Distinctively Texas

When looking at the San Antonio grocery market, its not hard to picture a stereotypical western showdown between two rival retailers: H-E-B and Walmart. After all, they are the only two major grocery retailers in that market, says Jim Wisner, president of Libertyville, Ill.-based Wisner Marketing Group.

And its quite possible that if such a showdown took place in real life, most San Antonians – and for that matter, most Texans – would be rooting for H-E-B to fire the first shot. Unlike Bentonville, Ark.-based Walmart, H-E-B is based in San Antonio and has deep roots in Texas, with Florence Butt opening the first store in 1905 in Kerrville under the C.C. Butt Grocery Store name. And Wisner notes that the retailer has an intimate understanding of what Texans want.

"They bring a very localized flavor in their markets, and I think that helps them a lot," he points out. "The customers trust them. Its kind of like, Hey, theyre a part of us. ... Theyre not an outsider. And within Texas, that works really well."

It works so well that H-E-B also is able to compete effectively against another retailer with Texas roots and a loyal shopper base: Whole Foods Market, which is based in Austin. But while H-E-B competes against Walmart on pricing, it competes against Whole Foods on product quality and variety, says Craig Rosenblum, managing partner with Barrington, Ill.-based Willard Bishop.

This competition on both the pricing and the quality/variety fronts means H-E-B appeals to both value-seeking shoppers and upscale shoppers seeking high-quality perishables and specialty foods, says Rich Mitchell, senior retail analyst with the North American division of London-headquartered Planet Retail.

And a huge number of these shoppers love H-E-Bs store brand products. In fact, most Texans dont view H-E-Bs namesake brand any differently than they view the national brands, Rosenblum points out.

"Years ago, I was reading some research that H-E-B asked shoppers to name their top-five national brands," he says. "And over 90 percent surveyed named H-E-B private label [in their list]. The quality, brand equity and marketing are so good, the shopper thinks this is a national brand."

A two-pronged approach

Neil Stern, senior partner with McMillanDoolittle, Chicago, says H-E-B offers a two-pronged strategy with its private label program. For the first prong, the retailer takes a "product-by-product" approach to compete against the national brands, carefully choosing which categories to enter – and determining the best way to enter them.

"They are effective in penetrating difficult private label categories – tortilla chips, energy drinks, laundry detergent – because of a very focused approach," he states.

To give shoppers a value alternative to the national brands, H-E-B relies on its national-brand-equivalent (NBE) H-E-B brand – with a Texas spin. On its website, the retailer says H-E-B brand products are "made for the love of Texans," with regional favorites such as H-E-B Texas Heritage Hot Dogs, H-E-B Chef Prepared Spicy Texas Cole Slaw, H-E-B Fully Cooked Brisket and H-E-B Seasoned Fajitas.

"All of them are tasted, tested and approved by Texans before they ever get to our shelves," the retailer says on its website. "Over the years, more than half a million Texans have approved our products."

Meanwhile, H-E-B offers its value-tier Hill Country Fare (food, beverage and household goods) and Hill Country Essentials brands (personal care products), which present up to 40 percent savings over national brand items, the retailer says.

For the second prong, Stern says H-E-B focuses on going beyond the national brands and providing innovation where it makes sense. The retailer does this particularly well with its Central Market brand of premium-tier products.

According to Wisner, H-E-B originally developed the Central Market brand for its upscale Central Market banner. The banner, which comprises nine stores, offers a "Whole Foods experience, only more foodie-focused," he points out, adding that the gourmet chain does lots of themed marketing – such as a month dedicated to French foods – and does it better than almost any other retailer in the country.

"Theyve created with Central Market this wonderful brand as a store, and that halo extends across the Central Market products that they sell at the H-E-B stores," he states.

Some examples of products under the Central Market brand are Central Market All-Natural Italian Sparkling Mineral Water, which is bottled at its source in Northern Italy; Central Market Organics Hatch Green Chile Tortilla Chips, which are cooked in organic sunflower oil and dusted with a seasoning made from hatch green chili peppers; and a line of Central Market all-natural soups, which are made in Texas and include Italian Tomato Asiago Soup, Spicy Hatch Pozole, Roasted Red Pepper Soup and more.

Stern also notes that H-E-B shows its commitment to innovation through specific niche brands it offers. These brands include H-E-B Fully Cooked (pre-cooked packaged meats), H-E-B Baby (baby care items) and more.

But perhaps the most noteworthy niche brand H-E-B offers is H-E-Buddy. Stern says the brand of kid-friendly products truly exemplifies H-E-Bs commitment to innovation.

Wisner agrees, noting that the brand really grabs the loyalty of parents – some of the most prominent private label purchasers.

"I dont know anybody else thats done [a kid-friendly brand] that well," he explains. "They really understand engaging with children. Of course, families are bigger basket-buyers. They also buy more private label, so they are more profitable customers."

According to H-E-Bs website, H-E-Buddy products have "strict nutritional standards," with foods and beverages subject to sodium limits and containing no empty calories, trans fats, high-fructose corn syrup and partially hydrogenated oils. The line also consists of a number of non-foods, including personal care items, school supplies and more. All product packaging under the brand bears the H-E-Buddy Seal of Approval, as well as cartoony graphics to attract kids.

Eye on the perimeter

Just as it does in its center store, H-E-B offers a very "comprehensive" store brand program in its perimeter departments, Stern says.

For example, research from McMillanDoolittle shows that the retailer boasts lots of made-from-scratch pastries and desserts in its bakery, as well as locally procured produce in its produce department, including a wide selection of value-added products – particularly cut fruit.

