Standing before a crowd of 600-plus workers on the eve of the grand opening of Hy-Vee’s newest store in Urbandale, Iowa, last month, Randy Edeker, the chain’s new chief executive officer, exhorted the troops to make the store a success.
“The people who work in the stores are the ones with the ideas, who know how things should be done,” he said. “We have a culture of ownership, a culture of autonomy.”
His words encapsulated the essence of West Des Moines, Iowa-based Hy-Vee’s longstanding formula for success — give the store-level workers, especially store managers, a voice in the company’s direction and a stake in their store’s performance, and they will put forth their best effort. Add up the efforts of the company’s 65,000 workers at its 235 supermarkets, and the result is a powerful team all pulling in the same direction.
Hy-Vee’s approach to local autonomy and store-level empowerment has helped it successfully navigate the economic downturn and continue to expand and innovate, earning it the Supermarket News Retail Excellence Award for 2012. The award is sponsored by Unilever.
In his message to employees, Edeker highlighted some of the innovations that the company has made through the years, including the installation of Hy-Vee’s first in-store bakery in 1957; its first pharmacy in 1969; and its first corporate dietitians in 2004.
“Really great innovation happens at the grass roots,” he told the store workers. “Innovation happens when you find a way to do things better.”
The new Urbandale store, Edeker explained, is “all about innovation.”
Also presenting at the pre-opening festivities was Tom Watson, newly promoted to executive vice president of the company’s East Division, who described the new Hy-Vee in Urbandale as Edeker’s “vision to have a store that offered more.”
“Hy-Vee is all of you,” he told the assembled workers. “It’s the people that work in the stores.”
Neil Stern, managing partner at Chicago-based retail consulting firm McMillanDoolittle, agreed.
“At Hy-Vee it starts with their people,” he said. “They really have a unique structure to get a lot of the power to the store manager and to the store level to run their stores. As a result of that, you have a very committed and empowered base of employees at store level who deliver sales and profits for the company.”
At the heart of Hy-Vee’s autonomous culture is its unique store-manager compensation structure. Store managers, or directors, as they are called, forgo a traditional salary and instead work solely for a percentage of the store’s profits.
“It is set up as a very full risk/reward system for the store managers,” Stern said, “It’s really unique to retail. It mimics a franchise system, but it is not a franchise. Other companies have ways to build variable compensation structures, but Hy-Vee’s is the most extreme that I know of.”
While the system might seem risky for store directors, many are extremely successful.
“Hy-Vee is routinely proud of the fact that there can be store managers out there who make more than the president of the company, based on the structure,” said Stern. “It creates unbelievable bench strength — they have years and years of people waiting in line who can’t wait to get into the system.”
That store-level autonomy — combined with innovations in the stores; a talented, veteran management team; and strong communications with consumers about the value of shopping at Hy-Vee during the economic downturn — has helped the chain remain one of the leading regional retailers in the country, he said.
The Urbandale store itself — Hy-Vee’s largest at about 95,000 square feet — reflects some of the latest thinking at the chain in terms of delivering what customers want. It includes Hy-Vee’s first in-store, sit-down restaurant, called Market Fresh Grille, as well as a number of other firsts, many of which involve foodservice, prepared foods and value-added products that tie into cooking.
If the store sounds a little more like a Wegmans or a Giant Eagle Market District store, there’s good reason.
“We traveled around the country looking at the best stores out there when we were planning this store,” Edeker told SN during a preview tour of the store. “We talked a lot to the people at Giant Eagle about Market District.”
Hy-Vee has an ongoing relationship with Giant Eagle, which operates in the Pittsburgh area and does not compete directly with Hy-Vee.
“Hy-Vee has always prided itself on being a step ahead of the market,” Watson, whose region includes the Urbandale store, told SN in an interview at the pre-opening tour. “This store is an evolution for us — it’s what we think the shopper of tomorrow will want.”
Although he said the company would likely not build another store exactly like the Urbandale location, Hy-Vee will consider placing large stores with full-service restaurants and many of the other bells and whistles being debuted at Urbandale in some other locations going forward.
Read more: Hy-Vee Builds a Legacy of Employee Empowerment
“Some of the features here will be moving ahead in other stores, but we’re not going to build every store like this,” he said. “If we go into a market, we might do one store like this, or maybe a few.”
The store in many ways reflects the broader strategies at Hy-Vee, with its two nutritionists, expansive HealthMarket section and innovative foodservice initiatives, which include its first sit-down sushi bar, its first hot oatmeal bar (which becomes a hot soup bar after breakfast) and its first in-line salad bar.
