Business

When are we getting an H-E-B? The answer’s complicated

Five things you should know about H-E-B

In spring 2019 H-E-B will open a new store in Hudson Oaks. Currently the chain has no stores in Fort Worth, Texas. Here are some things you might not know about H-E-B.
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In spring 2019 H-E-B will open a new store in Hudson Oaks. Currently the chain has no stores in Fort Worth, Texas. Here are some things you might not know about H-E-B.

It’s been a question on the minds of Fort Worth residents for years.

Are we ever going to get an H-E-B grocery store?

The Texas-based company was ranked the fifth-best grocery chain by Market Force, and that’s high praise considering it only has stores in one state and Mexico. It’s rated by Glassdoor as one of the best retail companies to work for. People who frequent H-E-B stores crow loudly and proudly about how the company is a great community partner, how the the product selection is top notch, how the store’s tamales could probably cure cancer, and that if H-E-Bs were everywhere there would be no war.

So — are we ever going to get an H-E-B grocery store?

Well, the answer’s kind of complicated.

Making money

The first thing to understand when talking about grocery stores is that the profit margin for the actual sale of goods is minuscule. Tiny. Razor-thin.

Market research shows that profit margins for grocery stores are between 1 and 3 percent. Most of the time, grocers are only making a few cents per item. That jug of milk in your refrigerator? You probably paid close to the same price it cost Kroger to put it on its shelves.

The reasons for this are simple. First, grocery stores have to employ a lot of people to keep their 30,000 square-foot store afloat: There’s cashiers, stock people, maintenance people, managers, you name it. Grocery stores can employ up to 150 people, and if the store is open 24 hours, that number gets larger. It costs money to pay their salaries and benefits, so the biggest cost to running a successful store is often payroll.

So take H-E-B: according to their website, they have more than 340 stores and more than 100,000 employees. That’s roughly 294 employees per store. And assuming they’re all making minimum wage (they’re not, but let’s assume), that means H-E-B is spending roughly $2,131.50 per hour to keep everyone at a single store employed.

Second, not only does it cost grocery stores to buy the products they sell, but it also costs money to have them shipped to their specific location. That’s why grocery stores have distribution centers that are close to their store locations — the distribution centers take in products from all over the country and house them until the stores that need the products can have them shipped in.

The farther away the distribution center, the more it costs for a grocery store to keep a product stocked.

Walmart has three distribution centers in North Texas alone. H-E-B’s closest distribution center to North Texas is in Temple.

And lastly, grocery stores have to keep prices low. No one wants to pay $10 for a dozen eggs. If Tom Thumb started selling bananas at $5 per pound tomorrow, you’d be outraged. Grocery stores keep the prices of their products close to the actual cost because people expect to pay lower prices for food.

So if grocery stores operate at tiny margins of profit, how do they make their money? Well, two ways. The first is by selling a ton of products. They want you to buy as much stuff as you can in a single trip, which is also why they put eggs and milk at the back of the store and all those gum packets right up at the cash register, when you’re still debating if you have everything you need.

If a store is making just 20 cents on a single item, that’s not a lot of money. But if you walk out of that store with 20 items, that’s a total profit for the store of $4.

The second way grocery stores make money is by repeat business. Grocery stores are unique in the U.S. economy in that they enjoy high rates of brand loyalty from their customers. According to a Trend Source study, 76.42 percent of people had a favorite grocery store. When a high number of people are going to the same grocery stores again and again, that means more profit for that store.

Cheryl H. Bridges is an adjunct professor of marketing at Mays Business School and the interim director for the Center of Retailing Studies at Texas A&M. She said that a big way grocery stores make money is when people return.

“The customers come back once they find a grocery store they like,” Bridges said. “It’s really a strategy on building a retail business on returning customers. They’re building that profitability through volume.”

Because grocery stores rely so much on volume and repeat business to make money, brand awareness is extremely important. Grocery stores tend to go where people already know and trust their name, and they’re going to be extremely cautious about opening a store in a brand-new location. For example, you’re not going to find H-E-B opening up a store in Maine anytime soon, because who in Maine has ever heard of H-E-B?

Now, this is the part where Fort Worth H-E-B fans argue that it’s already a well-known brand in the area, despite the fact that there isn’t a store here. It has such a great reputation among Texans that the love for the store borders on the cult-like.

Yes, it’s definitely true that H-E-B has a lot of name recognition in North Texas, but go back to that 76.42 number from earlier. Most people already have a favorite grocery store — and that leads to H-E-B’s next problem.

Making competition

The Dallas-Fort Worth area already has a ton of grocery stores. The biggest players here are Kroger and Walmart, but we also have Tom Thumb, Albertsons, WinCo, Whole Foods, Sprouts, Trader Joe’s, Fiesta, Aldi ... the list goes on and on. And that’s not even counting the lower-cost markets that are moving into grocery, like Dollar General and Dollar Tree.

