Hy-Vee: PG's 2017 Retailer of the Year

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Hy-Vee: PG's 2017 Retailer of the Year

By Jim Dudlicek - 10/05/2017

(Above photo: Hy-Vee CEO Randy Edeker flanked by associates at the retailer's Savage, Minn., store)

Life for traditional grocery retailers seems to get more challenging by the minute. Changing shopper habits, the rise of ecommerce and an increasingly splintered marketplace threaten to make “my grocery store” an outdated expression.

And the commitment of etailing giant Amazon to the grocery channel with its purchase of Whole Foods Market arguably the year’s biggest industry story has observers in a tizzy, with worst-case scenarios tolling the bell for supermarket shopping as we know it.

The Amazon-Whole Foods deal is certainly a game-changer, but it certainly doesn’t mean the demise of the traditional grocer. Quite the contrary Progressive Grocer believes it to be a wake-up call for grocery operators who’ve been up to now resisting innovation and change. To be sure, the industry’s leaders were making great strides in many key areas even before Jeff Bezos decided to don a white apron and direct folks down his endless aisle.

“I think you have to focus on experience and service, and not try to be Amazon,” says Randy Edeker, chairman of the board, president and CEO of West Des Moines, Iowa-based Hy-Vee Inc. “I tell all our folks this: We don't have to be Amazon to the world. We have to be Amazon to Dubuque and to Iowa City. What we own is the relationship right now.”

Hy-Vee, with 245 stores across eight Midwestern states, has proved itself to be an innovator and leader in key areas of importance: different store formats to better serve diverse markets, investment in click-and-collect services, chef-inspired prepared foods, in-store dining, health and wellness, and diversification in products and services all toward the overarching goal of serving consumers at the highest level by delivering customized solutions for every need state.

These are among the reasons PG has selected Hy-Vee as its 2017 Retailer of the Year.

Hy-Vee last received this honor in 2003. Much has changed over the intervening years, and Hy-Vee has demonstrated its ability to become what changing times need it to be.

“We know these people: They want to shop different, and I think that you have to go into it and be willing to learn, and not just play off your assumptions, because a lot of our assumptions have not played out to be true,” Edeker told me during a recent interview with members of the Hy-Vee management team. “People will tell you that people don’t want to buy perishables online. That is not true our top 10 items are perishables. I think you’re going to see a continued growth in ecommerce. I think it’ll be very strong in certain markets, and that’s what we're seeing. Certain markets with certain demographics, we see that is the right spot to build a fulfillment center, and that’s what you’ll see us do."

3 Pillars

Hy-Vee’s business philosophy, handed down through several generations of senior management, is to follow the lifestyles of its customers.

“Just pay attention to the direction they’re heading, and try and get there at the exact right time when they want us to be there,” Edeker says. “That’s easier said than done, and sometimes hard to predict, but I think it just takes a lot of time studying the industry, studying life’s trends and life stages. For all retailers, that’s challenging. We’re obviously in an evolutionary time.”

Hy-Vee is driven by three platforms that grow and sustain the business: service and experience, health and wellness, and culinary excellence and expertise.

“Customer service has to be very customized,” says Donna Tweeten, EVP, chief marketing officer and chief customer officer, offering an example of its evolution. “We have always had this policy that if a customer couldn't find something, and they approached you in the store and said, say, ‘Where is the Velveeta?’ we didn’t just tell them ‘Aisle 4,’ we walked them there. It didn’t matter if you were in the produce section and you had to walk all the way across you took them to where it was.”

Younger consumers, however, “don't want to speak to anybody,” Tweeten notes. ‘But they still want to know where the Velveeta is. So we have to create new technology call it ‘Hy-Vee Siri,’ for lack of a better term ... and the database will pull it up and answer back. That kind of customer service has to be layered on top of still walking the customer to the product. You have to do both. An 85-year-old isn’t going to want to talk into their phone. And in towns where everybody knows everyone, they’re going to want a different personal and customized experience.”

Similarly, the concept of health and wellness has evolved. “It's not just pharmacy anymore it's the dietitians, it's the clinics, it's Amber Pharmaceutical, our specialty pharmacy,” Edeker says. “All play into that whole cycle of health and wellness, then tied back with our chefs to create food that's not only good for you, but tastes good.”

