Hy-Vee plans to open Twin Cities supermarkets

The major Midwestern supermarket chain Hy-Vee is planning its first foray into the Twin Cities with four to six stores, a move that could shake up the grocery market here.

The Des Moines-based company announced the expansion on Monday, saying it will either build new stores or redevelop existing properties. The company declined to give store location details, but it's currently working on one site in New Hope.

"We've looked at the Twin Cities literally for years off and on," said Randy Edeker, Hy-Vee's CEO. "But we really started looking seriously a year ago."

Employee-owned Hy-Vee has 236 stores in eight states, with the biggest concentration in Iowa. With $8 billion in annual revenue, it's the leading grocery chain in Iowa and also has many stores around Omaha and Kansas City. The company has a major presence in southern Minnesota, with 17 stores in the region.

Expanding in the Twin Cities is a "natural progression," Edeker said. "We definitely don't intend to just come in and build a couple of stores. We see it as a major growth market."

Not that the Twin Cities lacks for grocers: Competition is already fierce. Cub is a long-established leader with Wal-Mart and Target in hot pursuit. Higher-end supermarkets such as Lunds and Byerly's continue to thrive, and Whole Foods is also expanding here.

Still, there's "no question" that Hy-Vee's entrance will stir up the market, said John Dean, a Twin Cities grocery industry consultant. "Hy-Vee is a very good operator."

Each new Hy-Vee store will be approximately 90,000 square feet and entail an investment of $14 million to $16 million. "That's a big store," Dean said, noting that the average Cub Foods outlet is about 70,000 square feet.

Hy-Vee stores have dietitians on staff and feature an 8,000-square-foot space devoted to organic and natural foods. Hy-Vee outlets in the Twin Cities will also feature the company's Market Grill, a sit-down, full-service restaurant that often features bar service.

The company says its Twin Cities expansion will create 400 to 550 jobs.

David Livingston, a Wisconsin-based supermarket consultant, said Cub and Rainbow are most susceptible to market share losses from Hy-Vee's incursion.

"Lunds, Byerly's, Whole Foods or Kowalski's — it's a step down from that," Livingston said of Hy-Vee. "But it's a step up from Cub and Rainbow."

Cub, however, appears to be better off nowadays than it was just more than a year ago. Its parent company, Eden Prairie-based Supervalu, sold off its four largest supermarket chains — all in the eastern and western United States — and Cub is now its largest conventional grocery operation. Thus, it could get more attention from Supervalu.

Rainbow Foods, the traditional No. 2 player in the Twin Cities, has fallen to fourth place in market share, and has closed five of its 32 metro stores in the past 13 months. Two of those properties have a new tenant or planned new tenant.

Edeker said Hy-Vee will look at former Rainbow sites, if it hasn't already. "There's a lot of different sites we are looking at," he said.

The New Hope site is on Xylon Avenue, the former home of a Kmart and Wells Fargo Bank branch. The city of New Hope demolished the vacant buildings last year to develop the property.

While Hy-Vee's initial rollout would entail four to six supermarkets, the company in the long-term would likely be eyeing a presence of many more in order to gain significant market share.

Kansas City could prove an analogous market to the Twin Cities for Hy-Vee. Hy-Vee started there from scratch about 25 years ago, and now has 22 stores in the Kansas City area.

The company will now direct its expansion firepower at the Twin Cities. "Most of our focus will be on the Minneapolis-St. Paul market for the next several years to come," Edeker said.

Mike Hughlett • 612-673-7003