Will Organic Feed Target’s Growth Ambitions?

Retail giants are focusing more and more on the freshness and quality of their grocery products. It was only earlier in the week that Wal-Mart Stores (NYSE:WMT) announced its initiative to offer more local and fresh products, and now Target Corp (NYSE:TGT) is following close behind. According to the Associated Press, the company is rolling out a new organic and natural store brand called Simply Balanced.

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As Target works to boost its grocery business and become a “one-stop” shopping destination, the company is increasing its number of food lines available to customers. Simply Balanced will join two existing lines, Archer Farms and Market Pantry. While Market Pantry is fashioned to appeal to customers seeking a cheaper alternative, usually setting prices about 10 to 30 percent cheaper than national name brands, Archer Farms is positioned as a premium alternative.

The new Simply Balanced alternative comes amid a time when organic foods are growing in popularity, posting sales at twice the rate of conventional groceries. The brand will start with drinks and snacks on Sunday, but will eventually include about 250 products over the next five months. About half of its items will be organic, and the other three-fourths will be free of genetically modified ingredients — a percent that will only grow as Target promises to eliminate all genetically modified ingredients from the line by the end of 2014.

Store brands are especially lucrative to supermarkets and big-box retailers because they afford them increased profit margins and help them fend off competition by allowing them to offer promotions and discounts that are limited only to store brands. While Target’s grocery business offers them lower profit margins than other segments of its business, it still represents an important sector the company is working to improve.

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Target’s retail rival, Wal-Mart, also is focusing its efforts on enhancing its grocery department. The company announced Monday that it will be implementing a new time-saving strategy that will allow it to offer customers the freshest selection of fruits and vegetables. It will buy 80 percent of its produce from local grocers, cutting out the majority of its middlemen, making its produce available a full day earlier.

Can Target and Wal-Mart appeal to those customers after fresh and organic produce, or will they still lose them to Whole Foods, the (expensive) organic haven?

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