Why HyVee's New Restaurant Strategy Failed and How It Could Be Salvaged

Updated: Mar 9, 2020

You could learn a lot from HyVee's frustrating foray into the restaurant business. But the lesson probably isn't what you think.

Three years ago, the mid-scale grocery store chain from West Des Moines began adding large, well-appointed restaurants to their grocery stores. (They also began using the word 'marketplace' in an attempt to appeal to the Millennials who were drifting to urban farmers' markets.) "We'll capture an even larger share of the customer's food budget," the HyVee officials were thinking. "It will work because it's so convenient." The problem is nobody goes into the restaurants. Well, not nobody. There are some retirees debating politics and Medicare. Another table of retirees playing cards. A couple nomadic salespeople clicking away on their laptops. But after three years, only 25% of all HyVee shoppers even realize the restaurants exist! And they're only a few feet away from the check out stands!

So what happened and how can this debacle be salvaged?

The key is always how the customer feels about the grocery experience and how they make decisions.

The HyVee officials obviously didn't conduct any focus groups or research interviews with people who were entering the grocery store.

Did they think customers would go to the HyVee restaurants before they began shopping? If you stop and think, you would realize that there are many restaurants that are either better or cheaper if you want to eat before shopping for groceries. Most of them have much smaller parking lots. Some are faster; some have table service.

After reviewing the dismal transaction counts, the HyVee executives probably thought, "We'll make the food offering more upscale and compete with Panera's, Chipotle or Applebees." So the quality went up, to be sure, but so did the prices.

You don't have to be a business guru to realize that a grocery store's raw food costs are much lower than a traditional restaurant's food costs. Nobody wants to pay $10 to o$15 per person for a meal at HyVee, no matter how nice the dining room is.

The strategy was probably more focused on the after-grocery-shopping experience. But this, too, was flawed. Have you ever tried to steer a loaded grocery cart into a restaurant? It's awkward, at best.

Maybe the idea was to steer the filled-up cart out to the car, unload the cart and then go back into the HyVee restaurant...?

That's a lot of walking, but it's possible. But there would have to be some kind of major incentive to go through all that.

This is where hope springs eternal:

We live in an age of data-driven personalization.

Why couldn't the HyVee IT department figure out how to give a grocery shopper who spends $50 a nice discount in the sparsely populated dining room? How tough would it be to thank a loyal shopper who has spent $150 a free meal at a nice restaurant just 100 feet away?

The whole idea could become incredibly positive. A free dessert or drink at the bar could become the spiff for purchasing a new, high margin grocery item such as organic plant-based milk?

This is a no-brainer. But this is just the beginning.

Experiential Branding

Shopping for groceries should be an entertaining and socially interactive experience. It should be a place where people stand around and discuss recipes, nutrition, etc. It should be educational. Think of the last time you invited a small group of people over to cook together in the kitchen and chat? It's loose, fun and a way to co-create.

This is what Millennials really want from grocers, but don't know how to tell them.

Here's a far out idea that would enable HyVee to go beyond transactional enhancements to mood and social relevance.

Imagine if Steve Harvey were in a HyVee grocery store and was empowered to interview people in the restaurant entrance as well as in the aisles, near the bakery, back in the meat department, at the check out areas...creating fun and interviewing local neighborhood experts.

A camera could follow Mr. Harvey all over the restaurant shooting excerpts and capturing crazy and interesting moments as people talk about food and entertaining friends and nutrition and health, overall.

These video excerpts could be quickly edited, placed on YouTube and added to a HyVee app. The content could even be customized for every HyVee store, aisle and customer.

This is the co-creative, participative vibe that Millennials want from grocers. Capture everything on video and place it up, up, up in the cloud for rapid review and download.

The Big Play Goes Beyond Produce

HyVee officials have a wonderful opportunity to step up their game and pay close attention to the next generation of shoppers. But it requires a strategic perspective and the embrace of genuine innovation that is born OUTSIDE the store and INSIDE the hearts of today's elusive, emotile, entertainment-driven customers.

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