Moody’s: Food offerings giving Walmart edge over Target

Wal-Mart Stores and Target Corp. stand at very different junctures, according to new report from Moody's Investors Service.



Walmart is starting to reap more discernible rewards as it adapts more quickly to a rapidly-changing consumer landscape -- and with fewer missteps -- than Target has managed, according to the report, "Wal-Mart Stores, Inc. and Target Corporation: Walmart Is Gaining Momentum, While Target Is Still Clawing Back Lost Ground."



Both retailers have faced significant challenges the past year, including having to deal with still-cautious shoppers. But Walmart's market-leading position in the critical grocery business provides a competitive edge for the retailer, said Moody’s. This is especially evident as Target is in the midst of revamping its food offerings. Among its most salient challenges, Target lacks a supercenter format with full-line grocery stores in tandem with a full-line general merchandise store and does not have a standalone grocery store chain like Walmart's Neighborhood Market.



“Target will need to ramp up its food game to attract more frequent customer visits, which would translate into better operating performance, and it appears that the company is taking the necessary steps to improve its food business to capture more foot traffic," noted Moody's lead retail analyst Charlie O'Shea. "Even so, we believe the Neighborhood Market will widen the food gap even further for Walmart over its food retailing competitors going forward, capturing additional sales from consumers who need to shop in between their Supercenter visits."



Moody's notes that Target's new merchandising focus in home and kids' apparel will resonate with shoppers, alongside its smaller format stores, helping to strengthen the retailer's operating performance and profitability. Even so, the key to stemming the widening gulf with Walmart is Target's food offerings.



"Food will continue to be a key battleground in this sector from a traffic perspective," cautioned O'Shea. "Bottom line, without compelling food offerings, there are limits to Target's competitive upside and its ability to claw back, any time soon, the ground it has lost the past year."