Will Hy-Vee’s grocerant strategy set it apart from rivals?

Source: hy-veemarketgrille.com
May 22, 2017
Denise Leathers

Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.

Although it’s in the grocer’s DNA, Hy-Vee recently redoubled its commitment to prepared foods.

Right now, 111 of its 244 stores have either full-service Market Grille restaurants or limited-service Market Grille Expresses. But the plan is to add several dozen new restaurant locations each year. Reports VP of procurement Matt Dougan, “Statistics show that more people are eating out, so our in-store restaurants give them what they’re looking for.”

Sit-down restaurants are just one option. The grocer, which does business primarily in the Upper Midwest, also offers a wide range of grab-and-go offerings including five new programs that debuted at Hy-Vee stores opened in the Twin Cities last year: a Sweet Shoppe, a Hibachi Asian Grill, a juice and smoothie island, a made-to-order Cocina Mexicana and a Hickory House Comfort Foods area. This year, Dia Pida Italian Street Food and Long Island Deli are being added in new stores.

“We want Hy-Vee to be the best when it comes to offering quality meals that are fresh, customized and convenient,” said Mr. Dougan.

The goal, it seems, is to capture all of consumers’ food dollars, whether they’re preparing a meal at home, eating on the go or dining out. Says Don Stuart, managing partner at Cadent Consulting. “It’s aiming to become consumers’ total food solution.”

The idea has merit. Foodservice is a more attractive target because it’s growing more than 50 percent faster than the supermarket business (4.8 percent versus three percent).

The two businesses also tend to be symbiotic. For example, a restaurant in the store means it’s often busy until 8:00 or 9:00 — even on a Saturday night — as diners wander over after dinner or drinks to pick up a gallon of milk or something for breakfast rather than stopping at a c-store.

In addition, “Hy-Vee recognizes that foodservice can successfully differentiate them against all other competitors selling food,” says Jon Hauptman, senior director at Willard Bishop. “While it’s difficult to differentiate in center store on identical packaged goods, Hy-Vee can stand apart and attract shoppers with a refreshed foodservice program.”

DISCUSSION QUESTIONS: Is the combination of sit-down restaurants and grab-and-go prepared foods a viable positioning strategy for supermarkets? Where do you see the biggest opportunities and challenges for stores pursuing this approach?

"With sit-down dining, the store becomes a destination."
"Here in Minnesota residents often turn up their noses about all things Iowa, but Hy-Vee has become a cult favorite here."
"It will be very interesting to see how restaurants, even quick-serve ones, respond to this wholly appropriate expansion by supermarket operators."

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13 Comments on "Will Hy-Vee’s grocerant strategy set it apart from rivals?"

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Kim Garretson

Here in Minnesota residents often turn up their noses about all things Iowa, but Hy-Vee has become a cult favorite here. Here’s an article about the phenomenon in our hip weekly City Pages.

Scott Norris

Of course, Lunds & Byerly’s have been doing this for generations, but their locations are more core-metro, whereas the new Hy-Vees have mostly hit the outer ring. Lunds as well as Kowalski’s do excellent business in grab-and-go, but even Cub Foods and yes, SuperTarget have significantly upped their game.

Richard J. George, Ph.D.

I’m not certain about the sit-down option. It requires you to perform at restaurant levels which is a different business than operating a supermarket. On the other hand, grab-and-go, meal kits, etc. are certainly in their sweet spot. Restaurants of all types (white table cloth, QSR and LSR) continue to struggle with sluggish growth. Supermarket meal options represent real value, growth and differentiation opportunities.

David Livingston
1 month 29 days ago

Its not a viable position for most supermarkets because most would be terrible at it. Hy-Vee does well because they have already been doing it for a number of years and they are really good at it. When traveling they are my first choice for eating out. The challenge is, if you are not going to be great at it don’t bother. Wegmans, Mariano’s pre-Kroger and Whole Foods seemed to have caught on well too. Hy-Vee is the only supermarket option I’ve ever seen where you might have to wait 20 minutes to get table. That tells a lot.

Gene Detroyer

This is not a new concept. Wegmans has been doing it for years. With sit-down dining, the store becomes a destination. As more and more people order online for basic grocery goods, grocers need a reason to be a destination for customers looking to grab a quick bite (better than fast food), meet friends for coffee, et. al.

Adrian Weidmann

The lines between grocery, retail (wine, liquor) and food service are quickly blurring. Retailers across categories are designing and implementing formats to cater to digitally-empowered shoppers and provide new and valued experiences in a physical environment. Lund’s in Minneapolis had a “grocerant” next to one of its stores here for many years. They closed it some time ago but the reasons are unknown. Deli counters are becoming lunch destinations so why not open the aperture to a restaurant environment?

JJ Kallergis

I totally agree that the lines are blurring and that grocery stores need to do more to surprise and delight their customers. Becoming a grocerant has many advantages. You are establishing the store as more of a destination with chef-driven creations leveraging your store’s assortment and giving the customer an experience that can hit all of her five senses. You can highlight seasonal items, promotional items or even new items on the menu and inspire your customers to try new ingredients before they buy them for use at home. There is also a data opportunity here to measure lift on these items, gauge customer preferences for certain types of cuisine and in turn modify your assortment to better serve your customers in real-time.

