Hy-Vee Wins Retail Sustainability Award

Pat Hensley, senior vice president of non-foods, and John Griesenbrock, vice president of produce and HealthMarkets,
accept the Produce Business Retail Sustainability Award at the chain’s Waukee, IA, store.

Hy-Vee, the employee-owned 244-store chain based in Des Moines, IA, and spanning eight Midwestern states, fosters an inexorable personal and shared responsibility pledge: “Take ownership of sustainability and champion it, because it’s the right thing to do.”

This pledge drives Hy-Vee’s winning strategy invariably store by store, says Brett Bremser, executive vice president of perishables. Company veterans John Griesenbrock, vice president of produce and HealthMarkets, and Pat Hensley, senior vice president of non-foods, who oversees corporate sustainability initiatives, agree, while taking on roles in the execution of the company’s mission.

Randy Edeker, chairman and chief executive, who, like many Hy-Vee executives started with the company bagging groceries, cultivates and propels a strong sustainability vision. “His over-arching philosophy and mantra have always been, ‘those who can do good should, not just in one particular area of sustainability, but in all areas of our company.’ He drives us to look for what’s next, to not be satisfied with where we’re at. He is fantastic at igniting a competitive fire in all of us,” says Bremser.

PRODUCE BUSINESS visited middle-America’s Heartland, Hy-Vee’s well-established stomping ground, to present this year’s Retail Sustainability Award, and congratulate the ardent, yet remarkably unpretentious executive team behind the company’s robust produce-focused enterprise. Graciously, the team revealed further insights into the inner-workings of the innovative programs to sustain and boost the industry, preserve the environment and nurture local communities.

We explored smart store operations and harmonizing produce department schemes, and we followed the varied paths of the chain’s multi-pronged food waste diversion program full circle. Epitomizing the concept of 360-degree sustainability, we traversed the sprawling state’s agricultural landscape, leading us from Hy-Vee’s Waukee, IA, store, where produce department employees were culling product, to Eddyville, IA, home to GreenRU, one of Hy-Vee’s important partners in sustainability and the largest industrial composting facility in the United States.

Wearing hardhats and goggles, we trekked out with Hy-Vee and GreenRU executives to get a first-hand education, watching Hy-Vee’s produce waste being composted and bagged for delivery back to the stores to be sold in the lawn and garden department.

In 2016, Hy-Vee diverted 17.8 million pounds of food waste from landfills into its vigorous compost program. Arguably more important, the company also diverted 19 million pounds of edible, but unsaleable products, back to the needy. Hy-Vee was awarded the Governor’s Iowa Environmental Excellence Award in the Waste Management category for its food waste diversion efforts. This premier environmental honor in Iowa recognizes leadership, innovation and education in the protection of the state’s water, land and air.

While always holding the moral high ground in sustainability as an admirable goal, Hensley says he has no illusions. Hy-Vee is operating a business and in the end must consider whether a program is profitable or at least able to achieve a break-even point to be economically viable. Fortunately, many sustainability projects help the environment while cutting costs and bettering the bottom line. Hensley says he is closely watching developments in promising alternative food waste diversion technologies. “We think they’ve got legs, but we haven’t jumped on them yet because they’re not very cost-effective today.”

Culture of Autnomy

Hensley says the chain’s employee-owned structure plays a critical role in the successful execution and continual rejuvenation of sustainability ingenuities. The business model provides a synergistic balance between corporate, chain-wide sustainability directives and supported voluntary programs, giving autonomy and flexibility to individual store directors to enact and customize them.

“As far as autonomy goes, our store directors make their own decisions on their product assortment, on their pricing, their hiring and their scheduling; everything like that is made at the store level,” says Bremser. “This allows our people to better tailor their product mix for their individual market. They can tweak their competitive pricing. If they need to respond to a competitor that’s right across the street, they’re able to do it on a moment’s notice. They don’t have to call corporate and get permission; more importantly, they’re not handcuffed by some corporate pricing structure they can’t manage. It’s a great system. It takes a higher caliber store director to run a Hy-Vee store because of that.”

There is no shortage of expertise on that front, and store directors earned that expertise the old-fashioned way. “The majority came through the Hy-Vee system, and grew up with Hy-Vee,” says Hensley, who himself has been with the company for 39 years. “Many of the executives started out as part-time in college and went through the ranks. We’re all close because everybody came up through the system. There’s a culture that’s been built and there’s plenty of great people behind it.”

Being employee-owned and privately held comes with a source of pride. “It allows all of our people to have a vested interest in the success and long-term viability of Hy-Vee. A lot of the sustainability efforts are more about the future than they are about today,” says Bremser. “As much as we must look out for today’s results, there are some sustainability initiatives that might not be exactly the right thing now, but are the right thing for the future — and that’s where all of our people are always looking.”

