Why grocery chain won’t expand into H-E-B’s Texas territory?
I read an article by reporter Camille Sauers yesterday noting that Iowa-based grocery chain Hy-Vee is currently charting an expansion into the Southern states. However, its CEO revealed the chain will be steering clear of Texas due to the dominance of Texas-based grocery chain H-E-B.
In this article, I will discuss what makes H-E-B a formidable competitor by providing three observations that I have regarding H-E-B’s business operation.
H-E-B overview
Described by industry experts as a daring innovator and smart competitor, H-E-B is one of the largest, independently owned food retailers in the US operating over 400 stores throughout Texas and Mexico. H-E-B offers the following four store formats, with annual sales generating over $25 billion.
H-E-B grocery store
Central Market: grocery store that sells specialty food and offers high-end culinary experience.
Mi Tienda: Latin grocery store with tortilleria & a bakery, plus ready-made food court eats.
Joe V’s Smart Shop: discount grocery mart offering low price fruits, vegetables, meats, dairy items & packaged goods.
H-E-B competitive advantage 1: detailed customer insight analysis
H-E-B has been investing heavily in customers’ eating experience– how customers find inspiration from food, how they make food decisions, and how they ultimately get food into their homes. H-E-B tailor the store design and product offerings to the local neighborhoods, and they achieve this with the collaboration of three distinct teams: the real-estate team, the customer insight team, and the store planning team.
To make a decision of opening a new store, the real-estate team first investigates neighborhood opportunities based on secondary research. Meanwhile, the customer insight team conducts qualitative and quantitative research — they look at the pantries of households, observe and make notes of their dietary habits. They also investigate the meal plans of local schools and partner up with community leaders in the realm of food and nutrition. Ultimately, the store planning team come up with the format, size and product assortment that fits the lifestyle and habits of the local neighborhood.
For example, H-E-B found that neighborhood with a younger (20–45) demographics are more willing to spend money to save time, while neighborhood with older (above 45) population tend to spend time to save money. Therefore, in neighborhood with an older demographic, H-E-B sells avocado, while in neighborhood with a younger demographic, H-E-B sells pre-made guacamole on a higher price for customers who want to save time.
H-E-B competitive advantage 2: innovative and data-driven decision making
As Amazon Fresh growing exponentially with a 90% penetration nationwide, how does H-E-B compete and retain customers? H-E-B does not currently offer a loyalty program, as it is “expensive and does not make sense for retail industry” according to the head of marketing Ashwin. Ashwin noted that the key to retain loyal customers is by offering the right rewards, and below are three strategies that they use:
Strategy 1: H-E-B Own Brand
H-E-B develops its own brand products specifically for Texans’ tastes. According to the company, the team conducts product test with more than half a million Texans before the product is launched. Products like H-E-B Fully Cooked Brisket, H-E-B Seasoned Fajitas, and H-E-B Café Olé® coffee are all popular products among the locals.
In areas with a growing Asian population like the Plano, the key question H-E-B wants to address is “what are the 15–20 things that can make the Asian community consume better?” They perform the market research procedure mentioned above to decide on which new products to develop. The high speed product innovation that tailor to the local community is H-E-B’s secret recipe for success.
Strategy 2: data-driven decision making
H-E-B’s marketing strategy is highly data-driven. Take the social media spending as an example, they spend 20% on low reach, high return platforms like Facebook, Instagram and Twitter. And 10% on high reach, low return platforms like TikTok and Pinterests. While high return platforms contribute to revenue growth, the goal for high reach, low return platforms is to build brand equity by leveraging customers’ muscle memory — as customers see H-E-B brand more times, they will develop an inclination to the brand and gradually stick to it. H-E-B tracks this data in detail to make decisions on the allocation of marketing budget.
Strategy 3: Join the health and wellness haul
As a grocery brand, H-E-B is attentive to the health and wellness trend and has a team comprised of clinicians, dietician and chefs to offer world-class health and wellness products and services. The team cultivates an intimate understanding of customer needs and drive technology solutions by providing interactive customer portals, virtual care capabilities and mobile health applications.
H-E-B competitive advantage 3: focus on community and human bond
H-E-B is highly customer-centric and community-focused. It has Community Investment Programs that address issues including diversity, education, hunger relieve, sustainability, natural disasters, etc.
An article mentions that when hurricane Harvey stroke in 2017, H-E-B employed a full-time director of emergency preparedness and had several “relief units,” including three mobile kitchens, a disaster relief unit, and a pair of water tankers.
When the pandemic hit, H-E-B began communicating with and learning from retailers in China and Europe as early as January 2020. According to Texas Monthly, the company swiftly began limiting purchases of certain products, cutting store hours to allow more (and safer) restocking time, and setting up a coronavirus hotline for employees. It was also able to avoid some of the shortage issues competitors faced through controlling its own supply in certain categories — including running its own meatpacking plants. Many Texans, that Express-News column argued, now “look to H-E-B almost as a de facto arm of government.”
With world-class customer research team, data driven decision-making approach, and a focus on people, it is no wonder that H-E-B is regarded as a formidable competitor in the retail industry. With a commitment to serve the local community, H-E-B will continue to provide creative innovations and outstanding service in the workforce, workplace and marketplace.
