Conventional wisdom suggests folks buy store brands just because they’re cheaper than national brands. And considering how the economy’s taken a beating in the past year, who could blame them?
But if price point were the only reason to launch a store brand, food products bearing the HEB logo might not exist.
“The retail price is always going to be lower [than the national brand]. That’s a requirement,” says Dr. David Reische, director of R&D and new business delivery for the manufacturing division of San Antonio-based H.E. Butt Grocery Co. “The second requirement is we don’t launch a product under the HEB brand that doesn’t consumer-test at least as well as the national brand. If it’s going to be “me better,” it’s going to provide a functional nutritional or packaging benefit that doesn’t already exist. Price alone is not a reason to launch a product.”
Certainly, this supermarket chain wouldn’t be as big of a success – with $15 billion in sales, 72,000 employees (the company calls them “partners”) and more than 300 stores in Texas and Mexico – without topnotch trademark brands.
“We’ve seen solid growth with our branded portfolio, mostly because of the quality of our products,” says Ken Jorgensen, director of dairy operations. “Our quality team holds our vendors to high standards. Our own-brand standard is equal to or better than national brands.”
And HEB’s own brands can be found on a multitude of SKUs of dairy food products, including fluid milk, ice cream and cultured products, sold under marques such as HEB, Hill Country Fare and Creamy Creations. The latter, a premium ice cream line launched more than a decade ago to take on a fierce in-state competitor, is still going strong, with a host of standard, seasonal and regionally inspired flavors, plus a recently released churn-style product.
“That was our biggest launch last year,” Jorgensen says. “Our drinkable yogurt line also has been a huge success. Our R&D and merchandising teams, working with the plants, have a collaborative relationship. We don’t care where the ideas come from. We take the good ideas and act on them.”
HEB’s dairy operations are No. 41 on Dairy Foods’ latest Dairy 100 processor ranking, published last August, with about $500 million in sales of finished dairy products.
“Our products are positioned alongside national brands to help consumers make their choice. At the end of the day, it’s the customer’s choice,” Jorgensen says. “We’re trying to give them as many opportunities for choice as possible.”
Instant feedbackBut while price isn’t the sole motivation behind launching own-brand products, it doesn’t lack importance.
In fact, HEB recently decided to slash prices on more than 5,000 grocery items, open new store locations, create up to 5,000 new jobs and continue to invest in the communities in which it operates.
The company is doing this to help families save on their grocery bills during this current economic downturn, says Suzanne Wade, president of HEB’s San Antonio division. “The move to further lower our prices is a major effort to assist Texas families in 2010,” she says. “When customers visit our stores, they will find lower prices and a renewed commitment to help them save.”
That dedication to state pride carries through to the manufacturing division as well. “Our goal is to meet the needs of Texans,” Jorgensen says. “That’s been a goal of the company since it was founded.”
It’s evident in the local focus and flavor themes of many HEB products, such as Texas Vanilla Seguin Pecan, one of the more recent additions to the Creamy Creations line. “Seguin is a small town east of here, about 20 or 30 miles,” explains Kyle Morgenroth, ice cream operations leader, noting the hamlet is known for its pecans.
Jorgensen adds: “We’ve got some other regional flavors that cycle in and out, like Poteet Strawberry and Floresville Tin Roof Sundae.”
Another growth area for HEB dairy has been in organics, despite recent economic pressures that steered many away from these premium-priced products. “We’ve seen tremendous growth in the Central Market product line across the company,” Jorgensen says, referring to the organic milk line sold through HEB’s upscale concept stores.
Reische says most of the company’s successful product launches tend to be “me too” or “me better” products based on ideas developed by the company’s R&D, retail and brand management teams, as well as vendors. “We’ll look at the biggest sales item and see what processes are needed to make that viable for us. We’re looking more for ROI than development for development’s sake,” he explains, noting that some products will be farmed out. “Until they gain enough market share, we’re not going to manufacture them in-house.”
And finding out how HEB’s own-brand products stack up against national brands is relatively easy, with 300 stores filled with consumers ready to give their feedback. “We have direct access to consumers to test products and I expect we do that more often and less expensively than our competitors,” Reische says.
