Here’s How Target Could Benefit From Its $5 Wines

by Trefis Team
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Recently Target (NYSE:TGT) announced that it is launching “California Root Wines”, its own brand of affordable wines which will be available at its stores for $5 a bottle, starting September this year. Wine and other adult beverages are Target’s fastest growing categories, and the company is now introducing a value brand which can drive sales. As the retail segment gets increasingly competitive with Amazon focusing on the grocery segment, other retailers are looking for ways to differentiate themselves. Target’s strategy is to redesign its stores and offer products which are not available elsewhere (focusing on proprietary brands) to drive revenues.

Driving Revenues Through A Strong Selection Of Products

According to our estimates, Target’s average revenue per square foot is likely to increase gradually from $287 in 2017 to nearly $300 by the end of our forecast period.

This is one of the key value drivers for the company, and a faster growth rate in the metric can lead to an upside to our price estimate. Target’s strategy to combat Amazon and its growing interest in the grocery market is to offer unique products and redesign its stores to make them more customer-friendly and efficient. While Wal-Mart is focusing on digital initiatives and innovation to combat Amazon, Target is still focused on its brick and mortar stores (though it has improved its digital capabilities). Private labels are an effective way to attract customers to stores, and Target is experimenting across products, from food to apparel and beyond. The company already sells wine in its stores, and a private label could improve profitability. Wine consumption in the U.S. is growing steadily, and the millennial population is looking for quality wines at an affordable price point. With the increasing popularity of Californian wines, an affordable brand is likely to attract customers. As Target looks to build a competitive edge in order to combat pressure from Amazon and Wal-Mart, product differentiation via private label value products can help the company carve a niche for itself in the retail market.

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