WEST DES MOINES, Iowa -- Hy-Vee Food Stores here will be guided by traditions built over 67 years to see it through the millennium and beyond.
As it approaches $3 billion in annual sales, the company will rely on traditions including employee ownership, manager autonomy, expansion through new-store construction rather than acquisition, and basic Midwest ethic, Ronald D. Pearson, chairman, president and chief executive officer, told SN.
Pearson said the company will buck industry trends toward growth through acquisitions and continue to rely on expansion through new-store construction. "When you acquire stores, you're usually acquiring someone else's problems," he said.
"Most of our growth over the past 67 years has come from building new stores, with only a few acquisitions, and that's the way we like it."
Nor does he anticipate the need for Hy-Vee to move beyond its current seven-state operating area in America's heartland -- though he is a bit more flexible on that point, noting that long-term expansion may not be limited to states contiguous with its current operating area.
Any such growth, however, is likely to be confined to the upper Midwest, which Pearson said adds a large dose of homogeneity to Hy-Vee's corporate culture.
"We all live by certain beliefs that are part of our common culture -- things like honesty, sincerity, integrity, caring, friendliness, sharing, courtesy, ethics and morals. Everything we do is expressed by those words," he said.
"We operate all our stores within a similar culture. It's an upper Midwest culture, and we find very little difference from area to area." It is such rock-solid beliefs that have enabled Hy-Vee to increase profits and expand from its Iowa base to a company operating 167 supermarkets, 26 drug stores, 40 convenience stores, a bank, an advertising agency and a host of distributorships that service its own stores and some of its competitors' stores as well.
According to Pearson, because Hy-Vee is an employee-owned company, with management controlling nearly 90% of its stock and the balance controlled by employees in a profit-sharing trust, "everyone is working on the same team in the same effort, and no one tells us what we ought to be doing.
"And we believe we are on the cutting edge of what customers want, and we'll stack our stores up against anyone else's in the United States."
Operating as it does across a seven-state area of the Midwest puts Hy-Vee in competition with a variety of supermarket retailers, but Pearson said he expects the tradition of store manager autonomy will continue to serve the chain well.
"Each store manager has the autonomy, the authority and the responsibility to operate his stores to compete most effectively in any given marketplace in terms of goods carried, services available and promotions offered," Pearson explained.
"That gives each Hy-Vee store the strength of a single-store proprietor with the economic clout of a chain behind it, and that enables us to compete with a variety of companies and meet the needs of high- and low-income consumers in urban and rural locations."
According to Pearson, Hy-Vee has resolved to move the chain ahead on a number of fronts, including unit growth, technology and merchandising. Plans include the following:
Launching a test of self-scanning front-ends late this year or early next year.
Ongoing testing of its four-month-old frequent-shopper program.
Applying its expertise in home-meal solutions to its convenience store chain.
Adding in-store branches of corporate-owned Midwest Heritage Bank.
Hy-Vee operates its 167 supermarkets within a 350-mile radius of here, with 96 stores in Iowa, nine in west-central Illinois, 18 in northern Missouri (including the Kansas City area), seven along the eastern edge of Kansas, 17 in the eastern half of Nebraska, seven in the eastern part of South Dakota and 13 across the southern portion of Minnesota.
Hy-Vee's sales last year were $2.8 billion, and the company is shooting for "$2.9-billion-plus this year, although we might hit $3 billion," Pearson said.
Stores average more than 50,000 square feet, with the 70 or so units built in the last 10 years each measuring 50,000 to 70,000 square feet as the company has moved exclusively to combination stores, he pointed out.
"We have smaller stores in areas where we've been for years, but we're no longer building stores in rural areas because there are not many people left in those areas -- small towns are getting smaller." Pearson told SN.
Hy-Vee prefers to build combos in cities with a minimum population of 25,000 to 35,000 people, he added.
He said the chain anticipates spending $150 million annually to open 10 new stores, and three or four replacement units a year, "although we could have 15 new stores and five replacements in any given year because we have that kind of latitude in our capital expenditures budget."
This year's budget calls for 12 new or replacement stores, including five replacement units that have already opened since the company's fiscal year began in October.
