My H-E-B

As part of PG's continuing H-E-B Retailer of the Year coverage, a three-store snapshot offers a glimpse of how the Texas retailer delivers a unique experience to every one of its shoppers.

H-E-B wants its customers to feel completely at home.

To that end, the San Antonio-based regional chain — Progressive Grocer's 2010 Retailer of the Year (see PG's October 2010 issue) — spends considerable time and resources tailoring each of its markets not to its specific region, not to its town, but to individual neighborhoods.

As such, while H-E-B stores share many common attributes, no two stores — more than 320 in total spread across its Texas home turf and Mexico — are exactly the same.

“We invest a lot in store design,” says Suzanne Wade, president of H-E-B's San Antonio food and drug retail division. “We spend hours working on new stores. We believe in a tailored, multiformatted network. We think we are one of the better retailers in the market in terms of tailoring our store designs, neighborhood by neighborhood.”

And shoppers embrace their neighborhood stores to the extent that they often refer to them as “my H-E-B.”

A great example of that devotion is the throngs that turned out for the August 2008 grand opening of H-E-B's McCreless Market H-E-B Plus, situated in a bustling corridor in southeast San Antonio. As the anchor of a busy shopping center that rose from the ashes of a once cutting-edge regional mall, the 142,000-square-foot McCreless Market store drew thousands of people to its grand-opening festivities, in an area that's roughly 80 percent acculturated (English-speaking) Hispanics. “On the north side [of San Antonio], you'd see a different mix of offerings,” general manager Larry Gembler says during PC's tour of the market. “Here, it's more traditional.”

Central to the produce department that greets shoppers upon entry is the aguas bar, serving a wide variety of fresh fruits and juices. “Cut fruit is a big staple,” Gembler says. “We can take fruit at the peak of freshness and convert it to juices and custom fruit bowls.”

And that's just the first of many features that speaks to the store's target audience. Gembler explains how the in-store bakery leans more toward pastries and cakes rather than breads to suit neighborhood demands, and that they're all made from scratch. “The customer here knows the difference,” he notes. “If we didn't have them, they'd go to the local mom-and-pop.”

Cakes are 35 percent of the bakery's total business, says Richard Silva, bakery manager. To meet the demand, the staff of the bakery alone — which operates around the clock; the store is closed to shoppers between 1 a.m. and 4 a.m. — exceeds 20 “partners,” as H-E-B calls its employees. Five cake decorators are employed on the weekends when, according to Cembler, the store fills up to 100 birthday cake orders.

In fact, the bakery is the cornerstone of the market's development into what store leaders say is a “one-stop party shop,” encompassing cakes and expanded floral, card and toy departments, the last of which has become a big winner for the store at Christmastime.

Meat is another cornerstone department of H-E-B's McCreless store. “We always highlight it in our ads,” says Cembler, particularly during peak weekend barbecue months, for which the store has seen robust movement on bundle packs offering various cuts at a set price. “It's leveraged a lot of business we used to lose to mom-and-pop meat markets,” he says. “This meat department will rival total-store sales at other companies.”

“This meat department will rival total-store sales at other companies.” —Larry Gembler, general manager, McCreless Market

Beyond groceries, the store is doing well with competitive pricing on entertainment items like HD televisions, DVDs and games; basics like bed and bath linens; and an apparel section with traditional baby items and expanding adult selections.

“We were one of the first [H-E-B] stores that went this big,” Cembler says, noting the 350 daily storewide pallet drops.

H-E-Bein' Green

H-E-B is committed to business strategies and sustainable practices that continually improve the company's use of natural resources, minimize waste, conserve energy and water, and protect air quality.

By recycling various materials, the San Antonio-based retailer claims to have saved 6 million trees, 88,000 barrels of oil, 3.7 kilowatts of energy and 1.2 million cubic yards of landfill space. And by increasing the amount of groceries that goes into each bag at checkout, the company has reduced the number of plastic bags used, thereby conserving another 2,500 cubic yards of landfill space.