The store is also seeking LEED certification (Leadership in Energy and Environmental Design), which Hy-Vee previously received for a location in Madison, Wis., and which it is seeking for additional stores going forward.
Service Imperative
The new store’s emphasis on high levels of service — it employs nearly 600 people — opens as the entire company is embracing a new strategy centered around customer service.
It is reflected in the company’s new ad campaign, explained Jon Wendel, senior vice president of supply chain and marketing at Hy-Vee. (Wendel becomes executive vice president of operations for Hy-Vee’s West Region effective Oct. 1. See related story here.)
The Urbandale store's innovative foodservice initiatives include Hy-Vee's first sit-down sushi bar.
“We are going back to the true Hy-Vee that built this company for 83 years, and that’s the whole ‘helpful smile in every aisle’ message,” he told SN, a reference to Hy-Vee’s longtime ad slogan.
Hy-Vee has been airing a set of TV commercials featuring individual employees of the chain stating, “I am a helpful smile.” The commercials go on to describe some of the services the chain offers that differentiate it in the market.
After heavy emphasis on the “Red Hot Deals” price/value message that Hy-Vee had been deploying for the last few years during the economic downturn, the change marks a shift in message for Hy-Vee.
“‘Red Hot Deals’ was great in a price-sensitive economy — and I’m not saying the economy has changed that much — but we are putting more energy than ever on service,” Wendel explained.
While historically supermarkets have judged their performance based on metrics such as sales per labor hour, he said Hy-Vee is taking a closer look at other factors that are more difficult to measure.
“I think the new world for Hy-Vee is, ‘What is your customer service level? What is your friendliness level?’ It is an entire scale that’s different from what it was 80 years ago.
“The service level has to be superb; that’s the level I have to strive for now every day. How do we move it up to a service that nobody has ever achieved yet?”
Price, Wendel explained, cannot be a “defining element” at Hy-Vee.
Read more: Hy-Vee Names First Chief Customer Officer
“It’s about what we are going to do at Hy-Vee between health, service and our employees that will define us from the other people,” he said.
“It’s really a way to differentiate,” said Ruth Comer, a Hy-Vee spokeswoman. “We have to be the right price, and that’s a given. We are going to be the right price, and we are going to be competitive, and we are going to have those values, but a lot of people are that.”
In accordance with the new emphasis on service, Hy-Vee has named its first chief customer officer. Paula Correy, who had been senior vice president of the company’s West Division, steps into the role Oct. 1, overseeing training and other initiatives related to customer service.
Social Media
Hy-Vee’s emphasis on customer service is also playing out through its online and social media efforts — an area where Wendel said Hy-Vee is “one of the best.”
Around the start of this year Hy-Vee established a “listening suite” at its headquarters where Hy-Vee monitors everything that’s being said about it on various social media platforms like Twitter and Facebook and responds where appropriate.
The company also has staffers putting information out through social media for its customers, “not to be boastful but to start conversations,” Wendel explained.
“Anyone can do that, but what we’re really good at is listening,” he said. “Social media gives people the ability to talk to you freely and openly and say the things they might have been afraid to say to your face.
“The interesting thing about social media and the web is that customers are using it to look for solutions and answers,” he added. “So we push recipes, and we push solutions, and we are pushing videos. I have tried to grill salmon 14 times, but nobody ever told me you have to soak the plank for five to six hours. So we have a video out there on that. We are going to push the educational information — to show customers a quick way to cook salmon on a grill or how to make a pizza.”
The company has been a leader in online contests as well, including a tie-in with racecar driver Dale Earnhardt Jr.
Hy-Vee is also increasingly active in the mobile technology arena, including an application that will allow customers to order prescriptions.
“You will be able to have a refill by the touch of your finger on your phone, and I think that’s what the generation that’s coming is going to want,” Wendel said. “You will have a mobile app that allows you to type ‘toothpicks,’ and it will give you a map how to get right to the toothpicks.”
Customer service responses to email queries are also handled in-house and operated from 6 a.m. through the evening each day.
“If you send us an email, you will get a response right away,” Wendel said.
The company is not ignoring traditional media, however, and in fact has rolled out an ambitious overhaul of its ad fliers to make them look more like a branding effort for Hy-Vee than as a list of products and prices.
“About six months ago we looked at our ads — we were doing the Red Hot Deals campaign, and we decided to move to more of a ‘design’ ad,” Wendel said.
