Dive Brief:

• An analyst with investment firm Bernstein suggests that Whole Foods should place satellite markets inside Target stores, according to Seeking Alpha.
• The agreement would allow Whole Foods to build brand awareness and access valuable purchase data without building full-size stores. Target, meanwhile, would gain access to high-quality grocery products that would further differentiate it from Wal-Mart, its main competitor.
• Proprietary research shows that 65% of consumers who shop at Whole Foods also shop at Target.

Dive Insight:

At first blush, a store-within-a-store concept involving two competing retailers might seem outlandish. But it’s not entirely unheard of. Years ago, Wal-Mart stores co-located with dollar stores — an arrangement that would never happen today, given dollar stores’ rise to prominence.

The arrangement suggested by Bernstein analyst Brandon Fletcher actually makes a lot of sense. Whole Foods, facing falling store traffic, same-store sales declines and now activist investor Jana Partners breathing down its neck, could use a low-investment way to grow and improve its brand image. Target, which has struggled with its grocery offerings — specifically, fresh departments like produce and meat — could benefit from more high-quality products.

The deal could even give both companies a much-needed boost in the short term. But it struggles to address the larger problems that the two retailers need to fix to stay competitive.

Target’s problems in grocery are partly due to quality issues, but also to merchandising and investment shortcomings. Too many stores stranded produce departments in out-of-the way locations where product languished, unsold. Despite these issues, however, the company seems committed to fixing the issue. It recently hired the former head of Kroger’s Fred Meyer division to lead its grocery, fresh food and beverage division. The retailer’s new store prototype places food in more prominent locations, and mixes grocery in with grab-and-go items.

Target’s determination to handle its grocery problems itself would probably kill any deal with Whole Foods. Still, it’s worth pointing out that the once mighty natural and organic retailer would likely benefit from a low-cost growth strategy similar to this. The move would reinforce its brand strengths with many customers who value its products, and would perhaps allow Whole Foods to test new products and hone in on its top performers. The back-to-basics approach would also please Wall Street investors, as well as Jana Partners.