Hy-Vee, other Twin Cities supermarkets add incentives to keep new e-commerce customers

Hy-Vee saw its grocery delivery and curbside pickup business quadruple in 2020.

Because of the coronavirus pandemic, the sudden need for e-commerce delivery across retail has supermarkets scrambling to change and keep up.

"We saw five years of growth in six months," said Tina Potthoff, senior vice president of communications for Hy-Vee.

The number of online transactions for home delivery and curbside pickup at U.S. supermarkets now represents 10% of total grocery purchases, or $106 billion, according to Mercatus, an e-commerce grocery consulting firm in North Carolina.

Experts don't expect the popularity of grocery delivery and curbside pickup to decline when the pandemic wanes. "The growth rate will slow but e-commerce will continue to rise beyond the 10%," said Darren Caudill, senior vice president of sales, merchandising and marketing at Cub.

Mercatus predicts that online grocery purchases will double by 2025, reaching 20% of all grocery purchases.

Nearly a year into the pandemic, supermarkets are shifting their e-commerce from all-hands-on-deck panic mode to deliberate strategies to keep the customer base loyal and growing.

One of the most aggressive marketing campaigns for e-commerce by Twin Cities supermarkets — minus Target, which owns the Shipt delivery service — is the Hy-Vee Plus premium program launched last month.

"We were one of the first in the country to add online grocery in 2015, and now it's a race to get everyone to be your loyal online shopper," Potthoff said.

A hybrid of Amazon Prime and a warehouse club membership, the Hy-Vee Plus membership costs $99 annually.

Members receive unlimited free deliveries and free curbside two-hour express pickup with a $30 minimum order. Members can communicate with an order picker live while it is being filled and a designated Red Line phone line handles questions or requests from members, including adding forgotten items to an online order.

Other benefits include monthly deals and 3 cents per gallon Fuel Saver rewards for nearly all purchases.

Companies such as Costco that operate on slim margins make most of their profits from annual fees on membership programs.

"Retailers are drawn to membership programs because they believe they can generate significant revenue," said Sylvain Perrier, chief executive at Mercatus. "Membership revenue can offset the labor and delivery costs in a rapidly expanding online channel."

Hy-Vee wouldn't comment on the number of sign-ups or if the West Des Moines-based supermarket has met its sales goals, but the company is also augmenting its e-commerce experience in other ways.

A store under construction in Grimes, Iowa, will include several drive-through lanes to accommodate curbside pickup when it opens in the fall. It's likely that the drive-through lanes similar to a bank's will be added to proposed Minnesota Hy-Vee stores in Spring Lake Park, Blaine, Columbia Heights, Chaska, Farmington and West St. Paul, Potthoff said.

Lunds & Byerlys began offering a subscription model before the pandemic.

For $89 a year, members can waive the $4.95 order picking fee. Members still pay $5 per delivery but there is no order minimum and curbside pickup is free.

"Before and since COVID, we send customers e-mails to track the delivery truck. Now we can send customers a text when their order is ready for pickup," said Dan O'Rourke, marketing director at Lunds & Byerlys. "If customers have the FlyBuy Pickup app, they can notify us when they're on their way to pick up an order and we'll have it ready when they arrive."

The company is testing the app in four stores now and plans to expand it to all of them.

Cub Foods has averaged about 30,000 online orders a week during the pandemic, an increase of 200%. To improve service, it's focusing on common issues with any online grocery order — out of stocks and wait times.

"We've proven that we can pick out a yellow or green banana and we're being transparent about what time slots are available," said Chad Bersie, Cub's director of e-commerce. "Now we're testing customer centers in Rosemount and soon in Shorewood where customers can pick up their orders at a central spot in the store and add hot deli foods or produce."

Coborn's Inc., which transitioned its metro delivery program to Cub via Instacart in 2019, still offers home delivery in St. Cloud, Owatonna and Fargo-Morehead and curbside pickup at all locations. It considered adding a membership program as an enhancement but has not developed it, according to Dennis Host, vice president of marketing for Coborn's.

"We're enhancing our program by adding ready-prepared foods to the e-commerce offerings," he said. "Consumers are still looking for delicious foods quick, meal kits and deli items in their online ordering."

Aldi and many co-ops experienced a steeper online learning curve than most supermarkets because curbside pickup wasn't an option when the pandemic hit.

Aldi started delivery in 2018 but didn't add curbside service at select stores until June. Fourteen of Aldi's 48 metro stores now offer curbside. Twenty more Minnesota stores will get the service this year, including 15 in the metro. In December, the company started accepting SNAP as payment for Instacart or curbside orders.

Pre-pandemic, online sales at Wedge and Linden Hills co-ops in Minneapolis were at 1%. Now they are 10%. The two co-ops added curbside delivery in a flurry after the pandemic. The fee is $5 with no minimum.

Chief Executive Josh Resnik doesn't see the fee going away. "We have to continue that to offset our costs," he said. "We've had very few complaints. People see the value in it and are glad we're offering it."

While supermarket retailers said complaints about online ordering are decreasing, consumers are still complaining about fresh food items, out of stocks and the lack of available time slots.

"We're hearing complaints about produce being too ripe or not ripe enough, meat with too much fat, odd substitutes and crushed chips," said Kevin Brasler, executive editor of Consumers' Checkbook, which collects reader comments from seven metro areas around the country including the Twin Cities.

Most grocers now ask pickers to text customers when items are out of stock and ask about acceptable substitutes. To open up more available time slots, Hy-Vee will be adding about 25 flex workers per Twin Cities store to engage during peak times or surges such as before a snowstorm.

Not everyone is a fan of online ordering.

Kay Bair of Burnsville tried curbside service once but doesn't plan to try it again.

"I didn't like the substitutes for the out of stocks," she said while shopping in the Eagan Hy-Vee last week. And she would rather shop at another store than have a picker communicate with her about substitutes.

The window for big increases in online converts for grocery stores is now, though.

"As we come out of COVID, people will eat out more, so why not forge a deeper connection while they have the traffic and grab market share?" asked David Kristal, chief executive of Augeo loyalty programs in St. Paul and a Star Tribune board member. "Supermarkets should build on their strength while they can."

John Ewoldt • 612-673-7633