Grocery stores have been operating on-site restaurants for years. But this summer, Hy-Vee Inc. took that one step further by agreeing to a franchisee deal with the flexible-service burger chain Wahlburgers.
The deal represents a major opportunity for Wahlburgers, which not only gets a sophisticated and well-financed operator in the West Des Moines, Iowa-based grocer, but one that will quickly spread the chain throughout the Midwest.
“This will be an opportunity to work with a great, highly disciplined brand that runs things like a Swiss train,” Rick Vanzura, Wahlburgers’ CEO, said of the deal in an interview. “From an execution standpoint, this will make us raise our game in certain areas.”
The Hy-Vee-Wahlburgers agreement highlights the blurring line between grocers and restaurants. Grocers have been aggressively getting into the restaurant space for some time, and many of them have been providing space to coffee chains or sandwich shops for years.
But as the competition continues to intensify, brands could get even more aggressive in pushing into the restaurant space. For instance, Walmart recently opened an organic fast-food chain called Grown, developed by former NBA player Ray Allen and his wife Shannon, inside one of its Orlando, Fla., locations.
And Kroger recently announced plans to develop its own restaurant concept called Kitchen 1883.
But, by agreeing to be a franchisee of an existing chain in Wahlburgers, Hy-Vee takes that idea and puts it on its head. It will operate restaurants not only inside its typical retail footprint, but also out of it.
“I do think we will see more partnerships of this kind as grocers struggle to deal with declining traffic in the center store due to ecommerce threats and the need to offer consumers viable meal solutions,” said Neil Stern, retail specialist with the strategic planning firm McMillanDoolittle. “Hy-Vee is one of the better and more progressive supermarket operators, so this should be a good combination.”
Hy-Vee has long been one of the most aggressive grocers in terms of prepared food. It has its own, 84-unit, in-store chain called Market Grille. And its locations have several prepared-food counters.
“If you’ve been in any of their stores, they’re spectacular,” Vanzura said. “They’re almost like a series of specialty boutiques.”
Under the Wahlburgers agreement, Hy-Vee will develop 26 Wahlburgers. The grocer will also add some of the burger chain’s items into Market Grille.
That’s a sizable investment for a chain the size of Wahlburgers, which had only 17 locations at the time of the agreement.
Hy-Vee needed a “pretty long due diligence process” before deciding to develop Wahlburgers, said Vanzura. “Their entire leadership team went to our Orlando locations and our Detroit locations to see how franchisees operate. And we spent plenty of time with them in Minneapolis and in Des Moines. “We really see a great fit here.”
Brothers Donnie and Mark Wahlberg, along with their chef brother Paul, formed the chain in 2011, opening the first location in Hingham, Mass. They hired Vanzura, a former Panera Bread Co. executive, the next year.
The chain is a “flex-casual” concept, with both counter service and a full-service area and full bar.
Wahlburgers has been the subject of a reality series on the A&E network.
That reality show — and the chain’s famous founders — has helped the company’s franchising business thrive. The company has signed deals for “most of the major markets,” Vanzura said, and has been so popular that the company put a moratorium on new deals for the rest of the year.
“We have not lacked in interest in franchising,” Vanzura said.
As such, while the 26 locations that Hy-Vee is planning to develop seemingly more than doubles the chain’s size. “It’s still a fraction of the total number committed across the entire network,” Vanzura said.
And Vanzura isn’t afraid of having one, giant operator. “They’re clearly paying the royalty,” he said. “They’ve entered into the relationship for a reason. And after all the due diligence, they bought into the brand, the design requirements, the training program and what’s required there.”
For Wahlburgers, the deal gives the chain a well-funded, sophisticated operator who can diligently spread the brand in the Midwest.
Hy-Vee will bring Wahlburgers items into its Market Grilles as they open restaurants in various markets. “We won’t see everything turn overnight,” Vanzura said.
“We’re going to learn from them,” he added, “How they operate the company, how they operate when it comes to innovation. These are folks who are used to running innovative programs.”
Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze
