How Target Could Benefit From Its Acquisition Of Grand Junction

Target (NYSE:TGT) recently announced that it acquired Grand Junction a transportation technology company, to improve its last mile delivery capabilities. This acquisition is also likely to help the company in strengthening its supply chain and improving the efficiency of its e-commerce services. As the retail landscape (especially in the grocery segment) gets more competitive with Amazon’s acquisition of Whole Foods, brick and mortar retailers such as Target need to focus on faster delivery of essentials to stay competitive. As customers look for convenient, fast and cheap (or free) delivery of daily essential items, retailers are increasing their investments in logistics solutions in order to keep delivery costs under control. Grand Junction, which was founded in 2014 and handles 6 million local deliveries every month, should help solve the last mile delivery challenge for Target, allowing the company to improve its delivery efficiency and remain competitive with Wal-Mart and Amazon.

Increased Focus On e-Commerce

Grocery is a key revenue driver for Target, accounting for nearly 20% of its total sales, and with Amazon’s foray into this segment the company needs to ramp up its delivery and logistics initiatives to compete effectively with the Amazon-Whole Foods combination. We expect Target to see a substantial impact from Amazon’s acquisition of Whole Foods, since there is a significant overlap between Amazon Prime customers and Target’s consumer base. Further, Target is working on several initiatives such as adding organic brands, more fresh produce and focusing on better distribution to boost its grocery business, putting it squarely in competition with Whole Foods. If Amazon is able to capture market share from Target in this segment, it will impact the company’s revenue growth in the long term. The acquisition of Grand Junction is an indication that Target is making the necessary investments to cement its position in the grocery segment and compete better with Amazon and Wal-Mart. Through this acquisition Target is looking at leveraging local delivery (which is a challenge for both Amazon and Wal-Mart) as a differentiator. As consumers expect faster delivery of their essentials – and are generally unwilling to pay a substantial premium for it – we believe Target’s purchase of Grand Junction can give it a competitive edge.  The battle between e-commerce and brick and mortar retailers in the grocery segment is intensifying, and through this acquisition Target has indicated that it is not backing down.

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