Hy-Vee plans expansion outside Midwest, introducing stores in three southeastern states and Indiana by 2023

·5 min read

Hy-Vee started as a regional grocery store brand. Soon, the company plans to become a national one.

The West Des Moines-based supermarket chain intends to expand into four new states and build its third distribution center in Nashville, Tennessee, opening more than 20 new stores in the next four years.

The Des Moines Register obtained a video of Hy-Vee CEO Randy Edeker announcing plans to build the Tennessee distribution facility, which will initially service seven new stores in Indiana, Tennessee, Alabama and Kentucky, in 2023. Hy-Vee posted the video on Zipline, the company’s internal communication platform for employees.

A spokesperson with Hy-Vee declined to comment on the expansion.

According to Edeker’s statements in the video, posted Wednesday, Dec. 8, Hy-Vee intends to open two stores in the Nashville metro area, one in Knoxville and one in Memphis, all in Tennessee, with additional stores landing in Huntsville, Alabama; Louisville, Kentucky; and Indianapolis, Indiana.

The new distribution facility in Nashville will be the company's first outside of Iowa, where it has similar facilities in Chariton and Cherokee. Hy-Vee had planned to open its third distribution center in Austin, Minnesota, but put that project on hold as it focused on building more fulfillment centers.

The new facility, Edeker said, will also supply Hy-Vee's stores in southern Missouri.

More: Hy-Vee adds telehealth, medication delivery services nationwide

“This is the growth for the next 25 years for Hy-Vee in this territory,” Edeker said on the video. “If we can build out 50 stores in this market, we estimate that is $6 billion [in sales]. But overnight we’re going to go from a regional company to a national company. As we build our third DC [distribution center] in the Nashville market you will see us turn more into a national presence.”

Edeker said Hy-Vee expects to build at least 21 stores in the four-state region by 2025. According to the video, select Hy-Vee employees will begin relocating to the Nashville region as early as January 2022.

Currently, the company has more than 93,000 employees at more than 285 stores in eight Midwestern states: Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota and Wisconsin.

Competition and future plans

A move to three southeastern states and Indiana would be Hy-Vee’s first venture outside of the Midwest and its first expansion into a new state since 2009, when the company opened in Wisconsin, the same year Edeker was tapped as the company's fourth president. Before that, Hy-Vee hadn’t entered a new state since 1988, when it built a store in Kansas.

“You take a look at this map and you see this massive hub of over 50 cities of over 150,000 that are within five hours of Nashville, Tennessee, and that is the strategy that we are starting to think about,” Edeker said in the video, referencing a map of the southeast region the company is expanding into. “We could open a new distribution facility in Nashville, Tennessee, or that vicinity, and then launch a dozen or so stores over the next two years in that market.”

Edeker said in the video posted for employees that Hy-Vee doesn't currently have any plans to migrate down to Texas, where H-E-B, a San Antonio-based grocery store chain, dominates the market with 340 locations.

"They’re a phenomenal competitor," Edeker said. "There are lots of weak competitors out there that we just don’t need to go poke that bear, so we won’t."

But with the new territory comes competition in the form of customers' brand loyalty and existing, legacy grocery stores.

Moving into the southeastern United States, Hy-Vee will face increased competition from Kroger, a Cincinnati-based supermarket chain with 2,742 stores in 35 states, and Publix Super Market, a Lakeland, Fla.-based chain with 1,294 stores in seven states.

Supermarket News' annual ranking of supermarkets reports Kroger's 2020 sales at $132.5 billion, while the publication says Publix's annual sales in 2020 are $44.86 billion. The publication estimated Hy-Vee's annual sales that same year at $12.15 billion.

Burt Flickinger, managing director of the Strategic Resource Group, a retail consulting firm based in New York, said it's "an interesting time for Hy-Vee to move south given their unbalanced, lack of success in the Minneapolis-St. Paul market."

"They never reached the size and scale in the state of Minnesota that they had hoped for because they just weren't able to compete head-to-head with a high volume of food operators in Minneapolis, most notably Costco and Target," Flickinger said.

Hy-Vee's growth in the state slowed since it launched in the Twin Cities market in 2014. Edeker previously told the Star Tribune that the company hoped the Twin Cities market would become Hy-Vee's largest. Earlier this year, the company opened its first new store there since 2019.

Opening stores, closing others

Hy-Vee's intention to open at least seven new stores by 2023 comes on the heels of its announcement to close four existing locations starting in January.

Two stores will permanently close: The only Iowa location affected is in Cedar Rapids, 279 Collins Road NE on Jan. 9. A Moline, Illinois, location at 750 42nd Ave. Drive will close on Jan. 1.

A Hy-Vee store in Kansas City, Missouri, will transition to a Wall to Wall Wine and Spirits location, and a store in Sioux Falls, South Dakota, will be renovated into a nonretail facility with a bakery area and a pharmacy fulfillment department.

The closures and store transitions will affect around 970 employees.

More: A $3,600 bottle of cognac, vegan wine: Hy-Vee's Wall to Wall Wine & Spirits opens in West Des Moines

"All employees affected will be offered positions with the same pay and benefits across the company’s other stores in each respective market," Hy-Vee's statement announcing the closures said.

Tina Potthoff, a spokesperson for Hy-Vee, said, "unfortunately, the results at these locations have not consistently met our expected levels."

Hannah Rodriguez covers retail for the Register. Reach her at herodriguez@registermedia.com or on Twitter @byherodriguez.

This article originally appeared on Des Moines Register: Hy-Vee expanding to Tennessee, Indiana, Alabama, Kentucky in 2023