Texas grocer thrives against Wal-Mart
BY SUSAN WARREN
THE WALL STREET JOURNAL
In its sprint to become the nation’s biggest grocer, Wal-Mart Stores Inc. has built hundreds of "supercenters" across the country and, along the way, forced others to dance to its tune.
But in Texas, a private family grocery chain is teaching Wal-Mart a thing or two about the food business.
Charles E. Butt and his HEB supermarkets have found a formula for not only surviving, but thriving in the same markets as Wal-Mart by playing off a simple creed: "We’re the local guy," Butt says.
From Texas-shaped tortilla chips to a special rubbing alcohol for keeping South Texans cool in the sizzling summers, HEB Grocery Co. has made catering to local tastes an obsession that has paid off with growing market share.
HEB’s 304 stores and $11 billion in annual sales are dwarfed by Wal-Mart, which has built more than 1,600 grocery-enhanced supercenters nationwide since 1988. But while HEB is relatively unknown among consumers outside of Texas, it’s providing a blueprint for competing successfully against Wal-Mart that’s being closely watched by the grocery industry. Even as Wal-Mart has spread throughout the state, with 213 supercenters, HEB has held on to market share above 60 percent in key cities, including Austin and San Antonio.
Now, both retailers have set their sights on Houston, the nation’s fourth-largest city and one of its toughest grocery markets because of an eclectic immigrant population and cutthroat competition.
Since the 1970s, when he took over leadership of the chain founded by his grandmother, the 66-year-old Butt has preached a culture of what he calls "restless dissatisfaction" at HEB.
In 1994, HEB opened its first Central Market, the chain’s answer to research showing grocery shopping had become a drudgery for most consumers. The sprawling gourmet store has a gargantuan produce department and an olive bar featuring more than 30 varieties.
Central Markets were just the flashiest part of a broader plan. The stores are strictly high-end, while the chain’s HEB supermarkets and HEB Plus combine low prices on staples that compete with Wal-Mart and pricier products for customers looking for more selection.
Butt signed off on a plan to make fresh produce and highquality meats the chain’s hallmark. He spiced up the formula with cooking demonstrations at some stores, stationing chefs in kitchen booths in the middle of the store floor to whip up recipes. In-store tortilla makers churn out fresh, hot tortillas all day.
The chain also crossed the Rio Grande, opening stores in Mexico.
At the same time, Butt insisted that prices stay competitive with Wal-Mart’s. At HEB headquarters in San Antonio, Butt drives home the message that managers should think like customers. In one exercise, HEB’s president of food and drugs, Suzanne Wade, handed $20 to several employees and told them to feed a family of four for a week. "We found out why beans and rice and tortillas sell so well," she says.
To emphasize its Texas roots, HEB has specialized in developing its own branded products tailored to specific communities. Managers in the Rio Grande Valley discovered an annual summer spike in rubbing alcohol sales came from customers who couldn’t afford air conditioning and used the alcohol on their skin to keep cool. Since alcohol also dries out the skin, HEB worked with manufacturers to develop its own brand with moisturizers, which now makes up a quarter of its rubbing alcohol sales.
As a private company, HEB doesn’t release financial data, and analysts estimate that the company generates a 1 percent to 2 percent profit margin on sales, on par with industry averages.
HEB executives believed their know-your-customer skills would play well in diverse Houston, which has the eighth-largest Asian population in the nation.
But it hasn’t been easy. Immediately, the city’s large immigrant community complicated HEB’s efforts to cater to local ethnic tastes, requiring store managers to distinguish between the eating habits of, say, the Japanese versus Vietnamese.
So far, HEB has increased its market share in Houston to about 14 percent from 10 percent five years ago, even as Wal-Mart zoomed into the No. 2 slot with 24 percent this year, behind longtime market leader Kroger’s 27 percent, according to data from TradeDimensions.
HEB’s goal: a 25 percent market share in five years. "Wal-Mart coming isn’t the end of the world," Scott McClelland, president of HEB’s Houston division, says. "It forces you to be better."
©Wall Street Journal 2004 |