Hy-Vee employees (84,000 chain-wide) can receive bonuses based on the results of their individual locations — all the way down to the part-time level. “If their store does well, they can receive a bonus at the end of the quarter, so that’s just another thing to inspire them,” says Bremser.

Being a socially responsible, sustainable company also plays a role in both employee and customer recruitment and loyalty. “When the food waste diversion program started, we didn’t demand anybody get on board — it was a voluntary thing,” says Hensley. “What happened was a complete embrace of the program. We laid out the parameters and provided the contacts. It was up to the store directors to work with the vendors and make the decision if they wanted to be on it, and to what degree,” says Hensley.

“A couple of years ago, we really wanted to scale our food waste and recycling program and get it in place across all our stores, but logistically, there’s obviously a lot of geography there to cover,” says Bremser. “We threw the challenge out to our store directors and they were able to find local vendors that could handle the process for them. Now, over time, our corporate vendor, GreenRU, has grown to the point where it can cover the wide spectrum of stores. We were able to get that program implemented in our stores much faster because of our autonomy.”[See ”Hy-Vee’s Cyclical Food-Waste Operation” on page 42] Hy-Vee has three additional compost operators (Sanimax, Missouri Organic, and Organix) to reach stores out of state. “The autonomy means our store directors have the authority to make the decision on what’s best for their store, and ultimately, what’s going to be best for their community,” says Hensley. “That’s just how Hy-Vee has run for 86 years.”

What makes sense for one store in one location may be untenable in another for myriad reasons, such as differing state regulations and taxes, vendor availability and logistics obstacles for stores in more remote areas. “With our company being as diverse as it is, and autonomous as it is, the stores have the flexibility to donate unsaleable products where they choose. In the bigger cities, you have food pantries; but in a smaller one it might be a senior center or church selected by the store employees,” says Hensley.

Homegrown

According to Griesenbrock, that personal touch carries through to Hy-Vee’s commitment to hyper-localize, locally grown produce. The definition of local and the product’s sourcing proximity to its destination have always been malleable arguments with both retailers and consumers.

Hy-Vee’s Homegrown program logo assures customers the produce they are buying is grown within 200 miles from that store. While that 200-mile distance would seem a reasonable window, considering the expansive geography of the Midwest, for individual Hy-Vee stores, “local” could easily mean walking distance.

During our Waukee, IA, store visit, Chris Abbott, manager of perishables, pointed to organic sweet potatoes grown 6.3 miles away. “Customers look forward each season to our neighborhood farmer’s sweet corn, picked and delivered the same day from 7.2 miles down the road.” It doesn’t get any fresher or more local than that. To complement the mix, Abbott showed us store-made salsas and guacamoles interspersed with specialty varieties procured from local vendors.

Store directors are given autonomy to procure local produce from farmers in their vicinity, if those suppliers meet the company’s food safety criteria. “We do have some pretty good-size suppliers that will handle different areas,” says Bremser. “For example, Kansas City has one farm that supplies all our Kansas City stores, and it’s just north of the Kansas City Metro. So, if that farmer were to produce enough volume, let’s say sweet corn and zucchini, it will cover all those stores,” he says.

“These suppliers are able to have the proper food safety protocols because of their volume, and not have the cost prohibit them. We have many agreements, but those are made by our store directors in the individual markets, not at corporate,”says Bremser, adding, “A store director can manage a few relationships like that across his/her store, where we would have to manage hundreds of them.”

Still, many consumers may not realize just how close these farms are to their store. “We came up with a new Homegrown program about three years ago that more identifies and tells the story of some of our local partners,” says Griesenbrock. “Every year, we do a refresh with signs and other POS materials, cardboard cut-outs and ironman signs; in some cases, we get the growers to visit stores and talk about their product. Local and Homegrown are a big part of our business, and we always want to make it a bigger part, knowing consumers want to support local as much as possible.”

On the other side, local is more sustainable. “There’s the smaller carbon footprint,” says Griesenbrock. “I also think about a lot of our local partners in the Midwest. Mother Nature is contributing to growing that product, and very few are relying on irrigation systems,” he says, pointing to longstanding relationships with some of these companies. “Those are important to us, but that doesn’t mean we’re not always looking for additional partners.”

At the beginning of a new year, the company opens the process of thinking about strategies in each area. “The produce supervisors in those areas reach out to all the stores and get them together for Homegrown meetings, supplemented by a regional Homegrown meeting, which shows how important it is to us,” says Griesenbrock.

Hy-Vee’s organic numbers also are increasing each day, whether it’s in produce or in the chain’s natural and organic HealthMarkets program. “We have local produce partners that are also organic, and our business is steadily increasing with those partners as well,” says Griesenbrock.