Kristin Williams, SVP and chief health officer, says that Hy-Vee’s customers “see us as a one-stop location where they can not only get their groceries, but they can meet with a dietitian, visit a health clinic, eat a healthy meal and enjoy many other convenient services.”

To achieve these goals, Williams explains, Hy-Vee uses a multipronged approach that includes its retail pharmacy staffs, individualized care, retail dietitians to encourage lifestyle changes, and health clinics at more than 60 stores to provide convenient, affordable access to medical services.

The third pillar, culinary excellence and expertise, is perhaps most visible in Hy-Vee’s latest store launches, which have expanded the chef-driven selections of its full-service Market Grille restaurants into an enhanced perimeter food court that’s setting the bar higher for quality, selection and customization of tastes.

“I think personalization and customization of food is the biggest trend,” Edeker says. “The restaurant culture, the Food Network culture, has driven this knowledge base, and the accessibility of great food in unexpected places is an amazing thing. The expectation here is we’re going to be knowledgeable and we’re going to customize food to exactly the way that I want to eat my food today.”

This trend is further evident in recent statistics showing that, for the first time ever, food purchased away from home has surpassed food consumed at home, leading Hy-Vee as well as other retailers to invest more resources in fresh prepared foods, as well as solutions such as meal kits aimed at making “What’s for dinner?” a simple question for consumers to answer.

“We’re going to continue to work on foodservice,” says Jeremy Gosch, EVP of strategy and chief merchandising officer. “We’re going to continue to dive into food away from home with our restaurants, and expand and open restaurants and get them into stores that they’re not in today. We’ll continue to work on meal solutions for customers, to make it easy to cook and to solve your nighttime meal.”

Hy-Vee partnered with Wahlburgers and Orangetheory to strengthen its commitment to grow customers' access to culinary expertise, health-and-wellness choices and new experiences

Diversification

Hy-Vee’s latest venture, announced not long before this story went to press, encompasses two of its three pillars: the retailer has entered into strategic partnerships with casual dining chain Wahlburgers and fitness concept Orangetheory.

Diversification at Hy-Vee runs deep, from the wide variety of prepared foods and meal solutions, to upscale beauty and clothing concepts at its newest stores, to a variety of store formats in various stages of implementation, all aimed at addressing specific consumer needs and making shoppers’ lives easier.

A year ago, Hy-Vee launched its first F&F clothing boutique, a 3,000-square-foot department in one of its Des Moines-area stores. F&F, a brand of U.K. retailer Tesco, offers men’s, women’s and children’s clothes, contemporary designs in a setting meant to evoke trendy mall stores.

Hy-Vee has been gradually rolling out the F&F concept at additional stores, including in the Twin Cities suburb of Savage, Minn., earlier this year. The Savage store is the first in the Twin Cities to include Hy-Vee’s Basin beauty brand, which offers all-natural bath and beauty products in a 2,200-square-foot department reminiscent of a spa environment.

These destination concepts are Hy-Vee’s way of generating new excitement in center store while delivering on additional consumer needs for convenient shopping.

Of course, food remains the key driver. “Almost everything we do in perishables is about ready-to-eat now. It’s about prepared meals and ready to take home. It’s about chef-inspired meals,” Edeker says. “People have really high expectations of food today. So all those things are driving the evolution of the store that you see, and really causing us to get off into areas like Basin, like F&F, that really drive trips and drive a different feel in the store than we’'ve had in the past.”

Edeker goes on to describe another store, now being built in the Minneapolis suburbs, “that has three on-floor dining spaces with TVs, a nice atmosphere. It is really an international food court. It’s all chef-inspired; it’s all made fresh in front of your eyes; it’s all natural, fresh ingredients; and it’s personalized, customized. It creates this community atmosphere that a family can come in and they can each pick something different that they want for that night. That’s really what we’re trying to create with a lot of our food endeavors out on the floor.”

Hy-Vee also offers Simple Fix, which started as dietitian program to help people prepare healthier meals for specific wellness needs, but has evolved into a chef-driven program that allows folks, from individuals to families, to come in and prepare meals for the week, and make a whole evening of it.

