CORRECTED - UPDATE 3-Target to add grocery to more than half of stores

Fri Sep 24, 2010 2:14pm EDT

* 850 stores to have P-fresh grocery items by end of 2011

* Says grocery format will help 2011 same-store sales

* Will begin selling iPad in early October

* Shares up more than 2 percent (Corrects date of iPad in stores, third paragraph from end)

By Brad Dorfman

MINNEAPOLIS, Sept 24 (Reuters) - Target Corp (TGT.N) is accelerating its push into selling groceries, adding sections for fresh food to more than half of its roughly 1,500 discount U.S. stores by the end of 2011.

The second-largest discount retailer after Wal-Mart Stores Inc (WMT.N) will have "P-fresh" grocery sections in about 850 stores at the end of next year, CFO Douglas Scovanner said at a meeting with reporters in Minneapolis on Friday.

The company said it plans to open its first small-format urban store in 2012 in Seattle, with other locations being considered from New York to Miami, Boston and Chicago.

Target expects P-fresh to add 1 to 2 percentage points to 2011 same-store sales, Scovanner added. Shares in the company rose more than 2 percent.

The move from Target is a direct attack on Wal-Mart, which sells more groceries than any other U.S. retailer and gets more than half of its U.S. revenue from them. It also positions Target as a rival to supermarket chains like Kroger Co (KR.N), Supervalu Inc (SVU.N) and Safeway Inc (SWY.N).

Target previously said it would add grocery sections to 350 stores in 2010. On Friday, it expanded on that by announcing plans to outfit an additional 400 stores in 2011.

Consumers shop for groceries more frequently than other items and companies like Wal-Mart and Target are expanding their selections of fresh food and staples to increase traffic to their stores.

Scovanner said Target is seeing food shoppers also buy things in other sections of its stores -- which sell everything from clothing to exercise equipment and furniture.

But selling groceries has its risks.

Selling food is a competitive and low-margin business, and general merchandise retailers often have to cut back on what they offer in other parts of the store to make space for the new grocery items -- risking backlash from loyal shoppers.

The Minneapolis-based retailer, which is adding more health and beauty items, hopes to get a sales boost from the national roll-out of a program that gives a 5 percent discount to customers who pay with a Target credit card. The company has said it saw a sales lift in Kansas City, where the program has been tested since 2009.

Target in August signaled it may continue to see better same-store sales growth than Wal-Mart, helped by its bigger selection of fresh foods and exclusive fashion brands that carry higher margins.

The retailer said it would begin selling Apple Inc's (AAPL.O) popular iPad tablet computer on Oct. 3. Target will sell six models, starting at $499, a spokeswoman said.

Apple's tablets are also available from Apple stand-alone stores and Best Buy Co (BBY.N).

Target shares rose 2.2 percent to $54.93. (Reporting by Brad Dorfman. Writing by Lisa Baertlein. Editing by Gerald E McCormick and Robert MacMillan)

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