The Battle of Midway

On University Avenue in St. Paul's Midway neighborhood, bulldozers and front-end loaders tear away the remains of the old, now demolished, standard-issue Target store. Behind the clattering and bleeping machines looms a new SuperTarget, scheduled to open in July.

Scot Stephenson of St. Paul often shops nearby at the Midway Cub Foods store. But he'll be glad to see the new SuperTarget open. He loves what competition does for prices, selection and convenience.

"We'll be over for sure," says Stephenson. "We always went to the Target. We might just end up being at Target more often, since it's good to not have to go to two places at once during the weekend."

That's exactly what Target says many SuperTarget customers are doing, combining grocery --and department store-- shopping.

Company spokeswoman Brie Heath says groceries are boosting Target's bottom line.

"The addition of food to our assortment inside a store drives frequency of our guests," she says. "The guests then shop at our stores on a more frequent basis, which helps drive incremental sales, as well as profits."

Within a few blocks of the new Midway SuperTarget are Cub and Rainbow Foods grocery stores. Both have been received major facelifts. There's also an ALDI grocery store and a Wal-Mart that boasts six aisles of groceries.

The battle of Midway is one of the most high-profile confrontations so far in a food fight that will only intensify as grocers add stores in the Twin Cities. Nearly 30 stores are planned, including some ten SuperTargets.

Cub is king among Twin Cities grocery chains, with the largest market share. But Target now ranks fourth among Twin Cities grocers in sales. Target--and its archrival Wal-Mart--are on track to grab a much bigger share, as the retailing giants add full-service grocery stores.

"We're going to see Wal-Mart and SuperTarget move up that market share ladder," says industry analyst David Livingston. "They'll probably be the number two and number three players, probably some time in the next five years."

Both retailers have aggressive expansion plans. Livingston expects Target could have about 25 metro-area SuperTarget stores by 2008, up from 17 now. And Wal-Mart will soon have seven Supercenters featuring full-service grocery departments.

Analysts say Cub and number 2 Rainbow have the most to lose to SuperTargets and Wal-Mart SuperCenters.

That's because Cub and Rainbow shoppers tend to be more price-conscious.

Cub declined to comment for this story.

But Rainbow spokeswoman Vivian King says the new Midway SuperTarget had nothing to do with the decision to upgrade Rainbow's nearby Midway store.

"We don't think about Target and what Target has to offer," says King. "We think about what we offer."

Analysts expect upscale grocery stores like the Kowalski's on St. Paul's Grand Avenue have less to worry about when confronted with a SuperTarget.

The thinking is that upscale grocers can beat Target and Wal-Mart on service, quality and selection--and don't have to worry too much about pricing.

Kowalski's chief operating officer, Kris Kowalski Christiansen, doubts her stores' customers will defect to SuperTarget.

"I know they affect some Cub food stores when they go in," she says. "But we have not had a major effect on one of our stores from a SuperTarget. I'm not sure our primary shoppers would leave us to go to a SuperTarget to do their primary shopping." Kowalski Christiansen says price isn't everything to many grocery shoppers.

"It's price plus the quality plus the freshness of the product you're getting," she says. "You may pay a little more. But in the end is it really costing you that much more?"

The grocery business traditionally has very narrow profit margins, in the low single-digits.

Target doesn't disclose its grocery sales--or profits. But Morningstar analyst Joseph Beaulieu says the grocery business is indeed paying off for Target.

"They're actually making money on the groceries," says Beaulieu. "Perhaps the strategy of getting people to stores to buy groceries and then buy other things is working."

As for Scot Stephenson, he's not going to abandon the Midway Cub for the new SuperTarget. There'll be times when Stephenson shops Cub.

"Cub has more brands, more sizes," he says. "It's a better grocery store."

Target is still finding its way in the grocery business. Outside the Twin Cities, Target is typically a small player among grocers.

Analyst David Livingston expects Target will use its home-town market to test concepts that may later be taken nationwide.

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