Texas Super (Grocery) Store Wars

by, Terra Rivers, Contributor

People have been economizing the way they shop since the 2007-2009 recession hit. These days, groceries are the fastest growing retail market, and like all retail mediums growth sparks competition.

Today, the competition can be found no further than Bexar County, where Walmart and H-E-B are playing hungry-hungry hippo with real estate.

Between 2014 and 2015, Walmart added a dozen stores to the San Antonio area and six more so far this year. The multinational retail chain even bought the 13-acre site next door to a recently remodeled H-E-B store in Universal City; it plans to build a 182,000-square-foot supercenter on the site. Spring Branch has a newly built Walmart catty-corner to an H-E-B plus. And an old H-E-B store on the northeast of San Antonio has been converted into a small neighborhood Walmart.

While the multinational retailer’s land grab is a major push into home turf, H-E-B isn’t backing down. According to an analysis of Bexar County land records by the San Antonio Express-News, the Texas power house has matched Walmart’s five-year 250-acre land grab acre for acre.  Despite Walmart’s tendency to dominate the market upon arrival, south Texas is one of the few places it hasn’t been able to take control of. H-E-B controlled the San Antonio grocery market 48 percent-to-28 percent last year. It leads the market in Austin at 46 percent compared to Walmart’s 19 percent; it also jumped into the lead last year over Kroger and Walmart with 21 percent.

In fact, most of the places in Texas where Walmart leads the market, like in Dallas-Fort Worth, are areas where H-E-B has a minimal presence.

“Walmart has learned that it can’t win every time,” David Livingston said, a supermarket analyst and principal of the consulting firm DJL Research. “H-E-B pretty much owns the market.”

But why is that?

First, H-E-B is a company that’s heritage runs deep in Texas. It started in 1905 with Florence Butt, who opened Mrs. C.C. Butt’s Staple and Fancy Grocery on the ground floor of her Kerrville home. It has since expanded throughout the state and across the border into Mexico. In 1971, it expanded to different markets; Mi Tienda focused on Hispanic shoppers. Central Market competed with Whole Foods, and H-E-B Plus competed with Walmart.

Second, unlike Walmart, H-E-B uses local suppliers from Texas, which cut transportation costs; it allows them to keep produce fresh and offer lower prices to their customers. But H-E-B does something else that no other grocery store does. Once a year, H-E-B holds their Quest for the Best contest in different locations around Texas. The contest draws in local suppliers and small businesses looking to market their products. Its goal is to bring the best Texas made products to shelves across the state. Several winners are selected from every category, BBQ sauce, hot sauce, body lotion, cleaning supplies, etcetera, and H-E-B helps the business manufacture the product and get it on the store’s shelves around the state.

Third, H-E-B is one of the largest private companies in the United States. As a family owned business, the Texas powerhouse doesn’t have to worry about pleasing investors or meeting quarterly earnings forecasts. It can reinvest in its business at any time. It also manufactures its own products for its store brands. H-E-B also localizes it stores adjusting products availability to reflect preferences of the neighborhood it serves.

But being a Texas favorite doesn’t necessarily mean Walmart won’t keep up. Since moving into San Antonio, the two competitors have taken lessons and tactics from one another. Walmart has started using local suppliers to stock its shelves and arranging produce aisles in a similar fashion as the powerhouse. Prior to Walmart’s arrival, H-E-B studied the company’s productivity loop, a strategy that helps keep the company’s growth balanced with productivity. It adapted the strategy to its own business to keep up.

“They anticipated Walmart’s arrival, and they cut the advantage Walmart has over every other retail chain,” said Leigh McAlister, a marketing professor at the University of Texas and co-author of Grocery Revolution: The New Focus on the Customer. “H-E-B is six steps ahead of everybody else.”

And then there’s the uncannily similar slogans: Walmart’s “Low Prices Every Day” and H-E-B’s “Every Day Low Prices.”

Though Texans in Bexar County are showing favor to H-E-B, it’s too soon to call victory for either competitors. While Walmart and H-E-B are facing off down south, new competitors are surfacing statewide in the forms of Whole Foods, Trader Joe’s, Kroger, Albertson owned Randalls and Tom Thumb. And Walmart still holds an advantage in areas of Texas where H-E-B’s are few.

Walmart and H-E-B may not put each other out of business any time soon. But Texas may still be on the edge of all out grocery wars. Next, it’ll be grocery cart derbies in the parking lots.