The grocery business is more intensely competitive than ever. National chains are increasingly entering the Minneapolis–St. Paul market, going head-to-head with long-standing local operators.
Grocery chains that had no local presence a few years ago now have established footholds. Des Moines, Iowa–based Hy-Vee opened its first local stores in 2015 and now has 10 metro locations. Illinois–based Fresh Thyme Farmers Market also opened its first store here in 2015 and now has seven Twin Cities locations. Players like Aldi continue to expand aggressively. Whole Foods, which has seven stores in the metro, was acquired by Seattle–based Amazon.com Inc. in 2017.
“In this day and age, we’re pretty much competing with everyone,” says Kris Kowalski Christiansen, CEO of Woodbury–based Kowalski’s Markets. Her parents, Jim and Mary Anne Kowalski, started with a single store in 1983, buying a Red Owl on Grand Avenue in St. Paul. Kowalski’s now has 11 metro locations with annual revenue of $250 million to $300 million.
In the face of intensifying competition, Kowalski’s continues to expand. It opened in Excelsior in 2015 and added a new store in an overhauled former Rainbow Foods location in Shoreview in 2016. The company undertook an extensive renovation and expansion of its Hennepin Avenue store in south Minneapolis, completed in 2017. As Twin Cities Business went to press, the company was close to finalizing leases for two additional locations.
Kowalski’s also owns a Cub Foods store in White Bear Township (one of only four Cub franchisees in the Twin Cites for the chain owned by UNFI, which acquired SuperValu in 2018). The family has also invested in Pizzeria Pezzo in White Bear Lake.
Staying in the game means never sitting still. Today’s grocer needs to offer a bit of everything. Most Kowalski’s stores include a Starbucks coffee counter, and many have adjacent Kowalski’s wine stores. Not everything works. Kowalski’s recently ended a partnership with Cooks of Crocus Hill, which had store-within-store operations in several of the grocery stores. Christiansen says that sales of the specialty cookware were not strong enough for the venture to be worth it for either partner. Yet even as it seems like there’s almost a grocery store on every block these days, she argues that Kowalski’s remains distinct from the latest chain-store invaders.
“I don’t feel like a competitor has come in that closely resembles us,” Christiansen says.
Q | How is the Twin Cities grocery business different than it was 20 years ago?
A | [The] sheer numbers of grocers or institutions selling groceries has changed dramatically. Twenty years ago, we were sitting with a mostly unionized market; maybe just prior to [Whole Foods] coming into our market, we were all unionized grocers. We all bargained together, we had similar playing fields, we knew each other, there was good independence here. It was a strong independent market. I think it still is today, but obviously we’ve had a lot of chains move in with Whole Foods, Aldi, Fresh Thyme, Target getting into groceries, Walmart getting into groceries, Home Depot selling groceries, Walgreens selling groceries.
Q | Home Depot sells groceries?
A | Yeah, they have groceries. They’ll have big snack displays up front. Nut displays, all kinds of things; the landscape has definitely changed here in the last 20 years.
Q | Everybody that’s come in is non-union? Trader Joe’s, Aldi, Fresh Thyme, Whole Foods?
A | Yes. Really the last unionized grocers are the originals that have been in this market: Cub Foods, us, Lunds & Byerlys, and Festival Foods.
Q | How does that affect pricing? Are unionized grocers more expensive?
A | No, not necessarily. You have to be priced fairly. We were not higher priced because we were union. We just needed to understand our expenses and massage that into our business model.
Q | What was your first job with the company?
A | My parents bought [the] Grand Avenue [store] in 1983. I was 16, so I was a cashier with all of my friends when they first opened, from the beginning. We ran the front end, my friends and I. We were all in sports together, we all went to the dances at the same time, so a lot of times if we were all gone my parents had to be cashiers and run the front end.
Once I graduated from the University of St. Thomas, I went off into the world of fashion, which was actually just a retail clothing store, for about three years, and then I was asked to join the company by my parents. I came on full time in 1990.
First, I was in the accounting office. I was doing receivables and payables. I was in that accounting office on Syndicate [Street in St. Paul] for maybe four years or so and then I started to take on more roles within the stores. I was into HR, then I was into store management, then I was pulled out to be at the level with my mom and dad, learning from that perspective.
Q | What business lessons did you learn from your parents?
A | I would venture to guess that most second generations take over the family business for the love of their parents more than for the actual business. I didn’t grow up thinking, “Oh, I want to be a grocer when I grow up.” But I loved my parents, I had ultimate respect for them.
I learned that it takes more courage than brains to start a business.
They believed in putting good people in place and allowing them to do what you hired them to do. To get out of their way, [but] to support them and direct them in philosophy and strategy. Most of what we make in this company is reinvested into the stores to continue to elevate the experience for our customers, and that’s a philosophy that was taught early on.
The lessons were, “Don’t ever sit in a corporate boardroom and presume what your customers want. Get out and talk to them.” They did it—just out of survival mode at the beginning.
Q | Has anyone approached you with an offer to buy the company?
A | Maybe once every five years a venture capital firm will call. But we haven’t had a [large national grocer like] Kroger come in and very seriously say, ‘We want to talk to you about it.” Our answer—no matter who it was—was always, “Not interested at this time.” My mom and I are very committed to Kowalski’s. She’s still very actively involved from a leadership level. She’s mostly involved in new sites, when we buy or lease new sites, what’s next out there from a pretty high-level perspective. She’s involved in our marketing meetings and our key leadership meetings and all big financial decisions. She’s still the key leader, but it’s not all the daily operations.
Q | Have you noticed any changes in Whole Foods since it was acquired by Amazon?
