Twice as Nice

On cold Minnesota days, there may not be anything as warm as a visit to a Lunds & Byerlys supermarket. 

In fact, the 28-store retailer, with units scattered throughout the Twin Cities metropolitan area of Minneapolis and St. Paul (one store is in St. Cloud, Minn.), has developed a reputation for being an oasis for consumers in the region, respected as much for its carpeted floors as its broad selection of locally-produced merchandise, high-end private label assortment and a bevy of well-maintained and popular service departments. 

Now, with a more competitive pricing strategy, instituted about four years ago, firmly in place, Lunds & Byerlys is gaining even more respect and sales—21 consecutive quarters of same-store sales increases, to be precise. It is also picking up traction in the Twin Cities metropolitan area, making a lot of noise in a part of the country known as much for its affluent and educated consumers as it is for an intense battle over grocery market share; a battle that promises to keep heating up over the next few years. 

For those reasons among others, Grocery Headquarters has selected the Edina, Minn.-based company as its 2016 Independent Grocery Retailer of the Year.

“In the last five years we have definitely refined our strategies,” says Russell (Tres) Lund III, the chairman, president and CEO of the privately held retailer. “We think there is nothing more beautiful than rolling a successful strategy forward and spreading the message about what we are doing well. Our goal is to simply keep doing a better job in the future than we did today or yesterday.”

Despite its long, cold winters, where wind chills can reach down to as much as 60 degrees below zero, the Twin Cities, with about 2.7 million residents, is a hot place for grocery store operators. Long-time local operator Cub Foods, owned by Supervalu, holds the largest market share, followed by mass merchandiser behemoths Walmart and Target, which is headquartered in the area. Des Moines, Iowa-based Hy-Vee announced in 2014 that it was aggressively entering the market and has already opened a number of units in the area. 

However, independent Lunds & Byerlys has a solid 10 percent market share as it battles this tough crowd of larger and much better financed retailers. To stay ahead of the competition, the retailer’s officials understand that the stores must stand out. They do so by stressing a sharp combination of upscale merchandising, superior in-store service and competitive pricing. It is enough to get one local competitor to admit that “Lunds & Byerlys is operating on all cylinders and they are tough to keep up with.”

Lund says that monitoring the competition is an ongoing process. “We keep an eye on everyone that sells food in this market and we know what their respective niches are,” he says. “But the focus is on our sales and how do we do a better job merchandising our assortment tomorrow than we do today. That takes discipline. So we keep asking ourselves, what does the consumer expect from us?”

There are a multitude of factors that have the retailer moving in the right direction. Company executives, including Lund, stress the loyalty and professionalism of the retailer’s 4,000 employees and the average retention rate of about 16 to 18 years among store-level workers. Lund, the third generation of his family to run the company, notes that nearly 10 percent of store employees are second, third or fourth generation company workers. 

“We are very proud of our team here and proud of the fact that generations of families have worked here,” he says. “In fact, there is one worker whose great-grandmother worked with my grandfather at a Hove’s store.”

Others, including some competitors, say the key is that Lunds & Byerlys simply carries a more sophisticated assortment of products and has done a great job of getting a certain type of shopper—more educated and wealthier—to pick the retailer as their store of choice.

From its largest to smallest units—stores range in size from 17,000 square feet to 92,000 square feet with an average store of about 50,000 square feet —Lunds & Byerlys clearly places a big emphasis on its service departments. Those include the self-service olive, cheese and salad bars, a sophisticated produce department, and the full-service deli, meat and prepared foods sections. The retailer operates a full-service pharmacy in 15 locations. 

“We think the whole strategy comes down to a few things,” notes Phil Lombardo, the company’s chief marketing and merchandising officer, who joined the retailer in 2002. “It has always been built on creating an environment that stresses extraordinary food, passionate expertise and exceptional service. Then, in 2010, we surveyed about 5,000 of our shoppers and asked them what one thing we could change to make the shopping experience better for them. About 70 percent said they wanted lower prices from us. 

“We listened to them. We developed an entirely different pricing strategy that made us much more competitive on pricing with other retailers. We significantly closed the gap on pricing.”

Lombardo says that Lunds & Byerlys reduced prices on nearly 4,000 items and became much more active on the promotional front as well. The company now has a BOGO special four times a year, a 12 Days of Savings around the Christmas holiday period and daily deals every week featuring discounted prices on such products as rotisserie chickens, flowers, bath tissue, sushi and brownies. 