H-E-B's transport fleet has reduced its use of diesel fuel by more than 4.7 million gallons each year, and carbon dioxide emissions by 40 percent annually. H-E-B sells mulch made from its recycled truck tires at many of its garden centers. Nearly half of the company's largest delivery trucks in Houston operate on liquefied natural gas, annually reducing about 35 tons of nitrous oxide emissions.

The company uses energy-efficient equipment for in-store coolers, freezers and windows; fluorescent high-bay light fixtures; timer lights in freezers and display cases; landscaping designed to conserve water; and 65 percent-recycled building equipment and materials. Across Texas, 137 H-E-B stores have received the Energy Star label for demonstrating excellent energy management.

“The utility bills are lower here than at any other store, and it's significantly larger in size.” —Mike Willis, general manager, Stone Ridge Market

Greg Souquette, senior VP and GM of the San Antonio/West region, adds: “A store like this can have a huge day, and the next day it looks like nothing happened. The recovery is amazing.” Operations are a challenge because of such a diverse product mix, Souquette remarks, but “if you can run a store like this and do well, you're ahead of the game.”

The traffic is brisk on the day of PG's visit, but the store team insists we've caught them during a lull, as it's typically slow at the end of the month. In any case, they're ready for whatever shoppers throw at them. “For us,” Gembler says, “it's all about the basics.”

Texas' Backyard

H-E-B wants its name to represent the best store for each neighborhood, designed to reflect that neighborhood's particular story, explains Craig Boyan, president and COO. “We work very hard and it's very complicated; obviously, with 40,000 to 50,000 SKUs, store design can change based on assortment store by store, be it in Houston, San Antonio or west Texas,” he says. “We are literally doing block-by-block analysis. That's our goal, and we are proud of the extensive work that we put into our tailored store concepts.”

Meanwhile, the Stone Ridge Market H-E-B Plus in north San Antonio is the company's largest Texas store — an 180,000-square-foot replacement store that debuted in October 2008 and has been receiving accolades ever since. Planned from the outset of the ground-up project as a green building, the Stone Ridge store is one of only two LEED-certified supermarkets in San Antonio (H-E-B owns the other one as well).

LEED, or Leadership in Energy and Environmental Design, is a designation granted by the U.S. Green Building Council based on criteria including water and energy efficiency, use of materials and resources, site sustainability, and indoor environmental quality. For example, the Stone Ridge store is designed to use less water than the LEED baseline, uses 14 percent less energy than a typical supermarket and obtains 35 percent of its electricity from renewable resources such as wind.

“The utility bills are lower here than at any other store,” affirms general manager Mike Willis, “and it's significantly larger in size.”

The store is green in other ways, too. It features a Texas Backyard garden center, though with its location near the entrance, “this one's a front porch,” quips Winell Herron, group VP of public affairs, diversity and environmental affairs. The garden center concept, which becomes a Christmas store in the fall and winter, was launched five years ago and is a fixture at about a half-dozen H-E-B Plus stores.

“We're big on Texas growers. We support local vendors,” Herron notes during a PG store visit. Adds Willis: “We try to carry products that are very conducive to the land here.”

Meanwhile, inside, the expansive store-within-a-store Blooms floral department has a contingent of über-talented designers, whose custom arrangements — available for delivery or pickup for events and occasions of all sizes — rival those of the finest specialty stand-alone florist.

Front and center upon entering the store is a five-star produce department, which abounds with an array of fruits, vegetables and related healthy, fresh fare. “We carry expanded varieties here — anything you could possibly want,” Willis says. Food leader Keith Christian points out such features as the convenient basket packaging for fruit, and the handmade guacamole, a dish considered a point of pride in these parts.

Nearby, the Central Market Café on the Run offers salads, entrees and other prepared foods commonly found in H-E-B's upscale Central Market stores. “This brings the best of Central Market to other H-E-B stores,” says Herron, pointing out a grab-and-go case with milk, juice, eggs and other items positioned near the front of the store to fulfill the needs of time-pressed shoppers.

