Hy-Vee rescuing struggling retail sites in the Twin Cities

Jean Pieri/Pioneer Press via AP In this Dec. 6, 2018, photo, sShoppers leave a Hy-Vee supermarket in Cottage Grove, Minnesota. Gateway Mall in Cottage Grove was empty for many years after Home Depot and Rainbow Foods closed.

Gateway North in Cottage Grove looked like a retail hospice, where businesses would be made comfortable before they passed away.

Over 25 years, Kirit Bhakta quietly watched them die – Kmart, Home Depot, Rainbow Foods and several smaller stores.

“That whole mall looked dead,” Bhakta, owner of the nearby Wakota Inn & Suites, told the Pioneer Press .

But the neighborhood – and others like it in the east metro – has found an unlikely savior. As Hy-Vee, a supermarket chain from Iowa, floods the Twin Cities with new stores, it seems to prefer some of the most troubled locations.

In city after city, officials have been delighted with the chain’s ability to repair the civic eyesores they have tried to fix for years.

The stores produce a halo effect – a growth zone stretching for blocks. Because of the store-locating strategy, Hy-Vee is generating more economic impact than the estimated $390 million for 15 stores it has built or planned.

It also generates goodwill.

“I get a sense of physical excitement from these areas. People seem to love this retailer,” said retail expert Hye-Young Kim, director of the Center for Retail Design and Innovation at the University of Minnesota.

Hy-Vee’s strategy is unique.

When other grocery chains expand, they seek prime locations in thriving shopping areas. Woodbury, for example, is home to 10 supermarkets in booming commercial areas.

But when Hy-Vee came to the metro area 2015, it deliberately ignored Woodbury, according to Oakdale community development director Bob Streetar.

He said Hy-Vee officials explained their strategy. “They wanted a one-off site, maybe in an area that was struggling,” he said.

“The sites they pick are maybe not the best, but they are places that maybe could use an injection of activity.”

That’s what Oakdale had. The Oakdale Center mall at Interstate 694 and 10th Street had been deteriorating since about 2000. The city bought the site in 2012, and cleaned it up – but could not attract an anchor tenant.

Then came Hy-Vee. The company built a $27 million supermarket and gas station. It hired 683 employees, including 140 full-timers.

Seemingly overnight, the whole area sprang back to life.

In the ailing Bergen Plaza across the street, Cub Foods moved into a former Kmart, opening a store just as modern and user-friendly as Hy-Vee. That had a spin-off effect — as businesses including the Big Thrill Factory moved in.

“Without Hy-Vee, we could have cluttered up the mall with a variety of uses,” Streetar said. Or it would have remained vacant.

Hy-Vee officials wouldn’t comment for this article. But one expert in the retail-food industry said the company is pursuing a strategy to ingratiate itself.

The University of Minnesota’s Kim said that one way Hy-Vee makes friends — quickly — is to solve long-standing development problems.

She said retailers nationwide are grappling with their brick-and-mortar stores being victimized by the onslaught of online shopping. “How can we repurpose these abandoned spaces?” she said.

“Hy-Vee wants to be a pioneer in this area. I think that an employee-owned company might have more of a socially responsible component.”

Of course, Hy-Vee is a business, and needs to make a profit.

It saves money by buying the cheaper one-off locations. And civic goodwill can translate into real dollars, when Hy-Vee gets city subsidies or help with related costs: $500,000 from Cottage Grove, $4 million from Oakdale and $1.6 million in West St. Paul.

Not every new business gets a hero’s welcome.

When one supermarket replaces another, for example, there is no net gain in employment or spending. When Rainbow Foods closed its 28-store chain in 2014, competitors bought some of them and reopened them under new management — to no great public acclaim.

Hy-Vee’s strategy seems to be not just changing the name on the signs, but building expensive new stores from scratch.

In Gem Lake, Hy-Vee is planning a convenience store, gas station and liquor store at the southeast corner of U.S. 61 and County Road E. The site is now a ratty-looking strip mall with holes in the siding and busted-down doors.

Gem Lake City Council member Gretchen Artig-Swomley said she would be happy to see a new business anywhere, but was particularly thrilled about that location.

“I think it’s going to start a domino effect,” she said.

The pattern is being repeated across the metro area.

In Spring Lake Park, Hy-Vee is building on an undeveloped site at Minnesota 65 and 81st Avenue.

In Blaine, the future store will be at Jefferson Street and 125th Avenue, bringing a senior-housing complex and more retail space along with it.

In West St. Paul, Hy-Vee plans to buy the YMCA property off Robert Street.

In Cottage Grove, Hy-Vee solved a problem that had plagued the city for more than 10 years.

Gateway North, the most visible shopping area in the city, was dying. City staff labored behind the scenes, wrangling with owners, begging developers, waving tax incentives.

Home Depot closed in 2008, and Rainbow closed in 2014. Three years later, Hy-Vee arrived.

Hy-Vee would not say how much it spent, but Mayor Myron Bailey said Hy-Vee told him it was more than the $27 million price tag for the Oakdale store.

The spiffy new store generated traffic, and then new neighbors. Last month, a HomeGoods and T.J. Maxx opened next door, and soon a Planet Fitness will be launched.

“I am excited and relieved,” Bailey said. The ripple effect has even spread outside the mall.

“Hy-Vee is a big traffic-driver for the area,” said Bailey. When new businesses approached the city, they asked: “’Where can I go in that vicinity?’ Everyone wants to be around a Hy-Vee.”


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