Read more: Service With a 'SMILE'
“Our ads don’t look like anybody else’s now,” he explained. “We decided not to run 55 million items on a page. We cleaned it up, and we gave solutions, tried to incorporate the brand of our friendly employees in our ads.”
Each ad has a theme — whether it’s a “Mega Meat Sales” or “Tailgate Party” — and is designed almost like a magazine, with professionally shot photos and artistic use of “white space” on the pages.
“You not only know what’s on sale at Hy-Vee, but you also get a sense of what Hy-Vee is as a brand,” said Comer. “You get a feeling for the store where you are going to buy these products.”
The company’s ad costs “went up significantly” as a result of the switch to the new format, Wendel said, although he said the move has “definitely” been worthwhile.
Private-Label Changes
Hy-Vee has also revitalized its private-label program with new package designs and new products.
Jay Marshall, who was recently named senior vice president of marketing and merchandising, effective Oct. 1, had spearheaded the private-label effort in his current post as vice president of Center Store.
The company historically had a wide range of looks for the packaging of its 4,500 private-label items, Marshall explained, but has streamlined that down to about 40 different designs.
“It used to be that as you walked down our aisles, the look of our Hy-Vee product changed from category to category,” he told SN. “We think that’s important to do in some areas, but at the same time we also had too many looks going on.
“So now, in the baking category, for example, all of the baking products look the same, so customers will be able to pick those products out easier.”
The company decided to leave some differences in place to distinguish between categories, however.
“We also decided not to go with a uniform look across all of our brands, because a baking aisle does look different than a pizza aisle or a dairy aisle,” Marshall explained.
The change has helped customers find the private-label items more easily, he said.
Hy-Vee is a member of private-label cooperative Topco Associates, Skokie, Ill., and leverages that company’s resources extensively for procurement and other private-label initiatives, Marshall noted.
Among the new private-label products the company has introduced recently are four items under the “One Step” brand, from which a portion of the profits are donated to community and global initiatives. The products, launched in February, include bottled water, cereal, paper towels and russet potatoes, which support projects related to, respectively, digging wells, hunger relief, reforesting and community gardens.
In addition, Hy-Vee has rolled out new private-label beer and wine lines. The wines — priced at $3, $6 and $9 and promoted with the tag line “Always a wine for 3, 6 or 9” — have been well received, Marshall said.
Comer noted that Hy-Vee also has been training its employees more extensively on wine, beer and spirits to improve service levels in the alcoholic beverage category.
Many Hy-Vee stores have wine clubs where customers can sample offerings, and more and more are adding craft beer clubs as well, Comer said.
This spring Hy-Vee launched its own craft beer line, made by a local brewer in Wisconsin. The Baraboo brand includes three year-round varieties — a wheat beer, a lager and an IPA (India pale ale), with a fourth, rotating seasonal offering. The first of those, called Bonfire, is set to debut this fall.
“That beer line is doing unbelievably well,” Marshall said.
Hy-Vee is committed to remaining on the leading edge with its private-label lines, with both packaging and new products, he said.
“A lot of our thought process now is about how we can use more recycled packaging, and how do we use less materials to reduce the packaging itself,” Marshall explained. “We are pressing our manufacturers to think about that. Any time they bring us a product, we want them to make sure it is acceptable in the consumers’ world — with the type of packaging that consumers want.”
Hy-Vee is also thinking more about the functionality of its product packaging, in terms of what makes the most sense for consumers. For example, whether or not a product will be opened and closed repeatedly, and how the consumer will recycle the packaging when they are done with it.
Read more: Autonomy as an Asset
Currently all Hy-Vee cereal products use recycled paper cardboard, and most of its paper products are packaged in recycled paperboard, Marshall said.
“We’re also trying to work with products that are biodegradable so they won’t stay in the landfill forever,” he added.
In terms of new products, Hy-Vee is also trying to stay on top of customer wants and needs — launching products in response to customer demand, rather than waiting for branded manufacturers to take the lead, he said.
“If there’s something the customer wants and needs that the brands don’t have, we’ll still bring it to market,” he said. “We are trying to get out there first if we can.”
Sports and Nutrition
One of the distinguishing features of Hy-Vee has long been its emphasis on wellness, and it integrates that with its sponsorships of sports and athletics. Its Hy-Vee Triathlon, the sixth incarnation of which was scheduled for Sept. 2 in Des Moines, is known globally.