“It has all been very positive for us,” he notes. “The value perception of our stores has gone up and the quality and service perceptions have also risen.”

Lund, who started with the company in 1985 and became president in 1991, is quick to agree that more competitive pricing did not come at the expense of great service. “We are crystal clear on our positioning in this market,” he says. “Our price/value equation has dramatically improved, but consumers are never going to notice any difference in the way we go to market in regards to service and expertise. We will stay true to that strategy forever.”

High-quality Private Label

A big part of the plan is the company’s unique private label program. Unlike many other retailers that look at private label as simply a way to get more money from national brand equivalents, Lunds & Byerlys sees their program as a way to totally differentiate themselves from the competition. That is done through a private label program—under the Lunds & Byerlys name—that stresses high-quality products and competes with the premium national brands in any given category. 

Started a little more than 10 years ago, Lombardo says the retailer already offers about 3,700 SKUs of its namesake private label brand as well as 800 SKUs of its tier two private label items that are designed to compete as traditional private label items, giving consumers another option. The result is a 20 percent market share for private label in Lunds & Byerlys stores, with about 80 percent of that coming from the premium items. 

“Our goal with our premium private label products is to offer differentiated products with fresh, high-quality ingredients,” Lombardo adds. “Many of our products are developed by our four [research and development] chefs, who create products for our deli, bakery, center store and meat and seafood departments. It all comes to life at store level through our team’s incredible level of merchandising and desire to communicate our products’ attributes with customers.” 

There is so much more to talk about. The retailer’s meat, deli and bakery sections are chock-full of quality merchandise, presented in extremely bright and inviting cases that make the consumer focus more on the quality of the merchandise than its pricing. The candy section, for example, is another area that is presented in a unique fashion that is designed to grab the consumer’s attention. 

Bone Marché, an upscale pet department, featuring a wide selection of pet products, is located in five stores. The department size ranges from 900 to 2,800 square feet. A “bone bar” carries such products as Angus beef to rawhide bones to water buffalo and flavor-filled bones. 

The retailer also operates 10 wine and spirits shops, nine of which are attached to stores and one, in downtown Minneapolis, located just feet away from a store. The shops range from 2,000 to 6,000 square feet and offer a broad selection of beers—including a wide array of locally brewed craft beers—wines and liquor.      

“Yes, our service and perishable departments are very important to us, but the center store is also an important part of our operation, and we want to make that clear to our shoppers,” Lund says. “As a whole, we are trying to make a statement with our center store categories.”

Adds Jim Geisler, the chain’s COO and an employee since 1995: “We are quite proud of our produce and perishables side of the business. And we think that our private label program is well above what everyone else offers in our market. But we are just as proud of how we are reinvigorating the grocery department in our stores. We are trying to punch up the center store and create some excitement there through strong merchandising and our popular Deals of the Season, to name a couple of examples.”

Vendor partners also play a big role in making Lunds & Byerlys stand out. The company has partnered with a number of outside companies, offering services to consumers that are designed to make shopping a bit more convenient. They include US Bank, Caribou Coffee, Bachman’s, a locally-owned and operated floral provider, Hissho Sushi, Big Bowl Chinese Express and Tucci Italian, which offers a range of pastas and Italian entrées. 

How it All Began

Not bad for a company that has quite humble beginnings. Lund’s grandfather, Russell T. Lund, began his grocery career at Hove’s in Minneapolis in 1922. Years later, he became a partner in Hove’s perishables department. Hove’s was renamed Lunds in 1964, and over the next 30 years opened several stores throughout the Twin Cities region. 

In 1997, Lunds, with eight units, acquired Byerly’s, a larger 11-store local retailer that was founded in 1968 and immediately integrated the two formats under one company umbrella: Lund Food Holdings. Over the next 18 years, the company opened new stores and acquired several others. Then on April 30, 2015, the two formats were merged to become one brand, Lunds & Byerlys, a move that Lund says is designed to create a more powerful company in consumers’ eyes. 

“Our unified Lunds & Byerlys brand is another powerful way in which we demonstrate that every one of our stores represents the best of what each brand has always offered,” Lund says.

Future growth, Lund says, will be slow and steady. He foresees as many as five or six new stores over the next five years, though they will focus on the existing market area and place stores in areas not already covered by a Lunds & Byerlys. 

“We are all excited about what the future holds,” he adds. “We are firing on all cylinders. I think my grandfather would be very proud and surprised about what we have accomplished here. That makes me proud too.”