MINNEAPOLIS -- Hy-Vee has Minneapolis on its mind.
After entering Minnesota in 1969 and the Twin Cities in 2015, Hy-Vee now has nearly two dozen locations in the state. And in the Minneapolis-St. Paul area, where the chain has six sites, it’s launching a new prototype designed to help it win the market.
The c-store concept, located in the Twin Cities suburb of Lakeville, features 8,700 square feet of fresh produce, prepared meals, a meat market, a drive-thru Starbucks, a “fast version” of its Market Grille in-store restaurant and, of course, gas pumps. Hy-Vee is targeting it at consumers who “live busy lives … and preparing meals at home is maybe a challenge for them,” Phil Hoey, director of real estate for Hy-Vee, told the local city council in July.
“We currently do not have any other Hy-Vee convenience stores like this in our eight-state operating territory,” Tara Deering-Hansen, group vice president of communications for Hy-Vee, West Des Moines, Iowa, told CSP. The company has not said when it plans to open the Lakeville store.
While the employee-owned retailer has 240 supermarkets and 140 c-stores in Iowa, Illinois, Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin, it is in Minneapolis-St. Paul where it plans to truly expand.
“We see this is as being our largest market someday,” Hy-Vee CEO Randy Edeker told the Star Tribune in 2015. “Over the next 10 years, we see steady growth here.”
From a convenience standpoint, the Twin Cities market has long been dominated by chains such as Woodbury, Minn.-based SuperAmerica and Bloomington, Minn.-based Holiday Stationstores—both of which have undergone ownership changes recently. In June, Andeavor, formerly Tesoro Corp., bought SuperAmerica, and Alimentation Couche-Tard signed an agreement in July to acquire Holiday Stationstores.
And although it doesn’t have locations in Minneapolis or St. Paul proper, La Crosse, Wis.-based Kwik Trip has been building its existing presence in the state with nine suburban stores in three years.
This is the first time in years that Minnesota’s $10 billion convenience-store market has been up for grabs, the Star Tribune reported.
From convenient, healthy food options to fresh food, “convenience retailers in Minnesota have really tuned in to what the consumers want in a quick, one-stop setting, and that has sparked a fair amount of innovation,” Bruce Nustad, president of the Minnesota Retailers Association, St. Paul, Minn., told CSP. “We have really seen that evolution here in the state in the last 10 years.”
Kwik Trip aims to attract Minnesotans with its low prices and fresh produce. While the company generally avoids urban locations because of pricey real estate and safety concerns for workers, it’s not ruling out the Minneapolis-St. Paul area.
Kwik Trip spokesman John McHugh told the Star Tribune that the company’s recent agreement to buy the PDQ chain with stores in Madison, Wis., shows Kwik Trip has shed its aversion to the urban core.
“The Twin Cities is a good market for us, but it is also challenging because there is some good competition,” McHugh said. “You have people who are loyal to certain brands up there.”
Nustad agrees: “While there are certainly new stores going up and change happening in the industry, I wouldn’t say the market is at a point where consumers are making drastic brand changes relative to the convenience retailers they visit. There is a lot of loyalty to stores by consumers.”
But some say Hy-Vee’s new store could shake things up and breathe new life into retail.
“This larger-format c-store concept may very well reshape perceptions and expectations around what a c-store offers,” said Jeff Hall, president of the customer-experience agency Second to None, Ann Arbor, Mich., on the retail discussion site Retailwire.com. “Creative retail concepts such as these, meeting customer needs while delivering rich experiential environments, are exactly what is needed to stave off brick-and-mortar as well as online competition.”
And the process of filling the c-store, large or not, should be organic. “You can’t give the customers what you want to give them—you have to give the customers what they want and need,” says Mike Lawshe, president and CEO of retail design and consulting firm Paragon Solutions, Fort Worth, Texas.
A model for Minneapolis retailers can be found at two c-stores in Texas: a Kim’s Convenience Store in Frankston and a Slovacek’s in West. These stores are very different, “but the process and development was the same: finding the needs of a specific site and answering those needs,” says Lawshe.
The need in Frankston was groceries. After Wal-Mart closed its Neighborhood Market there, Kim Cole, owner of Palestine, Texas-based Kim’s Convenience Stores, stepped up, building a 9,760-square-foot convenience store that also houses a full-service meat market, deli, fresh produce and frozen foods.
“For rural America, that’s a really cool answer. Because rural America doesn’t always want the mini Wal-Mart or mini Hy-Vee,” Lawshe says.
Meanwhile, the Slovacek’s (pictured above) was built to accommodate the needs of traveling America.
Although it’s right off the interstate in between Dallas and Austin, Texas, the 17,700-square-foot store is not a truckstop. “There’s no diesel lanes,” says Lawshe. Instead it was designed for the traveling public, with a bakery, meat market, full-service deli and a gift shop “that will knock your eyes out.”
“Again, it’s organic. What are the needs of that demographic? What are the needs of that location? And designing accordingly,” says Lawshe.
If retailers do not follow that equation, they risk repeating the mistakes of United Kingdom-based Tesco’s Fresh & Easy venture in the United States. At 10,000 to 15,000 square feet, the c-stores were too big, and they didn’t sell gasoline. Meanwhile, Americans did not perceive the company’s cold-chain delivery system of prepackaged meals as fresh. All Fresh & Easy stores closed in 2015.
Even Wal-Mart has struggled with this midsize format, shutting down all Wal-Mart Express stores in 2016 to focus on its larger Neighborhood Markets, which average 42,000 square feet. At about 12,000 square feet, the Wal-Mart Express format failed to create a distinct identity for itself and it did not fit into Wal-Mart’s pricing model, which is largely dependent on a scale that is not suitable for smaller formats.
“You’ve got all kinds of people who say, ‘We have a better mousetrap,’ and they come in and try to force the market to frankly do something that the market doesn’t want to do,” Lawshe says.
Luckily for Hy-Vee, it already has a presence—and a grasp on consumer preferences—in the Twin Cities area. The new c-store will be 3 miles from Hy-Vee’s 91,000-square-foot supermarket in Lakeville, which opened in June 2016.
“Hy-Vee is in a great position as it moves toward a more consumer-focused business model,” said Cristian Grossmann, CEO of communication app Beekeeper, San Francisco, on Retailwire.com. “With their already strong presence, especially in the Midwest, this format and extension of the brand’s product line is crucial to continue serving their current markets, as well as expand into large opportunities. … Consumers are not only ready for this new kind of convenience, they are grasping for it.”
And if successful, Hy-Vee’s 8,700-square-foot c-store likely won’t be a one-and-done.
“We are reviewing other potential locations in the Twin Cities and our other markets for this type of concept,” says Deering-Hansen of Hy-Vee.