Dive Brief:

• Hy-Vee will open six additional Dollar Fresh stores in Iowa this summer, according to a company release, doubling the footprint of the discount format it opened in fall 2018. 
• The stores, all former Shopko locations that the grocer recently acquired, are located in Hampton, Cresco, Oelwein, Waukon, Dyersville and Vinton, Iowa. 
• Dollar Fresh stores feature steeply discounted products, including dollar-priced items and a “Wall of Savings,” along with full-service meat and bakery departments, pharmacy and prepared foods.  

Dive Insight:

Hy-Vee is using Dollar Fresh to play defense against discount retailers Walmart, Aldi and Dollar General in the rural markets where it operates. In addition to converting Shopko stores, Hy-Vee has also converted three of its conventional stores to the new format.

These six new stores show Hy-Vee also plans to play offense with Dollar Fresh. In Dyersville, home of the "Field of Dreams" baseball diamond, the only other grocery competitor is Fareway. In Cresco and Vinton, Fareway is also the main name. All three towns also have Dollar General stores.

Hy-Vee clearly sees an opportunity to undercut Fareway and independent grocers on price and to offer better value than Dollar General.

Dollar Fresh’s discounts include dollar-priced bags of chips and cans of tuna. Hy-Vee’s That’s Smart! discount private label products appear in sale sections along with signage touting “Hot Deals” and “Low Price Lockdown.” Locations also feature promotions that compare Dollar Fresh’s prices to those of local competitors.

In a recent interview with Grocery Dive, Bill Bishop, co-founder and chief architect with Brick Meets Click, noted Dollar Fresh stores devote significant space to fast-moving categories like beer, meat and Hispanic foods. He sees significant room for Dollar Fresh to expand.

Frank Beard, an analyst with the fuel pricing service Gasbuddy who lives in Des Moines, Iowa and has shopped at Dollar Fresh, said Hy-Vee seems to be targeting communities with a median income of around $40,000 — the same figure dollar stores typically target.

"In some of these smaller towns, you have a lot of customers looking for more of a discount offer," Beard told Grocery Dive. 

Hy-Vee has developed alternative store formats to address evolving consumer demands, including HealthMarket and the updated convenience store Fast & Fresh, both of which opened in 2018. Fourth + Court, an urban market, opened in Des Moines in 2017.