In fact, such good access to consumer feedback can knock up to nine months off the timeline of getting a new product on the shelves, Reische notes. “We don’t need to do a lot of market research because we’re speaking to our customers on a daily basis,” he says. “The classic model of focus groups is pointless for us. We just go to a store and ask consumers questions as they’re purchasing.”
Responsible operationsHEB manufacturing operations include three dairy plants: fluid milk, cultured and ice cream in San Antonio, plus a milk plant in Houston. San Antonio also features facilities for meat, bakery goods, snacks, a culinary kitchen and a floral department.
“Our manufacturing initiatives have been about safety, 5S, TPM [see Plant Close-up for explanations of these concepts], sustainable training programs and continuous improvements with dedicated resources,” Jorgensen says. “We update our strategic road map on an annual basis, looking out three years.”
HEB also has become more committed to business and manufacturing practices that continually improve the company’s use of natural resources, minimize waste, conserve energy and water, and protect air quality. By recycling materials including aluminum, steel, plastic, oil, cardboard and computers, HEB reports saving the equivalent of 6 million trees, 88,000 barrels of oil, 3.7 kW of energy and 1.2 million cubic yards of landfill space. By increasing the amount of groceries that goes into each bag at checkout, the company has reduced the number of plastic bags used, which conserves about 2,500 cubic yards of landfill space.
On the distribution side, HEB has reduced its use of diesel fuel by more than 4.7 million gallons each year and carbon dioxide emissions by 40% annually. Each year, about 8,200 HEB truck tires are recycled to reduce landfill tonnage by 820 tons a year. In fact, HEB sells mulch made from recycled tires at some of its stores.
Close to half of the company’s largest delivery trucks in Houston operate on liquefied natural gas, annually reducing about 35 tons of nitrous oxide emissions that contribute to air pollution. HEB is frequently recognized by the US Environmental Protection Agency for its efforts to encourage cleaner air and protect the environment in which it operates.
The company also supports green building practices by utilizing energy conservation equipment for in-store coolers, freezers and windows, energy-efficient fluorescent high-bay light fixtures, time clocks that automatically turn off lights in the freezers and display cases, landscaping designed to conserve water and 65% recycles building equipment and materials.
Statewide, 137 HEB stores have received the Energy Star label for demonstrative excellent energy management performances and generally using 35% less energy than other facilities in the same category.
Giving backThe company is committed to serving the communities in which its stores operate through charitable donations, food banks and other programs. “Our focus is on the Texas consumer and meeting their needs with a large commitment to the community,” Jorgensen says.
HEB believes its employees have a responsibility to the communities it serves, so the company encourages volunteerism that contributes countless hours to help nonprofit groups, community organizations and civic improvement projects.
HEB’s “Spirit of Giving” encompasses the company’s commitment to and involvement in the community. HEB donates 5% of its pre-tax earnings annually to charitable organizations committed to making a positive difference in Texas communities in the areas of education, hunger relief, health, disaster relief, diversity, volunteerism and the environment.
Additionally, HEB’s Food Bank Assistance Program is recognized as one of the strongest and most committed food banks in the United States and Mexico. Each year, the program supports 15 food banks in Texas and 10 in Mexico, delivering more than 26 million pounds of food, nonperishable drugstore items, breads and pastries. The food banks distribute these goods to more than 5,000 nonprofit organizations serving 190 counties in Texas and three states in Mexico.
Further, HEB encourages excellence in teaching and learning, contributing more than $4 million to public education programs each year. The company’s signature education program, Excellence in Education, was created in 2002 with the cooperation of the Texas Association of School Administrators. The program recognizes public school teachers and principals who are committed to Texas children and their communities. It has grown to become the largest monetary recognition program for educators in the state and one of the largest in the nation, awarding more than $600,000 in cash prizes each year.
In addition, HEB’s Classroom Champions, the state’s oldest and largest business-education partnership, reaches out to more than 40,000 second-graders with information about the importance of healthy eating and exercising.
Supporting customersMeanwhile, HEB as a manufacturer continues to grapple with many of the industry’s shared challenges as it continues on its steady course of organic growth.
“The biggest challenge with our industry is the sustainability of our farmers,” Jorgensen says. “A lot of changes in the economy are making it harder for them to sustain themselves. The economic drivers for feed and running the farm, and the pricing models used to pay the farmers don’t always line up in our farmers’ best interests.”
