Dive Brief:

• Hy-Vee will build and operate 26 Wahlburgers restaurants, becoming the largest franchisee of the burger chain founded by actor/producer Mark Wahlburg and his brothers Donnie and Paul, according to a news release. In addition, Hy-Vee will add Wahlburgers food items to its Market Grille restaurant menu.
• Hy-Vee also is partnering with Orangetheory Fitness to open locations in or adjacent to select stores. The two companies will integrate their training and nutrition services, offering store tours, healthy product samples and other programs to consumers.  
• “There is a changing landscape in the retail industry,” Randy Edeker, Hy-Vee's CEO and president, said. “Hy-Vee has a responsibility to our customers, employees and communities to look for new ways to strengthen our company. With this type of progressive action, Hy-Vee is well positioned for future growth.”

Dive Insight:

Hy-Vee is doing a lot to diversify its business in a competitive industry that's facing increasing pricing pressure on its low-margin goods. This year the company has built an upscale urban concept store; expanded into additional categories such as beauty, cosmetics and apparel; announced future builds of an e-commerce warehouse facility, planned construction of an updated convenience store, and a health-first store with a gym inside it.

So while a burger joint and fitness studio might seem like divergent partners for Hy-Vee, the common thread is an expanded lineup of non-grocery products and services that offer opportunities for growth.

Wahlburgers, which opened in 2011 with actor/producer Mark Wahlburg and brothers Paul and Donnie as investors, has latched onto the gourmet burger trend headlined by the likes of Shake Shack, Five Guys and Smashburger. The chain currently has 17 locations in nine states and Canada, and offers menu items like a BBQ burger, haddock sandwich and fresh-made salads.

With its investment, Hy-Vee becomes Wahlburgers’ largest franchisee by far. If it seems odd to have a grocer running a burger chain, consider that Hy-Vee has cooked up a very successful chain already with its Market Grille restaurants. The retailer currently operates 84 of these locations adjacent to company stores.

According to research firm Euromonitor, burger sales in the U.S. rose 14% from 2010 to $103 billion annually in 2015. This bodes well for Hy-Vee, though by some accounts the gourmet burger trend is cooling. Offering a compelling experience and locating the stores in the right areas will be key for the Wahlburger restaurants, the first of which will open in West Des Moines in mid-2018.

Interestingly, this isn't the first deal Hy-Vee has struck with actor Mark Wahlberg. Earlier this year, the chain became the exclusive seller of Wahlberg’s Performance Inspired Nutrition brand of workout bars and supplements.

The Orangetheory partnership, meanwhile, is more in keeping with Hy-Vee’s healthy image. The fitness chain has 750 fitness centers across the country and expects to expand to 1,500 locations during the next two years. The deal should capitalize on some profitable overlaps in customer bases. In particular, it gives Hy-Vee more opportunities to build out its health services and boost loyalty among affluent, fresh-focused consumers.    

Overall, Hy-Vee is doing what many retailers should do but very few actually are: experimenting. The chain is no doubt burning through its capital expenditures budget, but it’s all in the name of differentiation and diversification. If just one of its new concepts catches fire, the payoff could be huge for the company.