FRBuyer: Don’t Mess With (H-E-B) Texas

Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.

Home to some of the fastest growing cities in the country, business-friendly Texas has attracted the interest of a wide range of expansion-minded retailers recently.

Walmart alone opened 35 new stores in the state last year, and Target, Aldi, Trader Joe’s and a slew of others are preparing to make a big push in 2013. But according to industry insiders, regional supermarket powerhouse H.E. Butt — better known simply as H-E-B — has not only defended its market share but, in many areas, expanded it. One source estimated total sales were up 8 percent or 9 percent in 2012, with same-store sales ahead between 5 percent and 6 percent.

"H-E-B is known for fiercely defending its territory," says John Rand, SVP of retail insights for Kantar Retail’s Market Insight Group, who credits the company’s diverse portfolio of store formats for its success.

To protect against the Walmarts of the world, the chain relies on its H-E-B Plus and H-E-B Marketplace stores; to beat back the Trader Joe’s threat, it has Central Market; and when Aldi comes to town, it can counter with Joe V’s Smart Shops — though some believe the limited assortment chain will present more of a challenge than other newcomers.

"H-E-B can compete on the high end any day," explains one industry insider. But given the lower incomes of many Texas residents, "It may have a harder time with Aldi."

In addition to the right format, it takes a very market-specific approach to assortment, store layout and merchandising. Most impressive is that H-E-B doesn’t have a loyalty card to gather shopper information but relies instead on transactional data and neighborhood studies to drive its customized approach.

"H-E-B knows how to appeal to the local marketplace better than almost any retailer in the country," says one manufacturer.

To compete on the low-end, H-E-B "takes lesser margins than other chains and makes up for it in volume," says one industry insider. "And when Walmart came to town, it borrowed some of its cost-cutting strategies in warehousing, logistics, etc."

The chain also earns credit as the first grocer to move from a national brand equivalent private label program of me-too products to a market-specific program of unique items formulated for Texas consumers.

H-E-B also stands out among its fans for its commitment to locally sourced products, the friendliness of the staff and its hometown feel. Said Craig Rosenblum, a partner at Willard Bishop, "H-E-B takes good care of its employees, the community and the shopper."

BrainTrust

Discussion Questions

Should other regional grocers adopt a portfolio of store formats to defend their markets? What else can other regional supermarkets borrow from H-E-B to fend off the wide variety of new competitors?

Poll

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Dave Wendland
Dave Wendland
10 years ago

Yes. Much to be learned from this world-class retailer.

Paula Rosenblum
Paula Rosenblum
10 years ago

I may be naive, but it seems to me grocers like H-E-B have already figured out how to defend their markets against Walmart. Walmart hammers on price, but it’s not clear that the price differential is large enough to matter. Their commercials challenging the regionals on price just aren’t that credible. And don’t forget, Walmart doesn’t really have a credible private label product line, while most of the regionals do.

Plus, the retailer comes into locations where the local citizenry would rather not have it (I’m thinking about Washington, DC at the moment, but I know there are more), and that certainly doesn’t prompt a lot of defections.

I’m thinking the variety of formats are much more about defending against Dollar Stores at the low end, and natural and organic providers like Trader Joe’s and Whole Foods at the high end.

I remain very bullish on the grocery industry’s chances. The damage that Walmart could have done pretty much has already BEEN done. The Dollar Store book is still being written, and I am panting for a Trader Joe’s in my area.

Zel Bianco
Zel Bianco
10 years ago

What is intersting here is that they don’t have a loyalty card. Seems they have been able to crack the code using transactional data to appeal to enough shoppers generically to generate enough insights to appeal to the individual shopper. Could this signal a new way to adjust product assortment and store format?

David Biernbaum
David Biernbaum
10 years ago

H-E-B competes well with Walmart because H-E-B doesn’t try to “be” Walmart. H-E-B knows it’s a supermarket and carries a lot of specialties and novelties, and also a lot of fresh goods, that Walmart doesn’t. At the same time H-E-B remains very price competitive on the loss leaders, the commodities, and the every day staple items. It works.

Dr. Stephen Needel
Dr. Stephen Needel
10 years ago

Sounds like they are doing everything right. I’d be interested to know, though, whether they are fending off Walmart, etc., or are they taking share from the other mainstream grocers in their trading area?

David Livingston
David Livingston
10 years ago

H-E-B is not just a regional supermarket. H-E-B is almost like a cult. They seem to be almost as old as the Alamo. They have an amazing portfolio of stores with a significant amount doing over one million per week in sales.

