Hy-Vee recently handed off its CEO role: from Randy Edeker, who held the role for over a decade and who will continue on as executive chairman of Hy-Vee’s board of directors, to Jeremy Gosch, former president and chief operating officer at the company.
Supermarket News sat down with both Edeker and Gosch at the recent FMI Midwinter conference in Orlando, Fla. to talk about Hy-Vee’s vision looking ahead.
Supermarket News: Biggest opportunities, challenges facing this industry?
Randy Edeker: We fought through supply chain issues that are still ongoing post-COVID, and then the inflation, and whether you believe we’re in a recession or not a recession, inflation has hit our customer base incredibly hard and it has been hard for us to process all of the rapid increases and track that. So that’s caused some margin suppression and challenges from that standpoint. You have expenses that are just skyrocketing right now, the wage situation across the country, wages are growing dramatically, and then there’s a help shortage on top of it. And so, I mean, all of those things are just pointing to a real struggle for retailers over the next couple years. It’s going to take a few years to work through and correct some of those things.
SN: In your strategy against inflation, what’s been working the most to alleviate some of that pain?
Randy Edeker: Well, I don’t know if there is alleviating the pain right now. You’re taking the customer’s best thoughts in mind because they’re just struggling with the retail. So we’re offering hotter deals, and more deals, and more intense deals to make sure that our customers are still able to flow in and still are picking us. And so I don’t know if there’s any really easing that right now because the costs are just the costs.
SN: Tell us about Hy-Vee’s media retail strategy.
Randy Edeker: We’re definitely moving that direction. We’ve been moving that way for some time. So I think that it’s a definite opportunity for all retailers. I think that you’ve got some bigger entities in the retail markets that have been at it quite a bit longer. If you go out and look at HSTV, Helpful Smiles TV. (Hy-Vee’s online streaming network, launched in 2018) We’ve had shoppable media for six years, seven years already. 43 million views, been out there forever. So it’s definitely something that we’re focused on. We’ve named it, set it aside, have a team working on it every single day to make sure that we’re prepared. And we definitely will be launching what our strategy is in probably March or April.
SN: Delivery, pickup. Consumers want it, but where’s the profit potential? In 2021, Whole Foods switched over to a $9.95 delivery charge, which some strategists say have hurt its delivery numbers. How do you make these services profitable?
Jeremy Gosch: I don’t know if there’s a specific way to make the delivery or the pickup aspect of it ultimately profitable, but you have to make the entire value chain profitable. So for us, it’s looking at micro fulfillment, which is out there to take cost out of the front side of it. And then frankly, it’s converting as many people as you can to pickup, because that’s the lowest cost of the two options. At the end of the day, without some automation on the front side, because the order process is what takes all of the time when you’re doing e-commerce, the pickup piece is rather quick.
I think you’re not going to be successful if you’re going to charge, because as an entrant into the business, I don’t think people are going to pay for the service, especially to pickup. So part of it is, we have an H+ membership, so if you’re an H+ member, then you get some of those delivery perks for free. But the pickup process, I don’t know that you’re ever going to be able to charge for the pickup at your store.
SN: Why is that?
Jeremy Gosch: Oh, I think it’s going to be a customer expectation and a barrier, and they’re not going to pay for it, to be frank. I mean, I think there’s others out there that are doing it that don’t have a charge to it. So I think you’re not going to be able to capture that when it’s a service you’re providing to the customer.
Randy Edeker: There may be a day that you’re able to charge, but I think in the competitive nature of food and grocery right now, that just doesn’t exist. I think there’s also a retail media component of that that can derive some profit for retailers as a part of that that I think will be kind of worked out over time.
SN: The Kroger Albertsons merger. Where are we headed and what are Hy-Vee’s thoughts about the changing grocery landscape which that merger would create?
Randy Edeker: I think that we’re on the cusp of a lot of change in the industry. I think it’s coming. I think you’re going to see mergers and acquisitions happen across this next year, two years. I think that we went through the COVID fog and now we’re coming out of it and people are figuring out what their long-term strategies are going to be. I think [the Kroger, Albertsons merger] is going to cause a lot of pressure on the industry. All the things that we talked about earlier are causing pressure, and I think that’s going to make some people want to move, want to merge, decide what they’re going to do long term with their companies. And so I think you’ll see that over the next few years. I think it’ll paint a different picture two years from now of what the industry looks like. I could be wrong, but that’s what I see coming out there. And I think that Kroger and Albertsons is just the beginning of that.
Jeremy Gosch: So in our industry, you’re seeing scale be rewarded. We’re seeing it in private label right now. It’s about efficiencies and size on the supply chain.
SN: Even dollar stores are really starting to ramp up their share of lower-priced grocery.
Randy Edeker: Well, I think that’s driven back to the customer. Our strategy’s always been trying to follow the lifestyles of the customer and get there before they get there, trying to keep them happy. And I think that we’re seeing shifts in the mindset of the customer.
SN: Growth strategy in 2023. What are you investing in? Where are you placing your bets?
Randy Edeker: We’re moving towards Indiana, Kentucky, and Tennessee. That’s still our strategy. I think we’re going to go there in a different way than people expected us to go — we’ll move into those areas more with an e-commerce strategy first and then physical retail second.
Jeremy Gosch: We’re opening in Janesville, Wisconsin in a couple of weeks. So we’ve opened a number of brick and mortar stores in Wisconsin, and then you’ll see us, to Randy’s point, even with brick and mortar, start working in the southeast with e-commerce coming first, and then we’ll follow it with brick and mortar.
The other piece of it, too, is wall-to-wall wine and spirits. We’re working on building out fast and fresh. We continue to have a strategy around our, I’ll call meal solution stores that are all about fresh meal solutions, solving the customer’s problems for breakfast, lunch, and dinner.
That’s part of our growth strategy, continuing to open those and moving forward, and then our Dollar Fresh Market is another one that we just don’t talk a lot about, but you’ll see us continue to grow and expand in that area too — and that is our ability to get to some communities that, frankly, we can’t get a big Hy-Vee into. But it could be a food desert, it could be underserved areas, it could be areas that we can go to with a smaller format store that is all about value and price. So I mean, it’s really a disruptor in its space.
SN: When you say that’s not what people expect from you, the e-commerce piece first before the brick and mortar, why do you say that?
Randy Edeker: Well, I think because they see us as a traditional grocer, and if you don’t follow it very closely, you don’t realize how long we’ve been in e-commerce and how long we’ve been doing some of these things. And I think sometimes, nationally, we’re in the Midwest, we don’t get a lot of attention out there. And so I think people expect us to go and build a grocery store.
Whenever you’re going to move into a new market, the minute you go and start working on a piece of land, there’s going to be news reports and they’re waiting for a physical store to show up, and it’s just not really not been our strategy. And so we’re really focused on e-commerce first, and that’s where you see Kroger and you see Walmart, and that’s their strategies also.
SN: Anything else from either of you that we should be keeping our eye on from Hy-Vee in 2023?
Randy Edeker: I think the big thing for us is healthcare, we have a lot of diverse healthcare brands. We have Vivid Clear Rx, which is really a new style PBM [pharmacy benefit manager], really, really structured to be the anti-PBM to PBMs. We have Red Box Rx, which is a digital pharmacy that’s outselling every single day. We have our specialty pharmacy, Amber Specialty Pharmacy. Pharmacies is our largest department. Healthcare is going to be huge. We launched a new company this year called Hy-Vee Healthcare LLC, really focused on clinical services and kind of bringing all of the synergies around all of our health brands together.
