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INTERVIEW: Midwest Retail Giant Hy-Vee Prospers Despite Downturn By Thinking, Acting Locally

October 14, 2011

Sales of beverage alcohol at the 245-unit Hy-Vee Inc. supermarket chain throughout the Midwest approached $500 million at the end of its fiscal year on September 30, according to Jay Wilson, vice president of wine & spirits. Total sales at the employee-owned chain were at $7 billion for the period. Hy-Vee is opening 3 new stores this year, and will have 248 units in the following eight states by year-end: Iowa, Nebraska, South Dakota, Minnesota, Wisconsin, Illinois, Missouri and Kansas. Its beverage alcohol departments range from 6,000 square feet down to a single 40-foot aisle. Wine and spirits each account for 30% of sales, with beer at 40%. The chain has made a commitment to educating its sales staff and has become a destination for wine, spirits and beer drinkers seeking selection and good value. So far, over 350 employees have received certification recognized by The Society of Wine Educators. Shanken News Daily recently spoke with Jay Wilson about trends in his markets.

SND: Hy-Vee’s decentralized management system seems to run counter to the industry’s consolidation trend. Why is it so successful for you, and do you think it can continue as the retail tier becomes even more consolidated?

Wilson: I can assure you that it will continue for the simple reason that it works. We give the decision making power to the store managers so they can react to the market more quickly than if they had to wait for a decision to come down from the head office.

SND: But what about the importance of scale for buying clout?

Wilson: Every market is different, and so are the beverage alcohol laws in every state. I’m in Missouri right now and there are no multiple case buys, per se. It’s a set price for everybody in the market, no matter the quantity you buy.

SND: That isn’t the case in all the states you operate in?

Wilson: No it’s not. But if a company comes in and says, if you buy a thousand cases we’re going to give you a discount, then that store can make that purchase and be sure they have places in their stores for it.

SND: Who is your toughest competitor?

Wilson: It varies from market to market, because one market might have a big independent while another might have a Wal-Mart, Costco or another grocery chain.

SND: How has the slow economy of the past few years affected your business?

Wilson: While the on-premise accounts have been hurt, people are still buying alcoholic beverages to take home. So they’re coming to us instead of going out.

SND: When Market Watch interviewed you in 2008, beverage alcohol sales at Hy-Vee were $350 million. How have you done in the years since?

Wilson: We just finished our fiscal year on September 30, and we’re very close to half a billion dollars in beverage alcohol sales.

SND: How do you account for that growth? What’s driving it?

Wilson: Craft beer is up 35% and we have really embraced this market. We’re putting 44 feet of nothing but craft in an open-air cold case. We’ve also got some big growth categories in spirits. Vodka is the leading category for us, while Irish whiskey is showing about a 45% trend up over the last three years for us. Additionally, rum is a very big and growing category for us.

SND: Are you seeing any return to super-premium spirits?

Wilson: We’re seeing people going back to them. And there are some people who never left them. But we’re definitely seeing solid growth there.

SND: What about wine sales?

Wilson: As far as wine goes, in the Midwest, we’re in the sweet belt. Moscatos are just through the roof, no matter where they’re from—California, Australia, Italy. Red blends are big for us, and so are Malbecs from Argentina. This year we just kicked off our private label/control label business with a new program that’s been going really well for us since May.

SND: You had never been in the private label business before?

Wilson: We were in it years ago, we got out of it, and now we’re back in it again.

SND: Is that for wine and spirits?

Wilson: Just for wine right now.

SND: How many different private labels do you have?

Wilson: Currently we’re at five. Our program is called “Always a Wine for $3, $6 and $9.” So, we’ve got a $3 line, a $6 line and a $9 line. Our $3 line is all California. Our $6 is a global brand that is sourced from all over the world—California, Spain, Chile, France and Italy. And then in the $9 category, we’ve got a California line, an Argentine line and an Italian line.

SND: How did you select the product?

Wilson: It took me about a year to select them. We laid the groundwork and then went to look for product that we could put in at those price points. Obviously, with private labels, we needed to achieve a good margin. I’m working with two companies right now—The Wine Group and Prestige Wine Group—and they’re doing a phenomenal job.

SND: How do you communicate with your customers? Do you do it through traditional means like print advertising? Social media?

Wilson: We’re doing some social media projects, but most of it is still print advertising. We also advertise on our Hy-Vee.com website. We’re out there as much as we can be.

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