Still Smiling: Hy-Vee Wins Retail Excellence Award

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.