H-E-B is for the most part doing everything right. However, trying to copy them isn’t so easy. Minimal to no debt, bilingual employees, owning their own manufacturing plants, shrimp boats, construction crews, etc., is just way over the heads of other retailers. Plus they have more money than God and will spend $2 to get $1 in sales just for the fun of it.

One area I think they don’t need to worry about is Aldi. No one has figured out how to beat Aldi. Just let Aldi do their thing. Still one reason H-E-B is successful is they lose sleep over a lot of things they don’t need to lose sleep over. They will nip any threat in the bud.

Ed Rosenbaum
Ed Rosenbaum
10 years ago

H-E-B is a standout success in the Texas marketplace, similar to Publix in Florida. Customer service is a leading asset both have over Walmart. Trader Joe’s might be a competitor, but it will take time for Texas consumers to grab onto them like has happened on the East Coast.

Richard J. George, Ph.D.
Richard J. George, Ph.D.
10 years ago

Success leaves clues! H-E-B tailors offerings to meet specific customer needs and at the same time addresses the prevailing competitive landscape. This phenomenon of multiple banners that do not require customers to compromise is a terrific marketing strategy, which unfortunately is the exception rather than the rule in food retailing. Another successful food retailer, Publix, does something comparable with its Sabor and Greenwise markets.

However, most other industries are way ahead of food retailers in this regard. Take for example, Marriott, who has a variety of lodging accommodations targeted to specific (and different) traveler needs: Ritz Carlton (iconic luxury), J.W. Marriott (luxury), Marriott (signature), Courtyard (modern essentials), Residence Inn (extended stay), and the Marriott Vacation Club (destination entertainment). In the Foodservice world, learn from the Landry company with disparate restaurant offerings like Morton’s, Chart House, Bubba Gump, Rainforest Cafe and 36 other restaurants in its portfolio.

The accounts like simplicity and sameness. Customers like options. Marketers take their marching orders from customers, not accountants.

Mel Kleiman
Mel Kleiman
10 years ago

Only if they plan to fend off the competition. Stores need to serve the market in the way the market wants to be served.

Gene Hoffman
Gene Hoffman
10 years ago

When under attack from the “big boys” of retailing, the regional grocers must do what they have to do to capture consumers hearts and wallets … or else give their hand in a merger or die off. Regional operator H-E-B executes the intransigent insights of such a program better than anyone else.

Regional grocers must abandon yesterday’s methods, cultivate format tailoring, create their own uniqueness and shopping comfort as well as becoming more efficient to make room for lower margins when needed. That’s a tall order … but doable.

Susan Viamari
Susan Viamari
10 years ago

The vastness of the brick and mortar landscape, combined with near endless online retail options, means shoppers have more choices of where and how to shop than ever before. And, thanks to incredible growth in instant, easily accessible digital, social and mobile communication platforms, shoppers can spend just a few minutes online to gather information to make smarter choices at home, on-the-go and in the store that have fundamentally changed how shoppers interact with companies, products, services and stores.

Opportunities abound for marketers willing to evolve philosophies and tackle the shopper experience with concerted, focused direct-to-shopper marketing efforts. H-E-B is moving in this direction with their portfolio approach. As shopper marketing continues to evolve, other retailer banners, both small and large, will likely adopt a similar approach to targeting and customization.

Craig Sundstrom
Craig Sundstrom
10 years ago

The (implied) claim that Texas attracts retailers because it is “business friendly” seems curious; I could see that for a factory or call center, but I always thought retailers go to places because there are people there willing to buy things, and they simply have to put up with whatever business environment exists.

Well, no matter; as this is not H-E-B’s first appearance on the RW boards it seems they HAVE entered the Pantheon of retailers to emulate, and I wish them continued success. I’m curious: if there had been more like them around the country, would Walmart have never become the colossus it is, or did the threat of extinction bring out the best in other retailers?

Randdy Evins
Randdy Evins
10 years ago

What H-E-B has that others do not is a single owner committed to the communities it serves and the ability to operate with less because of their incredible volume. With more sales per square foot than any other grocer in the world, it’s a bit easier to take risks on products and formats than the traditional grocer operating on less that half the that velocity. So it’s not the format as much as the commitment to the customer that is the imperative.

Carol Spieckerman
Carol Spieckerman
10 years ago

What was once an exception in the U.S. is fast becoming the rule. Multi-format retailing is here to stay and, when paired with H-E-B’s mastery of localization, it is a one-two punch that is hard to beat. Multiple formats allow H-E-B to saturate high velocity markets like Texas, while ensuring that no single banner will have to carry all of the weight.