Opportunities exist for HEB to continue finding better ways to meet its customers’ needs by, as Jorgensen says, “tailoring your products to meet the needs of your customers.” Successful examples of that strategy include HEB’s drinkable yogurt and churn-style ice cream, Jorgensen notes. “Both are better-for-you type products,” he says. “From a production portfolio standpoint, Europeans are ahead of the curve nutritionally and we’ll continue to catch up to Europe and Mexico, especially in cultured products.”
Staying on top of product development for its own-brand products will be an important factor in HEB staying competitive alongside historic rivals like Safeway and Kroger, and newer but rapidly expanding grocery players like Wal-Mart. Also critical, Jorgensen says, will be accurately addressing economic and social changes in the markets in which HEB operates.
“For our division,” he says, “it’s going to mean continuing to innovate products that support our customers’ lifestyle changes.”
HistoryIn 1905, Charles C. and Florence Butt moved their three sons from Memphis, Tenn., to Kerrville in the Texas Hill Country. With an initial investment of $60, Florence opened the C.C. Butt Grocery Store.
The youngest son, Howard E., took over the family business in 1919, upon his return from World War I. In 1924, he expanded the company with a new store in Junction, about 60 miles from Kerrville. Howard’s motto was, “He profits most who serves best.”
Charles, the youngest son of Howard E. Butt, became president of the H.E. Butt Grocery Co. in 1971. Today, Charles Butt is chairman and chief executive officer of HEB, having grown the business from sales of $250 million in 1971 to $15 billion in 2009.
Florence Butt opened her first store with a set of beliefs that were passed on to her sons, grandsons and great-grandsons. Good principles and a can-do attitude, whether times are good or bad, are at the heart of HEB’s success.
Thanks to constant innovation, HEB has always kept pace with its customers’ changing lifestyles.
1940s - HEB opened its first air-conditioned stores and began stocking frozen foods. Exclusive brand names also appeared, including Village Park, Park Manor and others.
1950s - Opened its first supermarkets, consolidating a fish market, butcher shop, pharmacy and bakery under one roof.
1976 - Milk plant opened in San Antonio; it’s now the largest milk plant in Texas. HEB also operates the state’s largest bread bakery.
1990s - Introduced a new H-E-B Brand, under the concept of “Own Brands.” More than 3,000 Own Brand products have been launched, ranging from eggs and yogurt to bacon and charcoal.
1994 - Opened the first Central Market in Austin, featuring a European bakery, a deli with meats and cheeses from around the globe, and a juice and ice cream bar.
1997 - Expanded its business across the border into Mexico.
2000 - Introduced H-E-Buddy mascot.
2001 - Entered Houston market with large-format stores.
2002 - Hosted the first Excellence in Education Awards celebration in San Antonio. Today, HEB awards more than $400,000 in cash prizes to outstanding educators annually.
2002 - Opened state-of-the-art QA laboratory, giving the company technologically advanced scientific capabilities.
2003 - HEB ranked sixth in the nation and first in Texas in a Consumer Reports reader’s survey of the nation’s top conventional supermarkets.
2003 - Ranked 10th in the nation among privately held companies based on $11 billion in annual sales, according to Forbes.
2003 – Opened $4 million, 14,000-square-foot transportation terminal in Weslaco.
2004 - Introduced “H-E-B Plus” concept store in San Juan, Texas. The 109,000-square-foot store provides customers with expanded product and service offerings including extensive music, video and DVD selections; a larger baby department; dedicated space
for grills and grilling supplies; an expanded card and party product section; lawn and garden equipment; electronic and household items and designated space for “surprise buys.”
2004 - Opened new Houston Bakery, a 114,000-square-foot, fully automated facility to provide fresh breads to the region. The bakery produces an average 153 loaves of bread and 750 buns per minute.
2004 - Opened $30 million retail support center in Monterrey, Mexico.
2005 - HEB celebrated 100th anniversary.
2006 - Opened Mi Tienda (“My Store”) in South Houston, a 63,000-square-foot Latino-themed store aimed at Hispanic people with many Hispanic products in stock; all employees are bilingual.