On the day H-E-B officials gathered in McKinney to break ground on the newest location in North Texas, the president of the grocery chain shared some retail secrets in Fort Worth.
What he wasn’t sharing were any clues as to when a store might open in the city.
Scott McClelland, president of food and drug operations at San Antonio-based H-E-B, spoke at the Tandy Executive Speaker Series at Texas Christian University. He was interviewed by Daniel Pullin, dean at the TCU Neeley School of Business, who voiced the question that seemed on everyone’s mind: When will there be a store in Fort Worth?
McClelland drew out his answer by pointing out that H-E-B is much smaller than its competitors, such as Walmart, Amazon (which owns Whole Foods) and Kroger.
“We decided to fight a war like the Vietnam War. It was guerrilla warfare. We did stuff that a big national competitor couldn’t, wouldn’t, or didn’t do. We knew we had an advantage because as Texans, we eat differently than people in Arkansas. And we live differently,” he said.
As a result, H-E-B is very careful and deliberate about how, when and where they open their stores. That strategy has helped H-E-B create an emotional connection with its customers.
“We study things,” he said. “And while, if it were up to me alone, I might have been here earlier, we wanted to make sure that we have the best format.”
Still, as the company opens locations in McKinney, Plano and Frisco and owns plenty of real estate in the area, a Fort Worth location is coming, he said.
“We’ve had such good results in our store that’s out in Hudson Oaks, near Aledo, it’s done well. And so we’re coming, be patient,” he said.
While residents in North Texas want H-E-B stores, the opposite is true in Houston, which has plenty of H-E-B locations, but few Central Market stores, the grocer’s high-end brand, McClelland said.
“In Houston, we have H-E-Bs, but we have one Central Market, so people in Houston are like, ‘Yeah, I know I have H-E-B, but could I just have a Central Market?’ And so what you’ll find is nobody’s ever truly satisfied,” he said.
Grant Gary, president of brokerage services at Fort Worth-based The Woodmont Company, a retail-focused real estate agency, said H-E-B has been very strategic with its growth and purchases real estate very early before the company decides to build at a location.
“They have plenty of sites in and around Fort Worth where they can build, but they wait until the time is right,” he said.
The new 118,000-square-foot McKinney location will be the 415th of the company’s stores and the third store currently under construction in the Dallas-Fort Worth area. H-E-B is already in the North Texas area, but not in any of the region’s four largest counties or cities. The grocer has stores on the periphery, in Hudson Oaks, Burleson, Cleburne and Waxahachie.
H-E-B began in South Texas in 1905 and currently employs more than 116,000 and has sales of more than $32 billion annually.
One reason it takes so long to open a location is that each store is crafted for the specific area, McClelland said.
The grocery stores of many of H-E-B’s competitors are much the same on the inside, he said. Walmart, he said, has merchandise that is pretty average American.
“Look, there’s nothing average about Texas,” he said. “And what’s interesting though, is that not only do people in Fort Worth eat, or Texas eat differently than people in New York and California, people in Fort Worth eat differently than people in Houston. And frankly, there will be people on one side of Fort Worth that will eat differently than the other side, based on your ethnicity, your income and your education level.”
H-E-B tailors each store to the demographics of the people who shop in it, he said.
Pullin asked about H-E-B’s extensive use of private label products.
The company’s strategy with those products differs from many other grocers who use private or store-labeled products for lower-quality or cheaper products, McClelland said. H-E-B calls them “own brand” products, and they are designed to be either better than or different than the national brand. That doesn’t happen overnight, McClelland said, using as an example the company’s effort to come up with a corn chip as good or better than a Frito.
“We hired six people away from FritoLay to come to us. And the magic on a Frito is that you raise the oil temperature to just below the flashpoint before you put the corn meal in and cook them,” he said. “Ten years it took us to get there. So one of the things we’re confident on is that our quality is better.”
Creativity is a big part of the job at H-E-B, McClelland said. He told a story about avocados and how the grocery was able to turn its biggest “shrink” item – products that have to be thrown away – into a big part of its business.
“Our biggest shrink item … in produce was avocados because they would get bruised, right?” he told the audience. But many people wait until they go to a restaurant to make guacamole instead of making it at home. So H-E-B decided to take the avocados that have one brown spot, cut around the area and make guacamole out of the rest.
“It’s now a $16 million business a year for us to make guacamole in the stores. And we have all kinds of different flavors. And so we make it fresh in store,” he said.
That creativity extends beyond the food. It is also used to get the stores open during a disaster. One Houston-area hurricane resulted in the government not allowing anyone in or out of Beaumont, McClelland said. But H-E-B wanted to open its stores to get rid of food that had been spoiled and to provide for people who were stranded there.
“I had nine stores without electricity in 90-degree heat. That’s not a pretty picture,” he said.
McClelland couldn’t get a meeting with the federal government, so he got creative.
The company got three buses with workers and got a Cadillac Escalade.
“Somebody had a blue light like they used to have at Kmart. We stick that on the top,” he said. He also typed up a letter on official stationery that said the buses were authorized to enter the Beaumont-Port Arthur area to clean out and open the stores.
The police pulled the buses and Cadillac over outside of Beaumont, telling them they couldn’t enter.
“So I pull out the letter on my letterhead. They look at it. They go, ‘OK, I guess you can go ahead,’” he said.
“We got our stores open a week before Walmart,” he said. “And then we went in and we just gave away ice and gave away water to people who lived there. It made such a difference in our business.”
It’s that kind of creativity and innovation that can inspire loyalty among the grocer’s customers, said Woodmont’s Gary.
“They innovate concepts and they explore things to see if consumers will respond and if they will improve their business,” he said.
In 2019, H-E-B was named the best barbecue chain in the state by Texas Monthly. “That’s the kind of thing we can do, few if any others can. Our customers live it,” McClellan said.
Bob Francis is business editor for the Fort Worth Report. Contact him at bob.francis@fortworthreport.org. At the Fort Worth Report, news decisions are made independently of our board members and financial supporters. Read more about our editorial independence policy here.
This article was originally published by Fort Worth Report.