“Every year we have the best in the world compete here in Des Moines for that event,” Wendel said.
In addition, the Hy-Vee Triathlon has spawned an offshoot called Iron Kids, which promotes fitness among children.
Hy-Vee’s focus on health and its well-known in-store dietitian program began under Ron Pearson and continued under Ric Jurgens, Hy-Vee’s two previous CEOs, Wendel explained.
“It started with three dietitians on the corporate staff, and the stores witnessed what we were doing, and one by one would add dietitians,” he said. “And every new store we opened we put a HealthMarket section in, and now have more than 195 dietitians and nutritionists.
The HealthMarket sections, he said, have had “double-digit sales growth since the very beginning.”
“Ron and Ric were right on target with this — the new generation is more concerned about health. We think about it, we worry about it, and we are more proactive about health than any generation ever before us.”
Read more: Service With a 'SMILE'
Hy-Vee was also one of the first chains to roll out the NuVal shelf-labeling nutritional rating system, and has long involved its pharmacies in its whole-health approach.
“In the whole area of wellness, it’s about how well you can bring all the assets you have to bear,” said Stern of McMillanDoolittle. “It’s pharmacy, HBC, it’s the nutritionists in-store, it’s the early adoption of NuVal. All these things have a cumulative effect on wellness in the store.”
Hy-Vee seeks to promote its wellness image not only with its triathlon sponsorship, but with other sports tie-ns throughout its operating area, including tie-ins with Olympic athletes like gymnast Shawn Johnson, a 2008 gold medalist.
The chain also sponsors the Kansas City Royals baseball team and the Kansas City Chiefs of the National Football League.
“In our eight states, we virtually have every college signed up [for sports-related tie-ins] as a sponsor or to work with,” Wendel said. “I don’t know of any other supermarket that has the connection that we have with sports.”
Strong Value Message
Stern of McMillanDoolittle also noted that Hy-Vee has been effective at helping customers get the most for their money during the economic downturn.
“What they’ve done a particularly good job with is using their website and communicating with the consumer how to get value from the store,” he said. “They really did a good job telling people how to shop at a Hy-Vee, how to put together economical lunches, how to put together economical dinners.
“That was very powerful, and that was one of the things that got them through the recession.”
He also noted the company’s “outside the box” thinking with regards to marketing tie-ins and promotions, such as the effort with chef Curtis Stone to promote meat products.
“It’s that very powerful store base that they have, in concert with innovation, that have made them successful,” he said.
He said the company seems to overcome the challenges inherent in a decentralized structure with “very strong communications.”
In fact, the company meets with its store directors regularly to share insights and to move forward democratically on new initiatives.
Read more: Hy-Vee Builds a Legacy of Employee Empowerment
The company’s success can be seen in its ability to grow sales and market share consistently despite the growth of competitors like Wal-Mart Stores and Target Corp..
“Price is obviously a pretty powerful lever — it’s gotten Wal-Mart where they are — but the key is, can the customer defend why they shop where they do?” said Stern of McMillanDoolittle. “They have to be able to come home and tell their family why they are shopping at Hy-Vee vs. Wal-Mart, and I think they can make a pretty long list about why they would do that.”
Although Hy-Vee has been continuing to add a handful of stores each year, Stern said he expects the company to remain cautious in its growth. Some in the industry have speculated that Hy-Vee might be interested in acquiring some of Supervalu’s retail assets, for example, but Stern said be believes Hy-Vee will not make any “rash” moves.
“It’s not part of their culture,” he said.
About the Award
SN has named West Des Moines, Iowa-based Hy-Vee the winner of its 2012 Retail Excellence Award, based on its strong sales performance and ongoing innovation during the economic downturn, as reflected in its holistic health-and-wellness initiatives and its efforts around foodservice and other offerings. The annual award, now in its 10th year, recognizes a retailer that demonstrates innovative strategies that set it apart from the competition, with a deep understanding of its customer base and a positive impact on the food-retailing industry. This is the second time Hy-Vee has won the award. It previously won in 2006. Other past winners were H.E. Butt Grocery Co. in 2003; Kroger Co. in 2004 and again in 2008; Hannaford Bros. in 2005; Safeway in 2007; Stop & Shop and Giant-Landover in 2009; Publix Super Markets in 2010; and ShopRite and Wakefern Food Corp. in 2011. The selection of Hy-Vee was made by SN editors after consulting with industry analysts and other observers.
SPONSORED BY UNILEVER
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