The chain's next two new stores -- each 70,000 square feet -- will open in Overland Park, Kan., later this month, and Mankato, Minn., in early August. The company will open its largest store -- a 76,700-square-foot unit in Davenport, Iowa -- in late August following completion of a 20,000-square-foot expansion.
Pearson said Hy-Vee is not looking to grow in any particular geographic areas. "We have pretty much saturated Iowa, where we're building only replacement stores," he explained.
"But there are a lot of people in the other six states in which we operate that we're not serving yet, and there's also room for some expansion outside those states."
However, he declined to pinpoint which states are targeted for the majority of the company's long-range growth.
While Hy-Vee eschews supermarket acquisitions, the company is willing to make acquisitions for its drug store chain, Drug Town, which operates 24 freestanding units in Iowa and two recently-acquired locations in Norfolk, Neb.
Hy-Vee acquired the two stores -- called Alexander's -- in early May. According to Pearson, the company is interested in acquiring drugstores "because all you have are checkstands, aisles and a pharmacy, so it's easier to adapt a drug store to your programs without much expense."
Hy-Vee will retain the Alexander's name on one location that's adjacent to a Hy-Vee store, and it will fold the other store, located near one of its supermarkets, into that unit when it's remodeled, Pearson said.
Hy-Vee once operated more than 26 drug stores, he added, "but when we started building combination stores eight or 10 years ago, we began folding the pharmacies into the stores." Besides the 26 freestanding units, Hy-Vee has 67 pharmacy licenses.
According to Pearson, Hy-Vee is considering self-scanning "in the near future. We think our younger customers will adapt to it because of their knowledge of technology and computers, and the efficiency it will provide them in moving people through more quickly."
He said the company contemplates testing self-scanning at two or three stores, probably late this year or early in 1998.
Hy-Vee began testing a frequent-shopper card, called Hy-Value, at 13 stores across all of its geography last March. "But it's too soon to tell much about the program," Pearson said. "So far we're pleased with the test and the information we've gathered, but it's still too soon for anything definitive. We want to gather more information, and that will take a long time -- at least nine months to get a good track record on what's going on."
In the area of home-meal replacement, Pearson said Hy-Vee is ahead of the curve, having offered sit-down restaurants in its stores for more than 15 years.
However, with the new emphasis on HMR, product selection and packaging are continuing to evolve, he said. "We're trying to make meal solutions a little easier."
He said Hy-Vee has no plans to install any franchised food-service operations at its stores. "We like to do it ourselves," he explained.
Pearson said the company is taking some of the HMR techniques from its supermarkets and applying them to its 40 Iowa convenience stores, Heartland Pantry.
Convenience stores are changing, Pearson explained. "They were originally built for the person who wanted to make a quick stop for beer, pop or cigarettes. But with 70% of households with two wage earners, they've become a place to stop to pick up ingredients for a meal."
With that in mind, Hy-Vee is testing heat-and-serve meals at the Heartland Pantry stores, along with fresh fruits and salads.
In terms of re-engineering, Pearson said Hy-Vee is constantly reviewing its operations "to do things better, which is one of the strengths of an employee-owned company." In the last few years, he said, the company has improved distribution logistics and its handling of perishables and general merchandise.
Hy-Vee added 116,000 square feet to its frozen-food, produce and refrigerated perishables facility in early May in Chariton, Iowa, to expand it to 352,000 square feet; it also completed a 50,000-square-foot expansion in April to its meat, bakery and food-service distribution center in Ankeny, Iowa, to bring that facility up to 200,000 square feet, Pearson said.
The company also operates a 275,000-square-foot distribution center for dry groceries and general merchandise in Cherokee, Iowa.
Other subsidiaries include Florist Distributing, Des Moines, Iowa, (with four other locations in Davenport, Iowa.; Omaha, Neb.; and Columbia and Independence, Mo.); Perishable Distributors of Iowa, Ankeny, Iowa, (a facility for meat, seafood, eggs and ice cream separate from its corporate distribution center there); Lomar Distributing, a specialty-food distribution company in Des Moines serving Hy-Vee stores and those of competitors; D&D Salad Co., Omaha, which manufactures salads in bulk and packages; and 50% of Iowa Beverage Manufacturers, Ottumwa, Iowa.
The company also owns an advertising agency here called Meyocks & Priebe, with Hy-Vee accounting for 10% of its volume.