A | There seems to be a bit of a format change. To me as a grocer, when I walk through they look different than the Whole Foods of yesterday; they have a little more conventional [groceries], they’re obviously changing their pricing strategy. I’m not sure what their overall goal is. But I do think they just feel different than the original Whole Foods.
Q | How does a partnership with a big company like Starbucks work for you?
A | Our partnership with Starbucks started with Woodbury [in] 2000. That’s been obviously a great partnership. When you have a brand that is that well known, it works to your advantage; we’ve tried many different partners along the way that are more locally based that have since gone away, but we still like trying them, so we haven’t given up.
Have you heard of Pezzo—our pizza place that we invested in as a family? They’re in White Bear [Lake]. They’re doing very, very well. We’re working to get them into our Woodbury location as a partner, a restaurant into the corner of our Woodbury store.
Q | Does Starbucks pay you rent for space in your stores?
A | It’s [staffed by] our employees. We run it and, really, we just have to give them a percentage of sales.
Q | You sell nonfood gift items in your stores. How does that fit into a grocery store?
A | It’s very important to our brand. When my parents were building and creating this grocery store experience, it was always about, “I don’t want people to come in and dread grocery shopping.” We want them to experience it and be excited about it. So adding gifts, they thought, was a portion of that. It created a fun shopping experience, they thought, and it’s aesthetically pleasing. We’ve always had gifts. [It’s] very important to our brand, to the feel of our stores. It’s done very well. We just started adding clothing.
"When my parents were building and creating this grocery store experience, it was always about, I don’t want people to come in and dread grocery shopping.’ ”
Q | When did you add clothes?
A | That started to really ramp up in the last couple of years. It’s done extremely well.
Q | These days, many people don’t use grocery carts. They buy what they can carry and then probably come back the very next day.
A | That’s what happens. I do think that that’s partly how we’re seen in our format, sort of this European shop we call it. But now I think it’s not necessarily just old-school European, it’s the way Americans are shopping. Everything’s about fresh—at least [for] our format stores. I do believe people have giant cartfuls at some other retailers, bigger-box stores, but our stores are about, “What am I having for dinner tonight and breakfast tomorrow and lunch?” and then coming back in. It’s a lot of baskets, a lot of smaller cart sizes, with [a] perishable [grocery] focus for sure.
Q | My guess would be that “grab-and-go” and deli items are an increasing share of your sales?
A | Yes. And to that whole end, Excelsior is the first time we put in that made-to-order pasta bar and a burrito bowl concept. Now we have that in Shoreview and we’re starting to retrofit it [into other stores]. Grand [Avenue] has it, Lyndale has it.
Q | Is every store going to have it?
A | Pasta bars? Where we can, yes. Eden Prairie’s about to get it because we’re going to have a remodel going in Eden Prairie.
You still are in a convenience business. Our made-to-order pasta bar was really built around, “Well, it takes about six minutes.” You go up, you pick all your fresh ingredients, they sauté it right in front of you, and you should get it within six minutes.
Then we have made-to-order hibachi. Hennepin [Avenue] is the first place we tried hibachi and we now have it in Woodbury and White Bear Lake. We will be putting that in Eden Prairie.
Those were new departments that we saw that we said, “These fit in a grocery store and we can deliver healthy, fresh products just like restaurants can here.” It’s about the ingredients.
Q | Are you looking for potential locations for additional new stores?
A | Yes. We have one. We have a letter of intent signed and we’re just working through the last bit of the lease issues. There’s a 99 percent chance that we’re going to sign off on this particular location. [Since this interview, Kowalski’s has identified a potential second new location. If both deals go through, it would give Kowalski’s Markets a total of 13 metro stores.]
Q | You’re using Target’s Shipt service for delivery now?
A | We partnered with them, that went live in August 2018. That’s been a fun partnership. We’ve had Kowalski’s on the Go for probably six years or so and that’s growing slowly. We do both.
You obviously have to be in the e-commerce business and the digital business and have a footprint there, but we spend most of our time, energy, and resources on the actual store—the brick and mortar—and the experience.
"You obviously have to be in the e-commerce business . . . but we spend most of our time, energy, and resources on the actual store . . . and the [customer] experience.”
Q | Why would a customer use Shipt instead of Kowalski’s on the Go?
A | The big difference between Shipt and ours is that Shipt is more like on-demand. You can pretty much order at 10 [a.m.] and literally have it at your house by noon that same day. That’s their model. It’s almost instantaneous. With ours, you might have to wait one day.
Q | Is delivery something you have to do [because the market demands it], or does it actually make money?
A | I think it started out as both. It’s another avenue to sell our groceries. You know why we like it? We’re obviously not in every market. [In] the western suburbs we have Excelsior and Eden Prairie but there’s a lot of little places where we don’t have stores, where people ask us, “Can you put a Kowalski’s here?” But there’s just not enough to put a whole store. So we’re going to market to them that, “You can have Kowalski’s and we will deliver it to you. Just go on your computer. It’s all there.” We can hit different markets that way.
Q | What kind of marketing do you find most effective? Where do you spend your money?
A | Kind of like delivery, you sort of have to be in the social media world. We’ve hired some young people that are running that for us. They’re keeping us out there and top of mind on all the Instagrams and Pinterests and Facebooks.
But that’s another thing that I learned from my parents early on. They were always [saying], “You don’t need to spend millions of dollars on marketing because your best marketing is peer-to-peer word of mouth.” If you focus on the experience of your store, make sure that the standards are there, and the quality and the service and the product, and you’re continually innovating, your customers that shop there are going to do all your marketing for you. We still believe that today.
Burl Gilyard is TCB’s senior writer.