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Share gains coming, but not the next Walmart

Target is expected to gain about $3 billion in market share during the next few years as the company completes the rollout of its PFresh program, according to Credit Suisse analyst Edward Kelly.

In a proprietary analysis of PFresh published last week, Kelly sought to quantify the impact of Target’s food initiative, which he indicated has become a key concern for investors in supermarket stocks. Kelly’s key conclusions are that Safeway and Supervalu are likely to be impacted the most while Kroger will be impacted the least because the latter already faces significant discount store competition from Walmart, and Target has had the least success with PFresh in suburban markets where Walmart supercenters already exist.

“Despite Target’s initiative to materially expand its food offering, we do not expect Target will represent the same headwind as Walmart did over the past decade,” according to Kelly. “Target holds a 3% market share of the grocery channel, up approximately 200 basis points since 2000. In comparison Walmart was the share leader back in 2000 and the company has double its market share to about 20% since then.”

Kelly estimates Target’s PFresh initiative will likely increase the company’s markets share by approximately 50 to 100 basis points over the next two years.

“The bigger issue is that Target represents just another example of a non-traditional retailers using the supermarket’s core product offering as a traffic driver,” according to Kelly.