Of course, one size doesn’t fit all. Some stores display separate organic sections, while others merchandise organic and conventional produce together. “I guess that’s the beauty of Hy-Vee’s autonomous nature. What a customer would want in Milwaukee isn’t necessarily what one would want in El Dorado, IA, so you’ll see a little bit of both at Hy-Vee,” says Griesenbrock.

On a macro level, a cookie-cutter approach is antithetical to Hy-Vee. “For new store development, we are constantly evaluating who our customers are going to be, because the same store for every neighborhood with the same product mix, the same pricing structure, and the same leadership team simply doesn’t work,” says Hensley.

Produce Business witnessed that philosophy first-hand by visiting Hy-Vee’s first urban lifestyle store concept in downtown Des Moines. The store offers a different footprint and vibe than anything done before. For instance, Click and Collect Lockers at the store’s front entrance give its busy city dwellers 24/7 access, where they can place and pick up their orders, which are delivered by Hy-Vee’s fulfillment center.

A Perfect Fit

Though individual store autonomy may sometimes present challenges to the overall company mission, it is evident that sustainable measures to reduce food waste are universally agreed upon at all 244 stores. From store level to corporate level, Hy-Vee is intent on combatting the “staggering amount of produce that is thrown away or unharvested every year because it doesn’t meet store size and shape standards, or is cosmetically challenged,” says Griesenbrock. “We were looking for the right program for a long time,” he says, to convert consumer cultural mores against imperfect fruits and vegetables, in line with the “ugly produce” movement pioneered in Europe.

This was the impetus for partnering with Robinson Fresh, Eden Prairie, MN, to launch its proactive Misfits branded program last fall, rolling it out chain-wide in a notably full-fledged commitment. Hy-Vee positions the Misfits line, which is vibrantly merchandised and sold at an average 30 percent discount, as part of its overall mission to reduce food waste and further its sustainability identity. “When we kicked it off, the social media traction we received was incredible,” says Hensley.

Since Hy-Vee already had a strong relationship with Robinson Fresh, taking on the Misfits program was a natural transition. Robinson Fresh works with its own network of farmers, which could at times overlap with Hy-Vee’s growers, and then there are situations where there are separate supply chains to procure the Misfits items. “The biggest thing growers need to adhere to is there can be no condition defects — decay and mold cannot be present. Other than that, if the eating experience is the same, and quality of the product is the same as the other items in their mix, then it’s acceptable,” says Craig Arneson, general manager, north region sourcing at CH Robinson, the parent company of Robinson Fresh.

The Misfits program has up to 20 SKUs, but not all are offered at any given time because of seasonality or availability. “We try to give each retailer seven to nine choices each week; they pick the ones that would work for them because of the rotation or display, or pricing they might hit — whatever might work for them based on their department. So, there is a role they can play in customizing it,” says Arneson.

“Robinson Fresh coordinates with our buyers on the number of items, and our team corresponds weekly with the produce departments to ensure they know what items are arriving the next week,” says Griesenbrock. “We have roughly between five to eight items that we offer, and those items and merchandising tactics are adjusted based on availability and from store to store because of our autonomous system.”

“The reason we feel the Mistfits program is most successful is because we started the conversation with Hy-Vee’s purchasing group and quickly got buy-in and support from their executives, who championed the program and got the message down to the stores,” says Arneson. “The program was flawlessly delivered all the way down to each store, so it could be talked about at all levels of the company, just as we talk about it — sustainability, packaging, merchandising and pricing — the key factors in the ability to sell product.”

“We knew Misfits was a program that needed to happen over time so we could have territory meetings, explain the process, why it was important, who needed to be involved and ultimately, how to make this a big success,” says Griesenbrock. “Through the process, we didn’t need to ask the stores to get on board. They knew that sustainability and Hy-Vee’s focus on being a good world partner were important. This wasn’t something we had to convince the stores to do because of our autonomous way. It was an easy sell.

“In fact, it wasn’t a sell. They just wanted to jump right in and be a part of this sustainability piece. That’s the most important part, but frankly, these items are economical; they’re less expensive than some of the alternatives,” he explains.

More Than Misfits

“There are other avenues for less-than-perfect produce than simply having to either eat an ugly fruit or it goes to the dump,” says Hensley. “For instance, if we have a cantaloupe on its last day, we could peel it, clean it, cut it up and put it in the salad bar, and it’s at its peak sweetness. We also know if we sold that and it got to your home and sat in the fridge for a day or two, which would be a typical expectation, it’s not going to make it.”

