November 3, 2005
HEB President Offers Techniques on Rivaling the Supercenters
by Sandie Taylor

Just before Sam Walton, the founder of Wal-Mart, died in 1992, he predicted that by the year 2000, 50 percent of all retailers would no longer be in business.

“He wasn’t far from wrong,” said Scott McClelland, president of Central Market and HEB Houston at his Oct. 26 talk for the MBA Executive Speaker Series. “Every day I wake up and worry about Wal-Mart.”

HEB, which competes in Texas and Mexico as one of the 10 largest food and drugstore chains in the United States, raked in $11.6 billion in sales for 2005 (its 100th anniversary year). In San Antonio, 90 percent of consumers in the area visit HEB at least once a month. And while many grocery stores in Texas are being forced to withdraw from several locations, HEB continues to open new stores throughout the state.

As it appears, the company has a strong hold on Texas grocery consumers, but there’s still one mammoth of a problem that keeps McClelland on his toes—Wal-Mart Supercenters. Texas is home to more supercenters than any other state—215 to be precise. When a regular Wal-Mart adds the food section, sales for the entire store increase by 35 percent.

It’s McClelland’s quest to fight off the low-price rival and find new ways to keep customers marking off their grocery lists at HEB. “If you want to compete with Wal-Mart, you have to look for other ways to differentiate,” McClelland explained. “Wal-Mart can’t have lower prices on items they don’t sell.”

For example, to drive assortment, HEB offers 86 additional fresh pork cuts than Wal-Mart to appeal to various consumer needs.

HEB also wants to be sure that its products are not only on the less expensive end of the spectrum compared to other grocery stores, but also fresher. McClelland’s mission is to be either the best or the only provider of goods that people buy frequently, and to also accommodate HEB’s market. HEB knows what Texans want, explained McClelland. That’s an expertise Wal-Mart can’t claim.

Brisket is one item that McClelland says Texans can’t live without. The only problem is that if you buy it at a restaurant it goes for about $6.99 per pound, and if you cook it at home it takes hours to prepare. HEB found an appealing middle ground by manufacturing its own brand of fully-cooked brisket and packaging it at $3.99 per pound. With this one item, HEB diversified its shelves, offered an item customers buy frequently and catered to Texas taste—which gets more customers’ feet in the door ready to purchase more.

HEB also expanded its brand by adding the Party Planning and Texas Backyard sections to some stores. “There’s a synergy between food and entertaining,” McClelland said. Select locations also feature the Cooking Connection—where a hired chef demonstrates creative food preparation, exposing customers to meals beyond the signature dishes—which increases in-store merchandising and captures cross-departmental sales.

When asked whether HEB has designs to broaden its market outside of the Lone Star State, McClelland responded that the company’s primary goal is to reach cities such as Dallas and El Paso where HEB does not exist. “We think we need to look at both Texas and Mexico,” he said. “There’s a lot of Texans we’ve yet to serve.”

Notable Soundbites

On communicating with employees:
“When you manage 300 people, the way you choose to interact helps them see more potential in their life. Language creates possibility (or not).”

On working for the man:
“If you don’t know who you want to be, you are apt to live your life for someone else.”

On his business mantra:
“Collaboration creates alignment.”

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