Through a special arrangement, what follows is an excerpt of a current article from Refrigerated & Frozen Foods Retailer magazine, presented here for discussion.
Many reasons can be offered for the continued success of Hy-Vee, including its employee ownership, its knack for staying ahead of trends and just good old-fashioned smart marketing. But one reason the 77-year old Midwest chain stands out is because Hy-Vee store directors have more autonomy than is usual in the supermarket industry.
Basically, according to Ron Taylor, Hy-Vee's senior VP of corporate procurement and logistics, store managers are the CEOs of what goes on inside their four walls. This means they handle not only hiring and the day-to-day routine, but also the pricing and display and many of its own marketing programs. The autonomy, he said, allows for the power of localized marketing to be unleashed.
While Hy-Vee sets a typical planogram for the stores, individual managers can make changes that make the most sense for their own markets. Those changes aren't enough to confuse customers, but they do allow flexibility in things such as category adjacencies and number of facings.
Store managers do have a few limits in setting pricing. Weekly ads are centrally priced, although store managers can set their own prices on three or four key front-page items via plate changes at the printer. Mr. Taylor said this flexibility is essential, given that Hy-Vee operates in so many markets, each with its own competitive factors and pricing models.
In some markets, promotionally hot pricing is vital. Wal-Mart is Hy-Vee's primary competitor in most areas, but there is also stiff competition from strong regional chains: Omaha-based Baker's (now part of Kroger); Associated Grocers, Kansas City (Price Chopper, Hen House and Sun Fresh); and Dahl's, right in Hy-Vee's back yard in Des Moines.
Hy-Vee operates mostly on a hi-lo basis, with a short list of EDLP items. About a year ago, for example, it shifted to EDLP on half-gallon and five-quart ice cream from major vendors. The change was good for both sales and profitability, Mr. Taylor said.
Almost without exception, store managers are homegrown at Hy-Vee, although a few come from the outside, provided they go through the company's training program. Nearly all corporate officers, excluding financial and legal personnel, have come up through the store level.
Former chairman and CEO Ron Pearson (now the chairman emeritus) started out as a stock boy, and Mr. Taylor himself began working at a Hy-Vee store while a senior in high school, sorting bottles and cans. He later worked his way through Northwest Missouri State University with the company as well.
"When I graduated from college, I started looking around for something but decided that what I had at Hy-Vee was better than anything else I'd seen. So I decided to give it a shot as a career, and here I am, 32 years later," he said. "No regrets."
Discussion Questions: What do you think of the autonomy Hy-Vee provides its store managers, even over pricing, displays and marketing? What are the advantages and disadvantages of such as strategy?