Value-added products also get prominent placement in the meat department. The research shows many facings of H-E-B Fully Cooked products, including Pollo Asado, Beef Meatloaf with Red Sauce, Pork Al Pastor, Pork Carnitas and more.

Other notable areas showcasing own-brand products within H-E-B stores are a gourmet cheese shop incorporated into a traditional deli, a serviced sushi department bridging the deli and the seafood counter, and a case for gourmet cakes in various "decadent flavors," the research shows.

Hands-on procurement

A major reason H-E-B has such high-quality store brand products is that it invests more money in – and is a lot more serious about – its product procurement initiatives than many other retailers, Wisner explains. For example, many retailers simply would turn to an importer when looking to source a product from Italy or France – but not H-E-B.

"They literally have someone on the ground in Europe scouting stuff. They take from that standpoint what I would call ... a typically more European approach," he says, adding that while he hasnt seen H-E-B own-brand buyers much at domestic trade events, he has run into them in Central America, Europe and other locations abroad.

The retailer also is smart when it comes to product development. H-E-B proved itself to be exceptionally crafty even with a commodity product as simple as "regular" eggs. According to Wisner, members of the retailers private brands team attended a workshop he hosted centered on how retailers could differentiate their eggs. And one year after the workshop, Wisner found himself pleasantly surprised when he walked into the dairy department of a San Antonio-area H-E-B.

"There was this beautiful signage over the dairy area talking about their eggs, which are now date-coded, all of which are stamped with the H-E-B logo," he states. "They actually created a premium commodity egg."

The eggs also had been packaged in clear cartons with bright graphic inserts. And they all were double-A grade, Wisner says.

Smart selling

H-E-B also is smart when it comes to pharmacy operations; the retailer understands that pharmacy programs make up a major part of customer loyalty, Wisner says.

"The most loyal customers in any store typically are pharmacy customers," he explains. "People dont like to switch those things around. So if you get those people locked in, you can get them locked into the entire store, [and] they dont shop around as much."

To get shoppers "locked in," H-E-B offers free delivery for prescription medications, Wisner notes.

And H-E-B doesnt stop there. Wisner adds that the retailer also offers a program to educate pharmacists about H-E-B brands, and how to fit H-E-B health and beauty care items into a healthcare regimen. As a result, the pharmacists become evangelists of the H-E-B brand.

H-E-B also makes sure to use plenty of signage to communicate the uniqueness of its own-brand products. In the bakery, for instance, the retailer boasts signage with a "Made Fresh In-Store" logo and statements such as "Our bakers make it from scratch right here in-store daily," the McMillanDoolittle research shows. And in the produce department, the retailer communicates the freshness of some of its produce with signage bearing a picture of the products farmer.

Also communicating a "local" message, H-E-Bs annual "TexFest" promotion – the most recent promotion was held Feb. 27 through March 12 – puts the spotlight on products from Texas. In a commercial on www.heb.com this year, the retailer said it would feature "Go Local" tags on a number of national brand and store brand products, including H-E-B Creamy Creations Ice Cream, H-E-B Seasoned Beef Fajitas, H-E-B Premium Smoked Sausage Links, H-E-B Heritage Hot Dogs and more. It also paired the promotion with in-store cooking demonstrations, product samples and special deals.

But whats possibly even more impressive than H-E-Bs in-store merchandising initiatives is how the retailer gets involved in Texans lives outside of the store. For example, H-E-B recently held a contest in which it invited children to submit their packaging design ideas for H-E-B Toasted Oats and H-E-B Honey Nut Toasted Oats cereals. In addition to having his or her drawing featured on packaging, each of the two grand-prize winners – who were not announced as of press time – will receive $5,000 and a breakfast party at his or her school.

And seeing the mascot for its H-E-Buddy brand as a true Texas icon, H-E-B sent it out onto the court during halftime at a San Antonio Spurs game. Wisner notes that he witnessed the mascot – also known as Health E. Buddy – moderate the games halftime free-throw contest. And H-E-B is so well-known to Texans that everyone seemed to recognize the mascot.

"That character and that kind of branding and that kind of emotional connection with the customer ... made that symbol iconic to the customer," he says.

Online and upfront

Many retailers include basic information about their store brands on their consumer websites, with some of them even offering recipes, product background info and more. But San Antonio-based H-E-B incorporates its store brands so much into its web initiatives that
Private Label => Store Brands honored the retailer with a Store Brand Achievement Award last November in the "Best Use of a Retail Website to Promote Store Brands" category. Heres what makes the retailers efforts here so impressive:

• The top of H-E-Bs homepage, www.heb.com, sports a tab labeled "Our Brands," which links consumers to a page dedicated to the retailers core private brands: H-E-B, Hill Country Fare, Hill Country Essentials, Central Market and H-E-Buddy. Also on this page is a section dedicated to helping shoppers find health-and-wellness-minded private label products, and another featuring newly released own-brand items.
   
• Also impressive is that front and center on www.heb.com, H-E-B offers a box that holds recipes housed in several different sections (at time of press, sections included "Moms Day Brunch," "Its Grilling Time," "Best Sandwiches" and more). Not only are the recipes unique and creative, but they also often rely on H-E-Bs private brand products as ingredients.
   
• Elsewhere on the homepage is a link to the digital edition of H-E-Bs My H-E-B Texas Life magazine, which gives plenty of exposure to H-E-Bs private brands.