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Target's Bold Bet Helps it Keep Pace With Amazon, Walmart

While Target is a large company, it lacks the resources of its much-bigger competitors. So it has to get creative.

Amazon (AMZN) - Get Free Report and Walmart (WMT) - Get Free Report can use money to solve any problem.

That may not be a popular solution right now, especially with Amazon laying off workers, but both companies have never had to skimp when it comes to investing in infrastructure. 

Amazon, at least while Jeff Bezos served as CEO, never hesitated to forgo profit in order to invest in its future. The company pumped billions of dollars into the infrastructure needed to offer two-day delivery, then speeded that to one-day and even same-day capabilities.

Walmart has not always willingly followed, but when it bought Jet.com for $3 billion back in 2016 and put its CEO, Marc Lore, in charge of digital for the whole company, that thinking changed.

Target (TGT) - Get Free Report has never had that advantage. The retailer might be large compared with most companies, but it's the little fish swimming in a big pond when it comes to competing with Amazon and Walmart. That has forced the traditional brick-and-mortar retailer to be more clever than its rivals.

That's why the retailer bought Shipt in 2017 for $550 million. That relatively inexpensive purchase gave the company the infrastructure to leverage its physical presence to offer same-day delivery. It may be more manual than what Walmart and Amazon offer, but Target solved the problem.

Now, as it battles Amazon and Walmart in the grocery business, Target has two aces up its sleeve, including one that neither of its rivals can match.

Starbucks Oatmilk Espresso Lead JS

Target Will Bring Starbucks to Your Car  

Walmart offers curbside pickup at all its stores and Amazon has it at its Whole Foods locations. 

Target, however, has found a unique way to make its curbside offering a little more appealing: It will bring you your Starbucks order along with your groceries.

The retailer rolled out that service to select locations last November, integrating the coffee company 

"If the service is available in your area, once you place a drive-up order via the Target app and indicate that you're on your way to pick it up, the app will display a pop-up offering the option to add on a Starbucks order," TheStreet's Colette Bennett wrote. "When you arrive, the drinks and/or food items will be delivered to your car along with your Target order,"

That program has been a success and it has now been rolled out to 250 of the chain's locations RetailDive reported.

“We’re not advertising [the Starbucks drive-up option]. We’re not marketing it. Quite frankly, we don’t need to because the social media alone is driving a ton of trial,” Target Chief Food and Beverage Officer Rick Gomez said during the National Retail Federation’s conference. “And our guests, they love it.”

Target Doubles Down on House Brands

While Walmart and Amazon can't match that service because they don't have Starbucks in their stores, Target has also been winning in an area where all three compete. All three companies sell house brands, but Target has paid special attention to its offering, trying to make them stand out.

“Value is top of mind, but we have to think about value more holistically than just price,” Gomez said. 

He pointed to the success of the company's Good & Gather, a $3 billion brand launched in 2019 that "offers high-quality, better-for-you options at an affordable price." That's along with Favorite Day, which debuted in 2021, is growing by double digits, and "focuses on indulgence," according to RetailDive.

“We call them ‘own brands’ and not ‘private label’ because we put as much care and attention into the research, the design, the packaging, the quality as any great brand,” Chief Growth Officer Christina Hennington said at the NRF show.