So think of it like this: Say there’s a town of 100,000 people with a Walmart and a Kroger, and half of the population goes to each. A third grocery store probably wouldn’t come in, because there just aren’t enough customers to go around. Remember, the way grocery stores make money is volume and return business. If they don’t have enough people frequenting their stores, H-E-B isn’t going to bother.

You might have noticed that the earlier list of grocery stores in the area didn’t include a Central Market. Well, yes, Central Market is another grocer we have here, and it’s actually a brand under the H-E-B umbrella. That’s another problem for H-E-B — if it were to open a store here, it would be competing with its own brand.

And we haven’t even touched the problem of online disruption. Ever since Amazon bought Whole Foods in 2017 and offering same-day grocery deliveries, more and more people have been turning to their computers to shop for food than they had in the past. The internet is just one more thing H-E-B would have to contend with if it were to open a store in Fort Worth.

There’s still some hope, however. Kroger and Walmart have shown signs of slowing down in the past few years. Last year, Kroger closed 14 stores in North Carolina due to market “oversaturation,” and Walmart has been struggling in recent years due to competition from Amazon in the retail market.

And the grocery industry is still a difficult one to completely disrupt with the internet. Part of the reason you go to the grocery store to buy your apples is because you want to be able to see for yourself that they haven’t spoiled.

Additionally, to compete in the world of the internet, grocers have added to the shopping experience, whether that’s with prepared meals, in-store bars and restaurants and free samples. You can’t nosh on free cheese cubes while shopping for food on your laptop.

That’s why some experts don’t think that internet will ever truly be able to take over brick-and-mortar grocery stores.

“(Online services) have been great for convenience,” Bridges said, “but do I think it will eclipse the brick-and-mortar experience? No.”

This gives H-E-B an opening in Fort Worth.

Making room

Whether it feels like it or not, H-E-B has been seriously considering making a move in the area for a long time. The company actually owns 24 sites of land in North Texas — the only trouble is, they haven’t done anything with that land.

Robert Sturns is the economic development director for the City of Fort Worth. He said H-E-B has an unusual business model of buying up land where it might plan to build and just sitting on it.

“Usually if (retailers) begin to move forward on land acquisition, there is some thought that within 18 to 24 months that they will actually go ahead and build something,” Sturns said.

If H-E-B were to decide to build a store in Fort Worth tomorrow, it would likely be in an area of the city that doesn’t already have a grocer. Areas in the south are booming with residential development, but no grocery store to support it. That could be an opening. Another fast growing area is north Fort Worth, where retail, residential and industrial is developing faster than people can keep track of.

H-E-B would also likely consider an area with an adequate average household income.

“We’re hopeful that at some point they will find a site that meets their interior needs that they’re looking for to have an H-E-B here,” Sturns said.

Sturns said that, if H-E-B were to decide tomorrow to build a new store on a site of land it already owned, the city would do what it could to get the site ready for the company, depending on the area it wanted to move into.

“It’s more what do we need to do to get the site ready, what do we need to do from an infrastructure standpoint,” Sturns said. “Based on the cost margins of going into the area, how can we mitigate some of the risk for the development.”

Making a store

Twenty minutes to the west, the town of Hudson Oaks is getting antsy with excitement because they are getting their very own H-E-B store.

City Administrator Patrick Lawler said that, as a native Houstonian, he had personally wanted an H-E-B to come for a long time. So when the city brainstormed companies it wanted to work with, H-E-B was a natural choice.

“They were such a community partner in my hometown,” Lawler said. “We were looking for just a really solid business to partner with.”

Hudson Oaks first approached H-E-B in 2007 and from there developed a long-term relationship. The city was an attractive one for H-E-B — there’s a population of 2,400 people, and the average household income is $126,000. The city was right next to Texas 180 and not far from Interstate 20, which means 80,000 cars travel through Hudson Oaks every day. And the only grocery store in the city is Walmart.

Lawler said another advantage they had was the fact that Hudson Oaks does not levy a property tax.

“It allows us to be very flexible,” Lawler said. “We’re not necessarily beholden to the property value side of things.”

Of course, the citizens of Hudson Oaks went through their own doubt. The city started talks with H-E-B 12 years ago, so they started to despair that a new grocery store would ever actually open. But when the city announced that the company officially applied for its permit in June 2018, that’s when people started to realize that it was finally going to happen.

Hudson Oaks may be way smaller and 20 minutes away, but the town played the long game, stayed patient and waited out the company. And for all their hard work, the residents are finally getting what they’ve wanted for more than a decade.

So there isn’t an H-E-B in Fort Worth yet ... but it’s getting closer. Right?

“We’ll be happy for people from Fort Worth to drive 20 miles to come to our store,” Lawler said.

H-E-B also has plans to open a store in Mansfield, possibly by 2020, and also has nearby stores in Burleson, Granbury and Cleburne.

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Carla Jimenez covers breaking business news and commercial retail development. Born and raised in Euless, she took a detour in the Midwest for a few years, but she’s back in the land of football, barbecue and Dr Pepper.


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