Hy-Vee Maintains an Aggressive Growth Pace

MARK HAMSTRA

Even as Ric Jurgens seeks to guide Food Marketing Institute into new territory as its new chairman, he also is guiding Hy-Vee's aggressive expansion plans.

The West Des Moines, Iowa-based chain, which has 225 stores in seven Midwestern states, is planning to open its first store in Wisconsin later this year. The 91,718-square-foot store, slated for an October or November debut in Madison, will also be the company's first LEED-certified (Leadership in Energy and Environmental Design) supermarket.

“It will be our first attempt at creating an even stronger environmental store, and we hope that it can become the model for our future growth,” Jurgens, the president and chief executive officer of Hy-Vee and incoming FMI chairman, told SN.

In fact, a second supermarket that is in the design stages, also in Madison, is being planned as a LEED-certified store as well.

“We are very excited to be opening there,” Jurgens told SN. “We have done very well in college towns and in capital cities, and Madison qualifies as both.” (Madison is the home of the University of Wisconsin.)

The stores are part of a robust expansion plan at the employee-owned chain, which expects to invest about $200 million in new stores and remodels in the current fiscal year. Despite the economic downturn, Jurgens said Hy-Vee, which generated $6.2 billion in sales last year, is committed to keeping up an aggressive pace of growth.

The company plans to build five new, ground-up stores, plus five relocated stores that will replace existing locations. In addition, it plans to complete eight major remodels.

“We have a five-year plan that we are trying to stick to as closely as possible,” he said. “We are going to spend quite a bit of money building new stores and replacing old stores, and we anticipate doing that for the next four years with the same degree of intensity that we have been for the last couple of years. We don't believe we should stop investing in our stores, facilities or employees just because the economy is challenging to say the least.

“We really feel it is an opportune time to become even stronger, so that when the economy rebounds, we are in as good a position as when we went into it, or even better.”

Hy-Vee, which has an “autonomous” model for store development in which store managers share in the profits of the locations they run, also prefers to build its stores from the ground up rather than expand through acquisition, Jurgens noted.

The exception to that rule is with independent pharmacies, which Hy-Vee does actively seek out as buyout targets.

“We are on a regular basis talking to local pharmacies, and have had dozens of mergers over the last few years, and will continue to do that as long as it makes sense to the local pharmacists and the local business,” he said. “It's a good marriage: They are looking for a succession plan for their business, and we are looking to grow our pharmacy business. That has been a very good strategy for us, and one which we will continue to pursue.”

However, he pointed out that despite speculation by some industry observers that Hy-Vee could be in the market for acquisitions, it is not seeking to buy other supermarkets at this time.

“We do not have any other chains or stores on our radar at this point,” Jurgens said. “Our general growth plan is organic as opposed to acquisition. As opportunities come along, we take a look at them, but we are predisposed to want to build our own stores from the ground up.”

New Format

In addition to its expansion into new territory, Hy-Vee also debuted a new format last year — a 27,000-square-foot Heartland Pantry in Lincoln, Wis., that is the company's own unique twist on the small-format stores that more traditional operators have been trying on for size.

The store is performing “about where we expected it to be,” said Jurgens, although he pointed out that expectations were tempered by the fact that the company opened two new, 80,000-square-foot Hy-Vee stores, each two miles from the Heartland Pantry, at about the same time.

“We gave this store about the most difficult test we possibly could find,” Jurgens quipped.

The Heartland Pantry's edited selection features an emphasis on private label and limited fresh offerings, although Jurgens noted that it has “all the basics” in terms of fresh offerings.

Since there are no service departments in the store, labor needs are also much less than in a traditional Hy-Vee, he said.

The company envisions the store as a prototype for site-specific needs.

“We do not have specific growth plans for this format,” Jurgens explained. “But from time to time there are pockets of a community where we find it difficult to fit a traditional Hy-Vee, and they need a grocer, and we want to be that grocer for them. This could fit that bill.

“Additionally, there are smaller communities that we would like to be able to provide a Hy-Vee, but there just aren't enough people to support a traditional Hy-Vee store,” he added. “Heartland Pantry may give us an opportunity to increase our reach.”

Interestingly, some of what the company has learned from the first several months of operating the Heartland Pantry store has nothing to do with the edited assortment of SKUs, but rather the approach to its employees.

Part of the concept of the Heartland Pantry operation includes a more worker-friendly approach in which store-level employees can wear T-shirts or sweatshirts of various colors and khaki pants, creating a more casual vibe that Jurgens said might be adopted by employees at other traditional Hy-Vee locations. Currently, employees at typical Hy-Vee stores wear either shirts and ties or a uniform blue shirt.

In addition, workers at the Heartland Pantry also can make use of the Wii electronic game player in the break room.

Localization

Hy-Vee's concept of manager autonomy also contributes to store development and design, Jurgens pointed out. One store that is undergoing a $5 million remodeling in Rochester, Minn., for example, has been expanded by 15,000 square feet and fitted with several upscale flourishes, such as an expanded in-store dining area, space for cooking classes and what one local paper described as the longest meat counter in the Hy-Vee chain.

“One of the things that separates Hy-Vee is the autonomy that we have with our store directors. In this case we took the notion of the intimate knowledge of the community that our store directors have and applied it to the design,” Jurgens explained. “This will be somewhat different than any other Hy-Vee, and that happens from time to time based on the individual market.”

He noted that the store “is a bit of an outlier” at Hy-Vee in that it was acquired from another operator that used a slightly different layout scheme than most Hy-Vee locations. It is located in a relatively upscale area serving the Mayo Clinic.