to give recession-battered customers a reason to come into stores. The strategy did boost sales—grocery now accounts for about a fifth of Target’s $73 billion in revenue—but some executives worried that aisles stuffed with cheap soda and chips were making the stores less special.

Mr. Cornell, a former grocery executive who previously led a massive PepsiCo Inc. food division, has repeatedly said food is important but needs to be reimagined. He recently hired a former colleague from Safeway Inc., Anne Dament, to run grocery.

After months of research, Target no longer has the suburban mom in its bull’s-eye. Instead, it is focusing on what it calls the “demanding enthusiast,” a shopper defined as younger, multicultural and living in cities. In light of that, the company plans to lean on Greek yogurt, bagged coffee, and craft beers in an effort to make its grocery aisles feel less like Wal-Mart.

While Target stores will be less reliant on packaged and processed foods that are out of favor with many millennials, there will be openings for old-line food companies that are keeping up with changing tastes. Target’s focus on baby products and fresh food matches well with new Campbell acquisitions like Plum Organics baby food and Bolthouse Farms, which sells carrot sticks and fresh juices. General Mills’ Yoplait business aligns with Target’s desire to be a destination for yogurt.

Some suppliers outside grocery are embracing Target’s ranking process. Newell Rubbermaid Inc. makes Graco car seats and other baby gear that is going to be a big part of Target’s strategy. But large Rubbermaid storage bins and garage organizers aren’t as important at Target—and even at Newell itself.

Newell has scaled back its storage bin business and repurposed some production lines to make more food storage, where it can be on trend with portion-control containers, something that could potentially fit with a broader Target pillar of wellness.

“We tend to have aligned ambitions,” Newell Chief Executive Michael Polk said. “If there’s a segment of our business they’re not interested in, there’s a reason they’re not interested in it.”

—Annie Gasparro contributed to this article.