There is no set “trigger mechanism” for what path a product might take; rather, it is dependent on numerous changing variables akin to each store situation. Hy-Vee’s dedicated in-store, fresh-cut operation is well-positioned to accommodate these scenarios. “There are many items we produce at the store level that fall underneath the produce department, including our fresh-cut fruits and vegetables, fresh-squeezed juices and infused waters with fruit and herbs, and the commodities for our smoothie bars in our latest stores, as well as all the salad bar products in our world,” says Bremser.

“We cull produce every morning,” says Abbott, who oversees perishables at the Waukee, IA, store. “Normally, the salad bar selections are done beforehand. Managers train employees on what product would go to the bin for composting or separated out to trim or cut up for other products in the store. Anything we wouldn’t sell to the consumers, we wouldn’t cut up.”

“We might pull some product off the produce rack and use it in our fresh-cut area, but if it’s past its prime, it goes into the food waste diversion program,” says Hensley. “We don’t want needy people to be offered anything that’s going to be
subpar to what we’re going to offer to the rest of our customers. Even though it’s a donated product, we want it to be high quality. It has our name on it.”

Retailers vying for competitive advantage in a cut-throat industry often guard information close to the vest. However, when it comes to sustainability, executives tend to be transparent. Like the higher calling toward food safety, there’s a tendency to share information for the greater good.

Hy-Vee participates in the Washington, D.C.-based Food Waste Reduction Alliance, an initiative of the Grocery Manufacturers Association, the Food Marketing Institute, and the National Restaurant Association. “We are all headed down the same path,” says Hensley. “It’s a collaborative effort from different angles. Everyone brings their perspective on what they’re doing to reduce food waste. When you hear what goes on and the possibilities, it opens your eyes to a lot of different things.”

Small Steps, Giant Steps

Also falling under the sustainability umbrella, Hy-Vee runs a unique program called One Step, where Hy-Vee offers customers a selection of products, including bagged potatoes, with a portion of the proceeds earmarked for worthy causes. “We are always looking to add to the program with additional products,” says Pat Hensley, senior vice president of non-foods..

Since its inception in 2012, One Step has helped provide more than 300,000 meals to those in need across the United States and 23 water wells to impoverished countries, planted 114,000 trees throughout Hy-Vee’s eight state region, and built 724 community gardens. Some of those gardens are adjacent to Hy-Vee stores, linking social and environmental attributes of sustainability with the attributes of harvesting and consuming healthy, nutritious fresh fruits and vegetables.

The gardens often act as catalysts for Hy-Vee’s in-store registered dietitians, who may incorporate them into fun, educational activities and cooking classes to encourage children and parents to eat more produce, according to Erin Good, registered dietitian at the Waukee, IA, location. As part of Hy-Vee’s sweeping, company-wide, health and wellness campaign, there are designated dietitions for just about every single store.

Hy-Vee also incorporates the NuVal Nutritional Scoring System, which utilizes an algorithm to assign foods a score from 1 to 100 based on its content of more than 30 nutrients. The criteria integrate data from a range of sources, including The Institute of Medicine, the Food and Drug Administration (FDA), USDA National Nutrient Database and World Health Organization. Vitamins, minerals, antioxidants, fiber and other food components associated with health add points to the score, while “negative” nutrients, such as sugar, sodium, trans fat and cholesterol reduce the total score. This in-store messaging complements healthy eating tips spotted throughout the produce department, sometimes on little signs with a photo of the store’s dietitian.

Promoting a healthy lifestyle goes hand-in-hand with Hy-Vee’s sustainability charge. “A grocery store and a grocery company touch so many customers every day,” says Hensley. Championing programs that are good for your community, good for your employees, and good for the store are all part of the sustainability plan and dovetail so completely.”

Driving Forward

Hy-Vee started working with Palo Alto, CA-based Tesla, the major automaker, to provide an electric highway from Lincoln, NE, to Chicago. “We’re building in the infrastructure to encourage our customers to buy electric,” says John Brehm, Hy-Vee’s director of site planning. “Right now, we have six supercharger stations that link Chicago to Lincoln on Interstate 80. There’s a Tesla station at a Hy-Vee store along every stop, except for Council Bluffs, IA. We’re still working on that. There is one in Council Bluffs; it just happens to be owned by a certain gentleman named Warren Buffet.”

Hy-Vee is providing Tesla with the parking stalls. “We’re giving them a license to be on our property for a period, and they have options to renew. Then Tesla builds, owns and operates the supercharger stations in each of the sites we agree to,” says Brehm. The charging stations have their own transformer, power source and meters. “Our customers love it. It takes about 20 to 40 minutes to charge; we call it dwell time, the perfect amount of time to shop,” he says.

“Tesla owners are a tight-knit, diehard group,” says Pat Hensley, senior vice president of non-foods. “They are cutting-edge, innovative type of folks — the kind of people we want shopping in our stores.”