“All these things are about solving what’s for dinner tonight. It’s about having the opportunity for that diverse customer base who wants to do it a different way,” Edeker explains. “This is for folks that want to cook themselves, and cooking tonight might be warming it up. Tomorrow night, it might be actually assembling it, depending on the time I have tonight.”

Again, customization is key.

“A decade ago, you marketed to the masses. Today, everyone wants it personalized,” notes Jay Marshall, EVP and COO. “Kind of like a food court area, everyone wants food personalized and specialized and made just for them, and we have to learn that people want marketing that way. They want it on their phone, and they want it in the mailbox. You have to market to them both ways for it to work, so you just have to figure out which one works for them.”

Twin Cities, Multiple Formats

With stores in diverse areas, from urban centers to rural towns, Hy-Vee has been making a major push into the Twin Cities, where the retailer now has eight stores, with plans for more.

Edeker is pleased with their success to date. “It takes time to grow, but we’ve been thrilled with the results so far. They’ve all opened big; we’ve held our share well, and we’re just building the way we always build, steady and consistent. We’re not trying to take over Minneapolis-St. Paul, we’re trying to just have awesome stores, one at a time. We’ve got eight stores, and there’s others that have 60-70 stores up here.”

What are Hy-Vee’s long-range plans here? “In this market, you could easily have 20 to 25 stores,” he observes. “ But we’re not going to build 10 next year; we just don’t do that. So we’re going to stay slow and steady. I think also there’s a real call to look at the diversification of store size. We’ve really looked at that, and we’ve got some projects in the works, looking at some smaller-format stores.”

Hy-Vee’s new store in downtown Des Moines is a restaurant-centric urban format, part of a multi-use development called Fourth+Court.

Hy-Vee has been a leader in experimenting with store formats. Beyond its standard 95,000-square-foot supermarket, the retailer has convenience-size markets and a smaller urban-format store in downtown Des Moines, and is working on other formats, including a wellness concept store that would include a fitness center, and a click-and-collect pickup store that would include groceries and prepared foods. All of these ideas address personalization of need.

“I was just in our downtown Des Moines store, and people were surprised ‘This seems like way more restaurant than it does [a] store,’” Edeker recounts. “That’s what the people that live there gravitate towards. The groceries still get shopped, but people are shopping for meals. We’re really trying to make sure we’re not just building a one-size-fits-all, that we’re focused on where the right format fits.”

That’s a challenge, considering the diversity of Hy-Vee’s marketing area. “We’ve servicing towns from small-town Iowa to big stores up here in Minneapolis,” notes Gosch. “That gives us some opportunities to really approach the customer completely differently across the breadth of our company.”

Marshall takes up the theme next: “When you set that big 95,000-square-foot building down, you can only put so many of them in a town. We’ve realized there’s pockets that you can't serve. The customer of today can’t go to that big store every time they need groceries, and they’re telling us they’re willing to pick it up. So we put a smaller-footprint store here, and we put a meal store there, or we put a health-focused store there because we might not have a pharmacy close to that area. Those are the things that are creating niche marketing in those areas where they still come to the big store maybe on weekends or twice a month, but they stop at that small store seven times a month for a quick pickup and do click-and-collect. So each one of those has a different way to look at it and a different marketing tool to reach those customers.”

Referring to Hy-Vee’s Savage store, Marshall explains that “[w]e brought a group of Millennials up here to tour this store to tell us what they think. And they said, ‘Absolutely love it, [but] I don’t know that I’d come here more than once a month.’ They said the transaction time is too long here. They want to come and experience Basin, they want to do all of those things, But they want the experience to be quicker. They don’t want to give up all that time.”

Ecommerce

Online shopping is helping to expedite shopping for consumers who don’t have time for the experiential every time they need to stock their cupboards.

“Ecommerce is solving a convenient need for the customer. A lot of our customers are doing both,” Gosch says of Hy-Vee's Aisles Online service. “They’ll continue to complement each other well. We have very few shoppers that are just solely relying on ecommerce right now; they’re really shopping at our stores and online. There’s things people want to shop for and enjoy doing the shopping, and there are some things they just want to have come to their house. We’ll make it easy to get the things that aren’t necessarily fun to shop for, and when you want to come to the store for a treasure hunt or a fresh experience, we have that for them as well.”