The Cooking Connection kiosk features live demonstrations by a chef preparing dishes using ingredients featured in the store. Complementing this is the Cook & Grill department, featuring a wide selection of cookware — recently expanded by 30 percent, Willis notes — of various national brands, along with H-E-B's Kitchen Table label. “It's a great tie-in to the food side,” Christian says.

The meat department does a brisk business with what Christian calls one of the store's “destination items” — seasoned burgers, including flavors like herb and pepper or roasted hatch chilies mixed with 80/20 ground chuck, and turkey burgers with cranberries and gorgonzola cheese. Market manager Frank Parlow says the gourmet burger business didn't exist at this store a year ago, but now generates a couple of thousand dollars a week.

An aisle of club packs offers larger quantities of soft drinks, cereal, paper goods and other items to help retain some club store business. The store's electronics department features a wireless phone kiosk that sells several brands of phones and calling plans.

‘We Are From Here’

H-E-B is proud of its own-brand products, and justifiably so. They rival national brands for quality and taste, and each package carries CEO Charles Butt's personal guarantee. From ice cream and snacks to beverages and bakery, H-E-B's own brands are front and center in every store.

Pricing Success

The folks at H-E-B say they believe that the retailer's strong presence in Texas is one of the reasons Texans enjoy some of the lowest food prices in the nation.

“H-E-B is committed to the lowest possible prices, and we've been recognized as one of the lowest-priced large grocers in the country,” says Craig Boyan, president and COO of the San Antonio-based company. “We hope the economy improves, but we're not betting on it.” Consequently, H-E-B has made the necessary investments - and then some — “on behalf of our customers to have lower prices.”

Being an “and company,” in the words of Boyan and his team, means H-E-B “believe[s] very much in many things, and [we] invest as far as we can on those things, including prices. Most retailers try to get close to Walmart and a few hundred items, but we are committed to staying in line with them across the board.” As one of the lowest-price large grocers in the country, Boyan says the company is resolute in its quest “to continue being priced as aggressively as possible. We invest a lot in price, and we're committed to doing a lot more.”

A parallel goal, adds Boyan, is H-E-B's resolve to defend its market leader status in many of its operating territories. But retaining and growing share means more than good pricing; it demands great service, which comes from great people.

“Customer service is not a program,” Boyan asserts. “A culture of genuinely putting people first is the main goal, and good customer service is the outcome of great partners. Genuine passion and purpose of the culture are what generate customer service.”

In many of its key markets, H-E-B has a 60 percent, 70 percent or even 80 percent share of market, much higher than many retailers in local markets, “and which are fairly unusual market share penetration percentages in the grocery business, from a regional perspective,” Boyan notes. As a result, he continues, “one would expect we're looking at new markets and other states for growth,” but that's not the case. “We think there are significant opportunities in our current trade areas, and it is our goal to focus on our existing trade areas for future growth.”

While many retailers focus on a potential site based on a certain slice of the population, where demographics or income level is identified, Boyan explains: “our goal is to serve everybody here in Texas. There are a lot of companies that are pulling back, retrenching, restraining capital spending, cutting hours and cutting labor. We, on the other hand, are very committed to Texas, and we're putting our money where our mouths are.”

In fact, in 2010, H-E-B opened three times as many stores as in the previous year. “We are remodeling or improving 25 percent more this year as we did last,” Boyan says. “We are opening a new distribution center, so we're investing in new assets, in addition to new stores.”

Suzanne Wade, president of H-E-B's San Antonio food and drug division, adds: “We're able to do that because, early on, when we saw the economy changing, we were quick to adapt to the changes. We took a lot of steps to become more efficient, so rather than chasing everything now, we are able to be ahead of the game, and we tried to move very quickly for our customers, where we thought they were going and where they ultimately have gone, in terms of more restrictive budgets.” The preparation and foresight, she adds, had positioned H-E-B to be nimble and “move forward when many others might be limping.”

Ever cognizant of the strides the company has achieved during a particularly turbulent retail cycle, Boyan says that H-E-B will continue to refine and invest in its pricing strategy. “We think consumers will reward us with loyalty, and we are committed to rewarding their loyalty by continuing to deliver on our low-price promise,” he says. “We think that's an important commitment we have made in this economy — to invest on behalf of our customers in the form of lower prices.That's an important goal of our leadership team that we intend to continue to build on.”

