Target’s Talk of Vertical Farms Met With Skepticism

Target’s Talk of Vertical Farms Met With Skepticism

By Ashley Nickle October 31, 2016 | 2:46 pm EDT

Some analysts are less than impressed with Target’s plans to start testing vertical farms in stores.

Business Insider reported that the Minneapolis-based retailer is looking to implement the technology as early as spring 2017. Target declined to provide information on those plans and declined to make chief strategy and innovation officer Casey Carl available for an interview.

Kurt Jetta, founder and CEO of TABS Analytics, and David Livingston, founder and managing partner of DJL Research, expressed skepticism regarding Target’s plans for vertical farming and cited the company’s reputation in the grocery category as a key reason for their opinions.

“Target struggles with just basic produce sales before getting all exotic with vertical farming,” Jetta said in an e-mail. “Their problem is that they don’t generate enough store traffic to justify a presence in produce at all. Spoilage is a recurring problem for them because the average Target shopper goes there less than 10 times per year. The average grocery store gets 20-25 trips.”

Livingston had a similar take. He noted that the company might view vertical farming as a differentiator, but he questioned whether it would be a meaningful one.

“I think this is a desperate attempt from probably an executive that really doesn’t know what they’re doing,” Livingston said. “Whoever did it did a good job of selling it to the senior-level team, but in my opinion, I doubt that it’ll work because, I’ll put it this way, if it was a good idea, wouldn’t the really successful grocers be doing it — not the one at the bottom?

“If this was a good idea, somebody like Publix and Kroger, they’d already be doing it,” Livingston said. “H.E.B., they’d already be doing it.”

Jetta cited limited appeal of vertical farms as another obstacle, stating that the concept would likely interest 10% of the population at most, a statistic he attributed to a TABS Analytics food & beverage study on purchasing of natural and organics.

“This is too niche for Target,” Jetta said in the e-mail. “They are a mass merchandiser, with the emphasis on mass. The only path to success in produce is to get more trips per shopper, and generating a 2.5x increase in trips is an insurmountable hurdle. They need to stick with high-velocity, packaged groceries.”

Livingston suggested Target might have a difficult time with vertical farming even if the idea was a great one.

“When it comes to grocery execution, Target’s been one of the worst in the industry to do it, so anything they do, the rest of the industry just assumes it’s going to be an ineffectual effect on the market,” Livingston said, “and so far everything Target’s done has been very ineffectual on the competition.”

On a more positive note, Jetta indicated that he expects Target’s new store format to be successful and said vertical farms might be a useful addition there.

“The only place where it would be viable is their new Target Express concept,” Jetta said in an e-mail. “These small-format urban stores will have the right target audience for these products. I think this new store concept will be (a) winner, but it begs the question on why they would complicate their logistics and increase their costs with this gimmick before establishing success in basic produce.”

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