Edeker adds, “The growth cycle was a lot faster than we thought at first. It’s kind of plateaued a little bit, so ... I think it’s going to take a fulfillment center to really drive that business forward. It’s too cumbersome and costly to do it in a traditional grocery store. I think if that’s the end game for retailers, they’re going to struggle with it. It has to be much more efficient, and that’s why Amazon is the machine that they are. They have the efficiencies of their program that are there.”

How can traditional retailers best compete against digital upstarts?

“You have be willing to change and adapt yourself, because the same leadership skills five years ago aren’t the same as they are even today,” Edeker counsels. “It is about the show and theater. People want to see the fire of the oven and the flame it’s what makes it special and different. And just think about when you walk through that first aisle, the diversity you see around that food court that’s awesome. Those are the things that get me excited.”

Engaging Consumers and Communities

Hy-Vee takes corporate responsibility seriously and has led initiatives ranging from responsible procurement to sustainability to charitable giving.

In particular, the company has been at the forefront among grocers in promoting physical fitness and healthier living beyond employing retail dietitians in each of its stores to promoting good health and exercise on a grand scale

Among these programs is the youth-focused KidsFit, for which Iowa native and NBA player Harrison Barnes is spokesman. Edeker says that KidsFit “isn’t for the great athlete that stands in the front row, it’s for the little kid ... that stands in the back and never gets picked. I want them to have access to this positive influence that says, look, you can change how you eat, you can change how you exercise, you can change how you get fit, and that will help them forever. I’ve always believed, with a lot of our programs, if you inspire little kids today, they’ll love you tomorrow. You make them better, and I’m proud of that.”

Among Hy-Vee’s philanthropic efforts is digging wells in areas without clean drinking water.

Hy-Vee also started the One Step program, which donates a portion of the proceeds from certain products to planting trees and community gardens, or providing meals and clean drinking water. “We’ve dug 33 wells overseas where people need them,” Edeker notes. “Our marketing folks wanted to market that instantly, but we went over a year not putting a sign up, because I said you can’t go into the world of sustainability and social responsibility with an empty bag. You have to have done something today. So we’ve planted 114,000 trees. We’re giving meals away. We’ve built 700 gardens in cities to help kids get access to fresh produce. We’ve actually done those things.”

In the realm of sustainability, Hy-Vee has led in many areas, but particularly with its sustainable seafood program, Responsible Choice, in which select seafood products bear a blue-and-green logo indicating they were sourced responsibly with minimal damage to the environment and other sea life.

“We needed to make a lot of changes and really commit to it. Some of it was difficult, because you’re walking away from sales,” Tweeten says. “I’m proud of the company’s ongoing efforts. We’ve been acknowledged by Greenpeace for it. I look at how many electric car-charging stations are out in our stores, all the different things that we’ve been doing to create healthier oceans and a healthier planet and what we've been committed to. You’ll only continue to see us have more and more programs that fall into that category.”

These programs have been growing in importance for consumers, who want their grocer to be about more than just selling things. Keeping tabs on the pulse of those consumers requires a multifaceted approach that includes publications, social media, mobile apps, website and blogs.

“We do try to integrate all of them. They’re not just sales tools – they’re brand relationship tools,” Tweeten says. Seasons, Hy-Vee’s food magazine, began with that purpose. “It was really developed to let us understand the customer better, and vice versa,” she notes. “Seasons was one of those magazines that certainly showed that Hy-Vee gets you. We’re going to help you with lifestyle questions and provide solutions. We’re going to give you ideas for how to feed your family on a budget. We’re going to give you ideas on how to make your Thanksgiving table more special, how to wrap your Christmas presents in a much more unique way, how to decorate your house everything.”

Hy-Vee engages consumers through publications, social media, mobile apps, websites and blogs.

While Seasons enters its 11th year with its next Christmas issue, Hy-Vee earlier this year launched a health-and-wellness magazine, Balance. “I believe we are the only grocery retailer, maybe only retailer, to have its own customized health-and-wellness magazine,” Tweeten says. “Balance is really quite special. We’ve got Oprah on the November issue [cover] this was huge. It’s been a great magazine to build relationships with our customers.”