—Meg Major and James Dudlicek

“We think we have some really great products, and wonderful manufacturing assets for the size of retailer that we are,” Boyan says. “We want to continue to grow our ability to develop great products. We have a very rigorous testing program and paneling for new products. Producing and marketing high-quality products are a very big deal for us.”

Penny-pinching shoppers in a struggling economy have given store brands a forward thrust industrywide. With a significant private brand infrastructure — including a massive manufacturing complex in San Antonio with dairy, bakery and other facilities — H-E-B was perhaps better equipped than most companies to meet the demand. The retailer had already spent many years making products that weren't merely cheaper but, in many cases, also tastier than their rivals on the shelf. In fact, the folks at H-E-B say price alone isn't a good enough reason to launch a store-brand product.

“Our product development specifications are very well defined,” Wade explains. “We don't have to go coast to coast with our products. We really tailor our taste profiles to the folks that shop in our stores. We always see our own-brand products as a strategic advantage for us in a way that Charles [Butt] always says: 'We are from here.' We are the local folks, and our brands are a big piece of driving that important point home with our shoppers and our partners.”

Wade continues: “One of our best flavors we have in our ice cream is our San Antonio Spurs flavor. During basketball season, we sell the heck out of it, as one of most popular ice cream brands across the board. Again, those are things that people can't get anywhere else but here, which really speaks to the profile of Texas, which is different from the East Coast, West Coast or central U.S.”

Understandably so, since that's also the philosophy behind H-EB's locations: They're not just unique to Texas, but also to the spot upon which each store sits. Even so, best practices inevitably evolve, and the H-E-B Marketplace at Highway 410 and Bandera in northwest San Antonio is the birthplace of many of those ideas. In fact, the folks at H-E-B refer to this store as the “original Central Market” because many of the ideas behind that concept originated here, since its opening in 1991.

H-E-B's Key Investments

Craig Boyan, H-E-B president and COO, outlines how the retailer invests its resources:

• Stores: “We invest great resources into our stores and think that we are one of the better retailers at tailoring and multiformat. We work on each store so it's the best store for that community.”
• Price: “Our studies suggest that we are one of the lowest-priced large grocery chains in the country. We are committed to low prices and continue to invest in low prices for our customers. It's an important part of the respect we show our customers.”
• Product: “We are proud of the quality of our products and work to have the best fresh offering, and the best own-brand and self-manufacturing operation possible. We have our internal own-brand department and our own quality assurance lab.”
• Community: “We are one of the largest philanthropic givers in Texas. We're in business to run a great business, and we do that so we can invest in our partners and our communities. It's our mission.”
• People: “People are the most important part of H-E-B and the reason for our success. We work hard to provide good pay and benefits, and to put partners first. Putting partners first in all we do is at the heart of our culture.”

The 77,000-square-foot market is considered a “core store” for its target audience. Its look is truly unique, starting with the two railroad refrigerator cars that make up one end of the produce department. Inside is an aguas bar, along with the popular Chinese Kitchen. “This is a huge lunch store,” Yvonne Maldonado, unit director, says during a walk-through with PG. “It's about having fun and making an immediate impact.”

Unique features at this store range from the Texas-sized — like its meat department, considered the largest in the Lone Star State — to small details like the concrete floor textured to resemble wooden planks, a first for the retailer.

The 410-and-Bandera market also makes its mark with its ethnic offerings. Assistant store director Jose Campuzano, a 12-year H-E-B veteran, began his career with the company in Mexico, and thus shares his knowledge of authentic Mexican products. “The customers feel like they're home,” Campuzano says.

And that's what H-E-B is all about — from customers looking for exactly what they need, to partners finding better ways for them to get it, this is a retailer for whom the human element is both the beginning and the end.

“It's all about the people,” affirms Stone Ridge general manager Willis. “It's part of our culture.”