an abbreviatedCase Analysisand thorough responses to theDiscussion Questions

(Provide an overview in each of these categories)

Executive Summary

Problem/Issue Identification

Analysis/Evaluation

Recommendations

Questions:

As completely as possible, diagram the value delivery network for Target's grocery business, from raw materials to finished consumer goods.

Is Target a producer, a consumer, or an intermediary? How about Shipt? Explain.

Discuss Target's channel management procedures.

Regarding the same-day delivery venture, why are Target's partnerships important?

Will Target's acquisition of Shipt result in growing revenues in the coming years? Explain.

Case

Target: A Serious Contender in the Same-Day Delivery Business

Once upon a time, there were two major forces dominating the discount retail market: Walmart and Target. The two retailers offered very similar merchandise assortments, and their stores were close to one anotheroften facing off from opposite sides of major boulevards. The two were constantly comparedthe press rarely covered one without mentioning the other.

Walmart was far and away the market leader. But although Target was a distant runner-up, its stylish "cheap chic" positioning and "Expect More. Pay Less." mantra made it a formidable challenger to Walmart's always-lowest-price positioning. In fact, Target grew at a faster rate than Walmart for years, nibbling away at the giant's market share and posing a genuine threat.

But what a difference a decade makes. Since the Great Recession of 2008, Walmart's annual revenues have increased by more than $120 billion while Target's have barely moved. In fact, Target's $72 billion in total sales last year was lower than six years before. Not only has Walmart improved its game, but increased competition from Amazon, Costco, Kohl's, and dollar stores have flattened Target's growth. Still, Target hasn't given up. It has doubled down on improving its customer experience while at the same time cutting corporate costs. So far, however, its efforts haven't seemed to make much difference.

All that may soon change. Today, Target is making a major investment that it hopes will help it regain its edge in the retail world and restore its growth. For a cool $550 million in cash, Target recently acquired Shipt, the exploding four-year-old startup with a thriving same-day delivery network across 80 U.S. markets. The future of retail favors companies that can deliver goods fast and cheap, and Target is serious about establishing a competitive advantage in delivery. With the Shipt acquisition, Target plans not only to increase sales of its current inventory but also to become a major player in an area of retail where it has languishedgroceries.

A New Way to Deliver Groceries

Founded in 2014 by a 32-year-old high school dropout, Shipt quickly established itself as a force in the home delivery business. After a few failed models, Shipt focused on groceries. Members get unlimited same-day grocery delivery on orders of $35 or more for just $99 a yeara fee now reduced to $49 for the first year. The Shipt app and website offer users a seamless experience for ordering and receiving groceries and general merchandise.

But Shipt is not a grocer. It's a home delivery service. Rather than invest in its own inventory, Shipt has partnered with grocery chains such as Kroger, Publix, and, of course, Target. When a customer places an order, employees at partner stores don't have to do anything. Instead, one of Shipt's personalshoppersa veritable army that now exceeds 40,000goes to the store, plucks the products from shelves, and delivers them to the customer's home. Shipt shoppers wear green T-shirts with the company logo. But similar to Uber and Lyft, they are independent contractors. They drive their own vehicles and work when they want to. AShipt personal shopper makes $22 an hour on average. By the end of this year, Shipt projects that its army of shoppers will exceed 100,000 and its total revenue will eclipse $1 billion.

Experts have predicted a reliable model for home grocery delivery to the masses for the past 20 years. Until now, however, efforts have moved slowly, leaving behind many casualties. Today, same-day grocery delivery is a rapidly growing sector with many large retail competitors entering the fray. Fueled by the explosion in mobile devices and consumer expectations for instant everything, same-day grocery delivery is more in demand than ever. "One-stop shopping was convenient in the 1990s," says one retail analyst. "But for today's families you have to be able to do instant food delivery as well." According to a recent report, online grocery shopping could expand fivefold during the next 10 years. That means U.S. consumers will be spending well over $100 billion on grocery items by then.

Why Partner When You Can Buy? Although the acquisition of Shipt may seem sudden for Target, it was actually a long time coming. Target has always striven to stand out from the rest of the discount retail world by offering a more high-end customer experience. With Amazon and Walmart fast establishing their same-day grocery delivery capabilities, Target knew it had to make a move or risk falling further behind. But why buy Shipt instead of simply partnering with it? For starters, the acquisition sends a strong signal to competitors and customers that Target is serious about the grocery business and about delivering its goods better and faster than larger competitors.