Keeping Up with it All

Shoppers expect grocers to be food authorities, able to answer questions about the farm-to-fork journey in a store’s curated environment.

“There’s a lot more sophistication in our customer base, because they’re so exposed to different flavors and different tastes,” Edeker says. “Culturally, it causes a shift. It calls for us to be the expert, to be able to answer these questions: How do I cook this? Where does this come from? What’s in this? Those are all challenges that we have to meet.”

This has influenced how Hy-Vee and other retailers hire new associates.

“Today, you’re going to go to a culinary school to recruit produce clerks, meat clerks, deli clerks, because the knowledge base is needed in those areas,” Edeker notes. “That’s one of the things we’ve done in the Twin Cities, reach out to the culinary schools to recruit for the bakery and all different aspects of foodservice. You need someone with that skill set to be able to answer the questions today. Grocery is still crucial to us, but it’s not the same as it was even five years ago. That mix is changing within the aisles; the product assortment is changing. There’s a lot of change, even in center store.”

The rapid pace of change is also compelling retailers to strengthen their relationships with trading partners to better deliver on consumer need states.

“I read a book by Steve Case, the founder of AOL, talking about the ‘Third Wave’ and how we’re entering the third wave of the internet and technology,” Edeker continues. “One of the things I learned from that book is how you leverage partnerships and alliances with folks that have a common interest. That’s one of the things you’ve seen us do, and that plays out in the store it plays out in Basin, plays out in our cosmetics department, plays out in F&F clothing, plays out in a hundred different spots in the store, in baby care, working on some things in pet, all through the store. I think it’s important to leverage partnerships with folks that understand the customers also, and then bring that power together to really service the customers in a better way than we ever have before.”

With Amazon fully investing in the grocery business, the way people shop and eat constantly changing, and different channels competing for the same piece of the grocery dollar all affecting an economy coming out of an extended deflationary period, what does Edeker foresee as being the most significant next chapter of the company?

“If you haven’t been on a dead sprint trying to stay ahead of change and make calculated decisions to take risk in spots, you’re going to be in trouble, because it’s hard to catch up today,” he says. “The reality is there are companies and aspects of our business that can be completely disrupted from areas that you’ve never really considered coming at you before. So if you’re behind the ball today, it’s hard to get in front of it. I think you have to be more aggressive about trial and taking risk than you ever have before.

“We’re not in the middle of the evolution of change I think that we’re at the beginning of the evolution of change,” he continues. “Steve Case told me he believes that we’re in the bottom of the first inning, or the top of the second, as it comes to change, not just in food, but in all the aspects of life. I think we’re at the beginning of it, not the end. I think it feels like there’s been this massive amount of change, but I think there’s much more to come.”

Ultimately, Edeker says, you just have to listen to your customers, because if you don’t, “they’ll leave you, and there’s a million other solutions for food and everything. It’s so diverse, ... where you can shop today, [that] you’ve got to listen to them.

“It’s not always easy at first, and some people won’t like it, but you have to follow what the customers want. If you don’t, you’re in danger, you’re not going to make it for a long term. I think today people don’t just stay out of some old sense of loyalty, ... they stay if you do the right thing consistently and you practice what you preach and you’re authentic. It’s not about empty promises or just great marketing. There’s an old saying: ‘The fastest way to kill a bad business is great marketing’ to go out and say you’re everything, and then not deliver it in reality. So we focus on the reality of how do we deliver it, do what’s right and be consistent, and then listen to the customers and move, and they’ll see it through.”

Priorities for Hy-Vee in 2018? Prepared foods. Restaurants. Food courts. Customized meal solutions. Experiential center store concepts. Health and wellness. Private brands. Attracting and keeping younger shoppers.

And elevating the customer experience to new levels, or, as Tweeten says, “We have to create needs and wants before people even realize that they need or want them.”

For Hy-Vee, which as long promised “A helpful smile in every aisle,” that means Helpful Smile 2.0.

“I think passion is important,” Edeker asserts. “We have a whole list of simple words honesty, integrity, caring, sharing, trust, ownership that have driven us for 87 years. That’s still really important to me, that we maintain the culture of who we are and how we got here, because I think once you lose that, you’re in trouble. My goal is to keep driving Hy-Vee forward to make sure that we reach 100 years.”

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