If Hy-Vee has its way, the grocery chain’s first two Twin Cities stores set to open in September will be the beginning of a long-term shake-up of the area’s supermarket business.
Des Moines-based Hy-Vee’s quest is to eventually make Minneapolis-St. Paul its top market by sales volume, bigger than its hometown operations and current No. 1 metro area of Kansas City, Mo.
“We see this is as being our largest market some day,” Hy-Vee CEO Randy Edeker told the Star Tribune in an interview Friday. “Over the next 10 years, we see steady growth here.”
It won’t be easy, and will entail wresting business from others. The grocery business is slow growing but highly competitive in most major metro areas, and the Twin Cities area is no exception. Cub Foods leads the market, with strong competition from Wal-Mart, Target, Lunds & Byerlys and others.
Hy-Vee’s first two supermarkets in New Hope and Oakdale will come online about 18 months after the company announced it would enter the Twin Cities grocery market. Hy-Vee has secured land for two more stores in Lakeville and Brooklyn Park, and those should open in the second half of 2016.
After Hy-Vee opens its first four stores here, the company plans to add four or five supermarkets annually in the Twin Cities, Edeker said. Eagan and Savage are the next target areas.
Edeker
Edeker
    Why does Hy-Vee think it can gain a foothold? “I just think we have a unique enough brand to make it work,” Edeker said.
    Employee-owned Hy-Vee does about $9 billion in annual sales, and has 235 stores in eight states — with 17 in southern Minnesota and its biggest concentration in Iowa. It owns the Des Moines market, is a top player in Omaha and is a leader in Kansas City after Wal-Mart. But given that Kansas City is considerably bigger than Des Moines, it’s Hy-Vee’s largest market by volume.
    Hy-Vee started from scratch in Kansas City about 25 years ago and now has 20 stores there. Essentially, Hy-Vee would like to repeat its success in Kansas City here in the Twin Cities. And since Minneapolis-St. Paul is a larger metro area than Kansas City, it could become Hy-Vee’s biggest market by sales volume.
    Hy-Vee’s new stores in the Twin Cities will be big — 90,000 square feet, including about 5,000 square feet for a restaurant. Large Cub Foods stores are about 70,000 square feet. The New Hope and Oakdale Hy-Vees each cost about $23 million to build. Each will employ 165 full-time workers and about 550 part-time workers, Edeker said.
    “This is a huge investment,” Edeker said about Hy-Vee’s plans for the market. “It’s a big deal for us.”
    Cub Foods, long the Twin Cities market leader, still has top market share here, although the growth of discounters Wal-Mart and Target has eroded it over the past decade. Data from Chain Store Guide show Cub with an almost 18 percent Twin Cities market share at the end of 2014, followed by Wal-Mart and Target at 16.4 and 11.4 percent, respectively.
    Eden Prairie-based Supervalu, Cub’s parent company, cites Nielsen research data giving it a 24.2 market share for the 52 weeks ending June 13.
    Cub, citing Nielsen data, gained 2 percentage points last year after Rainbow Foods exited the market. Rainbow’s owner, Milwaukee-based Roundy’s Inc., gave up on the Twin Cities — where it was losing share — to focus on an expansion in Chicago.
    The Hy-Vee in Oakdale is scheduled to open in September. One will also open in New Hope. Each cost about $23 million.
    The Hy-Vee in Oakdale is scheduled to open in September. One will also open in New Hope. Each cost about $23 million.
    Cub gained the most from Rainbow’s departure. It bought 10 former Rainbow stores — giving Cub more than 60 outlets in the metro area — and likely won former customers of Rainbow supermarkets that were closed. But Cub also has the most to lose from Hy-Vee’s Twin Cities gambit, supermarket analysts say.
    “In general, the company with the most market share is going to be threatened the most,” said David Livingston, a Wisconsin-based supermarket consultant. “And anytime you have a market share leader with mediocre results,” he said referring to Cub, “that’s always an opportunity for a company like Hy-Vee.”
    Livingston pointed to Cub’s declining share before the Rainbow bump and the meager sales growth of Cub’s parent, Supervalu. But Supervalu has been cutting prices at Cub for at least the past year to become more competitive. It’s been remodeling some Twin Cities stores. And it recently broke ground for a Cub in White Bear Lake.
    The threat to Cub by Hy-Vee will depend partly on how close Hy-Vee locations are to existing Cubs, said John Dean, a Twin Cities supermarket consultant. Cub “will be butting heads with Hy-Vee fairly regularly.”
    Hy-Vee and Cub are both what industry analysts call “conventional” supermarkets, as opposed to everyday low-price models like Wal-Mart and Target and more upscale chains like Lunds & Byerlys. Hy-Vee could take share from all of them, analysts say.
    Breaking in a new brand is tough. But Edeker says Hy-Vee already has good name recognition in the Twin Cities because the metro area has a lot of transplants from Iowa and other places with Hy-Vee stores. “When we look at the demographics of Minneapolis-St. Paul, 48 percent know the brand,” he said, citing company studies of consumers.
    Hy-Vee is first focusing on suburban Twin Cities locations, where land is more readily available and easier to obtain.
    But Hy-Vee will also look at the cities of Minneapolis and St. Paul, Edeker said. “It’s not that we don’t have a desire to be in the city, but it’s harder to find space.”