Can a privately owned regional grocery chain succeed with national brand competitors such as Walmart and Kroger? How has the recession impacted grocery stores’ share of stomach and how people shop?
And, when I graduate, why should I consider working at H-E-B? Aren’t I earning a college degree so that I don’t have to work at a grocery store?
These are the type of questions that were discussed during the third annual H-E-B Day at Mays Business School at Texas A&M University on October 14. The event, hosted by the Center for Retailing Studies at Mays, invited executives from H-E-B to speak to classes of all disciplines within the school, from agribusiness to accounting, giving practical lessons on topics such as assortment, marketing and promotions, and innovation. Executives, including presidents, vice presidents, and directors, addressed more than 2,300 students in 20 classes.
For most college students, H-E-B is the place to look for Ramen noodles and Coke, not a career. However, with 325 stores in Texas and Mexico and annual sales in excess of $15 billion, the privately owned Texas grocery chain may be worth a serious look from business school grads said Scott McClelland, president of H-E-B food and drug for the Houston region.
According to McClelland, the recession has been great for the grocery industry, as people are eating at home more than they were when they had more discretionary income. He introduced students to his “share of stomach” concept: the stomach as a pie chart, indicating where percentages of food came fromâ€”grocery store, restaurants, vending machines, etc. As people tighten their budgets, restaurants share of stomach decreases, while the grocery store share increases. McClelland joked that in the grocery business you hope for recessions and hurricane scares, as both drive shoppers to the store.
Echoing his thoughts on the economy, Molly McAdams, vice president of Own Brands at H-E-B, talked with students about the strategy behind marketing each of the company’s five private label brands when she addressed an upper level marketing class. McAdams says that in a value economy, shoppers’ brand loyalty is challenged, and they are willing to switch from name brand to store brand items in order to save money. McAdams also talked about private label products, like H-E-B’s Easy Melt, that are equal to or superior to national chain brands, like Velveeta, but cost less. This gives H-E-B leverage over suppliers: by pricing Easy Melt well below Velveeta, they can sell more of the store brand, which helps them negotiate a more competitive price with Kraft Foods on their product.
McAdams informed students about the branding effort she has been involved with at H-E-B after a customer survey revealed that shoppers weren’t aware of the difference between Hill Country Fare (the economy store brand) and H-E-B (the premium store brand). She shared about H-E-B’s efforts to differentiate and reinforce the brands through customer education. “Each one of [our brands] is really important to the portfolio, because in the world of H-E-B, we believe that every customer in our marketing area is our customer,” she said, emphasizing the spectrum of the store brands offered by H-E-B. “We want everyone shopping at our stores. What we always say about market share is that when it comes to market share, we don’t shareâ€¦We’re not just looking for people that make a lot of money, we’re not just looking for people that are below the poverty line. We want everyone to shop at our stores.”
On a related note, McClelland discussed the stratification of H-E-B store formats to meet the needs of diverse demographics. The chain offers traditional grocery stores, in addition to H-E-B plus stores, which carry a greater selection of general merchandise and have increased service; Mi Tienda, a grocery store aimed at the Hispanic population; Central Market, the store for “foodies,” which sells organic and natural items; and coming soon, SmartShop, a smaller grocery format with a focus on economy. He presented about assortment across each of the store formats and the shifting assortment needs across the state. “People in Houston don’t shop the same way as people in San Antonio,”â€”or from one end of Houston to the other, he said, discussing the differences in the population within a single community. To maximize H-E-B’s profitability, a retailer must be nimble enough to offer store formats and assortments that suit the customer. This flexibility has enabled H-E-B to stay in the game when other grocery chains have collapsed due to turmoil in the marketplace.
H-E-B is a corporate sponsor of the Center for Retailing Studies at Mays, so their visit was two-fold: while in the classrooms to teach, the executives from H-E-B were also there to recruit. McClelland invited students from all areas of business to consider a career at H-E-B, as the company has opportunities for marketing as well as supply chain majors and everything in between.
“One of the reasons why we are so committed to Mays is because we have tremendous success with Aggies, more so than people from other schools,” said McAdams. Last year, the grocery chain extended more employment offers to Aggies than all of its other target college campuses combined. This year’s recruitment goals exceed 50 new hires, making Texas A&M and Mays Business School the top university partner for H-E-B.