With all that being said, you as a grocerant will need to deliver restaurant-quality taste and speed, which is a totally different business model from traditional grocery and will require a large investment in your facilities, staff and marketing budget to leverage some of the many advantages of delivering this blurred-line experience. But clearly in the case of Hy-Vee and Mariano’s, who are both doing it well, it can benefit the top and bottom line.

Tony Orlando

The prepared foods option for supermarkets are a slippery slope and, speaking as someone who runs a 100 percent from-scratch deli, there are many challenges to do it right. It takes commitment, premium quality and a staff of associates who know how to follow a recipe and do it with food safety in mind. I am not a big billion-dollar chain. Anyone who is out there doing it who thinks that it is a huge profit opportunity better be prepared to maintain very high standards. It can never be about price — if it is, don’t even bother doing it. It should stand out on its own and the profits will come over time as word of mouth is number one for growing the business.

We are preparing for Memorial day weekend and it takes time and extra staff to pull it off. I hope everyone has a safe and enjoyable Memorial Day weekend and I’d like to give a shout out to all the members of our military. Thanks for your service.

Ron Margulis
It will be very interesting to see how restaurants, even quick-serve ones, respond to this wholly appropriate expansion by supermarket operators. Sure most restaurants have to-go or delivery menus. And there are a few chains that supplement their to-go offerings with a limited, often novelty, selection of grocery items (think Cracker Barrel). But you rarely see even a c-store style assortment of grocery items at a restaurant. In fact, I’ve only seen a few examples of restaurants with extended retail product merchandising and those I have experienced are mostly in remote locations without other food competition and feature a hodgepodge assortment more reflective of the community served. It’s easy to imagine mid-range restaurants like Applebee’s and TGIF adding a small area of merchandised convenience items including milk, eggs, soda and coffee near the exit. I can also see the quick-serve folks doubling their assortment to include larger pack-size items of desserts, dairy and beverages. One thing is certain, they’re not going to lie down and accept the loss of wallet share to supermarkets when they can fight back. We’ve seen this in the supermarket — drug store battles during the last 25+ years — and now we’re likely to see… Read more »
Ricardo Belmar

Sit-down operations demand a different service model that most supermarkets are not prepared for. Some brands, like Hy-Vee and Wegmans, which have been doing this for some time have mastered the operations. For others, providing upgraded grab-and-go options may be a better path. Both are interesting options for supermarkets to grow their revenue and increase customer loyalty. They’ll need to figure out how this fits with their brand identity to know if it will succeed with their customer base.

Steve Montgomery

Foodservice is one of the best examples of channel blurring. It seems that every retail channel is seeking to get into foodservice or expand their foodservice offer. As others’ comments have indicated, foodservice is not just another category. To be successful at it the retailers have to understand it is a different business and requires a different skill-set to do well.

The grab-and-go approach has a much better chance of success for the majority of supermarkets than does dine-in. The reason why is simple — grab-and-go can fulfill the needs of more customers for more meal occasions. Those grocers that do sit-down dining had better makes sure they do it well. Failure to do so will negatively impact the overall perception of the entire operation.

Craig Sundstrom

I’m having a hard time picturing people saying “Let’s go down to Hy-Vee (or wherever) and have dinner!” Maybe for a snack, or even lunch, but beyond? That having been said, I was in a supermarket in a rural area last week, and was surprised to see they had set up a number of tables as a sort of impromptu dining area; and there were even some people sitting there (though what, if anything they were eating, I didn’t pursue). So maybe this is one of those things I just don’t “get.”

Steven Johnson
1 month 28 days ago
The simple answer is NO. Hy-Vee lacks authenticity within its offerings in the grocerant space. Hy-Vee, like many legacy grocery stores, excelled at being all things for everyone back in the 1970s, 1980s, and 1990s, however, that was a strategy that worked yesterday, not today or tomorrow. Hy-Vee lacks a cohesive grocerant strategy. What they have done is ignore or deny the core values of the grocerant niche and simply thrown a plethora of tactics into an existing footprint and new locations as if grocerant niche products were a new CPG product. We all know how many CPG products don’t work out. Individually, each of Hy-Vee’s tactics has some merits, but when bundled together they do not create an avenue for customer migration, but rather they create a highway without a reason to stop. Hy-Vee will set itself apart as rivals will learn as they stumble and capitulate sales to others. Consumers are not blurring the line between grocerant niche ready-2-eat and heat-N-eat fresh food, so please, retailers — quit trying to make a grocerant offering a CPG product. That CPG mind-set has been an Achilles heel for many trying to regain customer adoption.
"With sit-down dining, the store becomes a destination."
"Here in Minnesota residents often turn up their noses about all things Iowa, but Hy-Vee has become a cult favorite here."
"It will be very interesting to see how restaurants, even quick-serve ones, respond to this wholly appropriate expansion by supermarket operators."

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