H-E-B Wins By Playing All Sides

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H-E-B Wins By Playing All Sides

By Pan Demetrakakes - 09/01/2015

It's said that trying to be all things to all people is a losing strategy. But looking at H-E-B can leave you not so sure.

The 373-store Texas-based supermarket chain combines a luxurious in-store experience with competitive prices. It has the reach and economies of volume of a major player, and a strong regional identity that appeals to Texas pride. It caters to different consumer demographics through three banners besides its eponymous one. It even crosses the border, operating 50 stores in Mexico.

"They are truly unique in having a dual focus of high quality/low price," says Neil Stern, senior partner at McMillanDoolittle. "Part of this is that they are a private company and can take a long-term approach to profitability."

H-E-B, privately held by the Butt family and with about $22 billion in annual sales, has used this versatility and across-the-board appeal to maintain and strengthen its hold in the brutally competitive Texas grocery market

In February, H-E-B opened a 90,000-square-foot palace meant to strengthen its position in Houston. (Its strongest markets are in Austin and San Antonio, where its headquarters is located.) This behemoth, in Houston's upscale Tanglewood neighborhood, features modernistic glass-and-metal framework, a 250-foot wall completely covered with living plants, and a rooftop with rows of vertical windows to admit natural light. Inside are "destination" amenities like a spice-blending station, a bakery that features tortillas made from scratch, and an upscale restaurant called Table 57. This offers appetizers like avocado and kale mash served with rosemary focaccia crisps, and entrees like Korean fried chicken and an Umami Burger made with prime beef.

Table 57 is part of H-E-B's ongoing commitment to foodservice and prepared foods. This ranges from cafes that feature regional/ethnic cuisine like Asian food and Texas barbecue, to in-store restaurants like 3 Double-O Nine and Oaks Crossing, which strive for upscale fast-casual. Three Double-O Nine restaurants are operational, and three more are scheduled to open by the end of next year. H-E-B's restaurant operations are being supervised by Randy Evans, a prominent Texas chef who competed on Food Network's "Kitchen Inferno" last year.

An upscale store experience, in prepared food and other areas, isn't H-E-B's only appeal. It plays up its Texas roots with products that are not only local, but sometimes quirkily so, like tortilla chips shaped like the outline of Texas or blocks of cheese carved into a cowboy boot.

"They really do local better than almost anybody," Stern says. "Playing to Texas pride works well in that state, and because they are just in one state, they can legitimately play to their roots."

H-E-B also plays all along the price-value scale. In addition to the stores under the H-E-B name, it operates three ancillary banners: Joe V's Smart Shop, a deep discount chain; Mi Tienda, a Hispanic-themed banner; and Central Market, an upscale chain that specializes in hard-to-find gourmet products.

H-E-B is making ambitious plans. It has been on a land-buying spree in the Dallas area, gathering acreage in at least a dozen locations through early 2015. It has not, however, announced any plans to build in Dallas, where H-E-B stores are as yet unknown (although five Central Market stores are located there). It is also in the process of building three new manufacturing plants, for private-label dairy, snacks and other products.

Morale apparently is as high as ambition. CEO Charles Butt came in third overall, and first in retailing, in Glassdoor's Employee's Choice poll of most popular company chiefs. Glassdoor also reported that H-E-B was the highest-rated retailer in overall employee satisfaction in 2014.