Purchasing rather than partnering with Shipt also gives Target more control. The acquisition lets the company take full advantage of the Shipt technology platform across its entire network of stores, letting it to provide faster and more convenient same-day delivery on a wide variety of goods. Now, just six months after the acquisition, Target customers can take delivery via Shipt of groceries, home goods, and electronics, among other things. "By the end of 2019, we'll offer same-day delivery on all major product categories at Target," claims John Mulligan, Target's chief operating officer.

Prior to the acquisition, Target was already partnering with Shipt rival Instacart. But the strong compatibility between Target and Shipt was apparent to both companies. "What sets us apart, and really one of the big reasons we were drawn to Target, is the value we place on delivering quality, personalized experiences to our customers," notes Shipt's founder. "Our localized network of . . . shoppers goes above and beyond to make sure our customers are well served."

In the Race or Out in Front? The Shipt purchase was primarily prompted by developments at Target's main competitors. Walmart now offers same-day grocery delivery in only six U.S. markets. But it recently announced that by the end of this year, it will expand service to 800 of its stores in 100 markets reaching 40 percent of U.S. households. For same-day delivery, Walmart customers pay a flat fee of $9.95 on minimum orders of $30. Similar to Shipt, Walmart also uses personal shoppers to assemble orders from shelves. But these shoppers are actual Walmart employees who also pick orders for its curbside pickup. All orders are taken to a designated holding area at the front of the store. But while Shipt uses the same delivery mechanism systemwide, Walmart's store-to-household delivery is still fragmented. It is using a mix of methods to fuel the rapid growth of its delivery service, including Uber, Postmates, and even its own subsidiary Jet.com.

Amazon is also establishing itself as a leader in same-day grocery delivery. As the owner of Whole Foods Market, the dominant ecommerce retailer now has a bigger stake in the grocery business. And with its Amazon Fresh service, Prime members who pay an additional $14.99 per month can get same-day grocery delivery on minimum orders of $50. Customers can even have orders auto-delivered every two weeks. Available in numerous markets throughout the United States, Amazon Fresh warehouses groceries in its own facilities. In some markets, delivery is carried out by Amazon drivers and a fleet of big green Amazon Fresh box trucks. In other markets, Amazon Fresh is delivered by the U.S. Postal Service.

So far, the quality of Amazon Fresh delivery has been spotty, prompting complaints by loyal Amazon customers about late orders, missed orders, and missing items. "I feel like Amazon now has two very distinct divisions," said one Los Angeles customer. "While I love Amazon Prime and even Prime Now, I don't know what's going on with Amazon Fresh. It really leaves a bad taste in my mouth, because there are other companies that do grocery so much better." The disruptions have led Amazon to pull back temporarily, halting Amazon Fresh service in nine states where it relied on the USPS. But Amazon assures the public that it is regrouping, promising more cooperation over time between Whole Foods, Amazon Fresh, and Prime Now.

Although Target now owns Shipt, its business as usual at the Birmingham-based startup. Target is allowing Shipt to continue to operate independently, and Shipt will continue to service its other clients and Target competitors. For now, that's just fine by Target. It gains an immediate strength in the same-day delivery business through one of the strongest players in the market. For Shipt, the acquisition provides a big boost to its already growing network.

So how does Target stack up against its larger competitors? Target may now be in the best position of all grocers to establish reliable nationwide same-day delivery. According to one Moody's analyst, "The fact that Target will have this service in place during 2018 will significantly improve its online competitive position." Based on calculations for the average home, Shipt's service is the cheapest compared to Walmart and Amazon. As of now, Shipt also delivers to more markets. And most important, the consistency and reliability of the Shipt delivery system gives Target the highest quality customer experience.

With the capability to extend its services in a more modern and flexible way, Target is making one thing clearit won't simply fade away. It will continue to do whatever it takes to serve its customer base. The competition in the same-day grocery sector gives even more options to shoppers looking for time savings and convenience. For customers, that's good news. For the retailers, only time will tell.