WASHINGTON -- It's only becoming more difficult to be a packaged food manufacturer in America.
Target recently gathered some of the country's largest food companies in the country to tell them that many of their products would no longer be featured or promoted in the same way they have in recent years. The news, first reported by the Wall Street Journal, comes on the heels of what has been a trying stretch for American food manufacturers. And it could have a sizable impact on the health of the packaged food industry.
"This is a very noticeable sign of the shift away from packaged goods, since other grocers haven't shifted quite so dramatically," said Amy Koo, a senior analyst with market research firm Kantar Retail. "Fundamentally, food suppliers are going to have to grapple with this new landscape."
The decision, the latest by new Target Chief Executive Brian Cornell, is part of a restructuring of the company's business model. Rather than selling stuff that people can find just about anywhere, Cornell is emphasizing the importance of uniqueness, or at least a semblance of it.
"The cheap, discounted items you used to see for sale each week were meant to be used as a carrot, as a means of getting people to come in and pick up something more discretionary, with a bigger mark-up," Koo said. "On the one hand, Target is walking away from that model. On the other, it's responding to a market level shift towards things that are less packaged and more fresh."
What that means, practically speaking, is that consumers should expect to see fewer sugary cereals, processed snacks and canned foods that have traditionally been dangled up front, near the checkout lines. Instead, Target will promote healthier -- and pricier -- foods, such as yogurt and granola.
"That doesn't mean that mac and cheese is being eliminated, but clearly assortment is being shaped around what consumers are looking for," Cornell told the Journal.
Grocers, wary of a growing distaste for foods that aren't fresh, have been prioritizing them less and less for years. The result, which anyone perusing the aisles of a contemporary supermarket might observe, is a grocery shopping experience in which the perimeter -- the outer rim, where fruits, vegetables, meats, grains and other less processed foods are stocked -- is where shoppers are spending their time and money.
"Many people can just walk around the outside these days," said Jon Springer, the retail editor for Supermarket News. "The whole industry is becoming increasingly less reliant on the center of the store, where packaged goods are sold."
Target's move could bode particularly poorly for food manufacturers that have traditionally relied on discount stores to dole out their products. The retailer is, after all, one of the largest food businesses in the United States -- Americans buy some $15 billion in food at Target each year. Without priority placement and promotion at Target stores, the potential looms for an excruciating fallout for giants such as General Mills and Kraft Foods Group Inc., which are already suffering amid disappointing cereal sales.
But the shift might also help usher some of the commercial food industry's largest players into a clearer alignment with current food trends, particularly those that emphasize healthier, less processed products.
Target, for its part, has made it clear that the shift won't happen all at once at its stores. But as packaged foods fade into the background at one of the country's largest food businesses, it's hard to imagine they won't eventually do so elsewhere, too.
"This is a dramatic move for Target," said Koo. "And I think that all retailers will soon be asking similar questions of these companies."
SundayMonday Business on 05/24/2015