Why an H-E-B invasion of Dallas won't work

Arizona, Hawaii, Nevada, New Mexico, Oklahoma, and Texas. No non-grocery posts.
pseudo3d
Posts: 3851
Joined: November 12th, 2015, 7:01 pm
Has thanked: 5 times
Been thanked: 77 times
Status: Offline

Why an H-E-B invasion of Dallas won't work

Post by pseudo3d »

architect wrote:
SoleOwnerOfMyName wrote:But would Tom Thumb want it given that they have already walked away from the store in the past? I am guessing there was a reason they were willing to give this one up.

Of course, they did reopen the Tom Thumb a few miles north that also became a Sun Fresh and which was later acquired by H-E-B and then back full circle to Tom Thumb - so maybe they will do the same here.

Honestly, I have a hard time seeing how any of the Tom Thumb stores stay in business except for the ones that happen to be the only store in their area. The stores are not particularly special and the prices are breathtakingly high. Central Market is considered an upscale, high end grocer - yet their prices are consistently lower than Tom Thumb on comparable items. And Albertsons is even worse - their stores tend to be a bit worn out looking and their prices are every bit as high as Tom Thumb. Presumably enough people do shop there as they manage to keep their doors open - though on the infrequent occasions I stop in one because I have a last minute need for something and that is all that is close to wherever I am I rarely see more than a handful of other customers.. Given all the proliferating alternatives, I don't see how they can keep going in the long run unless something changes. And if H-E-B ever enters the market - they are doomed.

I wonder if that location would be a possible fit for Sprouts? The nearest one is about 5 to 7 miles and a good number of stop lights away near Colleyville. I am guessing that the radius a Sprouts draws from is wider than a conventional supermarket - so maybe they would regard that as too close. I also noticed that a large former Tom Thumb in southwest Fort Worth has been converted into a giant Specs liquor store. Not sure if liquor sales are legal in Bedford or not - but, if so, perhaps that would be something that could go in.
For clarification, the FTC made Albertsons divest this store; if they did not divest this location, they likely would have been required to divest multiple other surrounding stores to make up for the market share impact. Sprouts would be an interesting tenant in this space; it is definitely right-sized for their format (considering that it is small for a traditional grocer these days) and the demographics would likely work well too. The fact that it would give them a store directly on the 121 corridor would be huge plus.

And I definitely agree with your analysis of Tom Thumb/Albertsons; it amazes me that they have been able to largely maintain their overall market share. A combination of high prices, understaffed sales floors and drab/outdated stores is almost always a recipe for disaster. I think the one thing that has kept them afloat is the fact that many established neighborhoods in North Dallas and wealthy northern suburbs such as Richardson and Plano have little traditional grocer competition, or at the most Kroger locations which are somewhat underwhelming. Meanwhile, in Houston, HEB is taking out Randalls' remaining stronghold neighborhoods by their willingness to navigate complex land acquisition and develop urban formats which work well in established neighborhoods. If HEB enters DFW, the Albertsons death knoll will definitely begin without some major turnaround work.

Splitting off from the Fiesta/Bedford topic, I'm sure I've said all of this at one time or another, but...I just can't imagine H-E-B dominance in Dallas-Fort Worth, at least any time soon, and I don't believe the "Albertsons is doomed" narrative either. The answer is more than just difficulty securing land. I do understand that H-E-B has a big cult following, enough that people will write articles on how great it is.

Sounds great, doesn't it? Well, forget it because most of those are only in the largest, most upscale locations, so unless you live in or at least near a very affluent part of town, that won't be your H-E-B store. You won't be able to weigh and package your own produce. No Cafe on the Run. No coffee shop (they may have some coffee at the deli, if you're lucky). No make-your-own pizza. No giant blocks of cheese. Well, at least you have your overpriced Whataburger ketchup and novelty tortilla chips. That is what life is like for most of us with H-E-B stores.

H-E-B does have solid pricing (on most items) and no card, as well as a well-thought out store brand, but that's about it. The stores inside and out have the worst aesthetics of any major supermarket, and before you start posting some fancy exteriors of new H-E-B stores in San Antonio, Houston, and Austin, those are the rare exceptions, and again, most of their stores run from Kroger-tier to Fiesta-tier (except without the interesting items Fiesta carries). The other advantage H-E-B has over Albertsons/Tom Thumb (and to a lesser extent, Kroger) is bigger stores (basically 65k square feet and up) whereas 65k square feet tends to be the cap for those stores. But it would be difficult trying to find locations, let alone trying to build mega stores in established areas.

So in the end, H-E-B just becomes another grocery store, and it becomes an uphill and expensive battle to make their market share worthwhile. Even if Albertsons/Tom Thumb did essentially nothing, they would still face Kroger, which has been long established in Dallas just as it had in Houston.

You could bring up Houston, but Houston was a very different scenario. Let's recap. H-E-B Pantry was a low-cost format to compete against Food Lion, which was already in Dallas (21 stores as of 1991, their entry in Dallas). The big three in Houston at the time was Kroger, Randalls, and AppleTree (formerly the Houston Division of Safeway). H-E-B Pantry beat Food Lion to the market and it wasn't long before that ABC report came out regarding Food Lion so Houston ended up having no more than 7 or 8 Food Lion stores and H-E-B Pantry was able to plant dozens of stores as the market continued to change...AppleTree died, and Albertsons entered the market, the last section of Texas that Albertsons did not have a presence in.

Albertsons attempted to build a number of new stores in the late 1990s, and while a number of stores did well, there were a number that didn't, and the massive company-wide expansion underway at Albertsons would stretch resources thin. All during this time, Randalls was purchased by Safeway, which made a number of disastrous changes that began to drive off shoppers. Finally, H-E-B Pantry had reached critical mass and they were able to build a full-line store in 2001. The collapse of Albertsons gave them stores and store sites (they purchased at least four operating stores and one store site), and the downfall of Randalls gave them an excellent opportunity to seek out disgruntled shoppers. In a nutshell, that's how they became strong in Houston. It should be obvious that the way they did it won't be able to replicated in Dallas.

Plus, H-E-B can't really make a deluxe format in Dallas without risking a dilution of the Central Market stores of various sizes in D-FW (including, remarkably, a former Marina Safeway), and harming those stores would make the entire Dallas-Fort Worth area unusable (note that D-FW has several Central Market stores--despite dominating the market, San Antonio and Houston have just one).

Aside from Kroger and Albertsons/Tom Thumb, WinCo Foods has entered Dallas with a distribution center in Denton, which will not only further subdivide market share but also snipe lower-income areas, further limiting H-E-B's impact in the area. So their only real options at this point to effectively get market share is to buy out weaker competitors or brute-force their way into the market at a high cost with diminishing returns.

I don't know the real reason why there aren't H-E-B stores in Dallas (allegedly, there's a no-compete clause in place but those are just rumors), but the threat of H-E-B stores, even if they aren't going to bring doom to Albertsons if they do come, should keep Albertsons/Tom Thumb on its toes (and that's a good thing).
wnetmacman
Forum Moderator
Forum Moderator
Posts: 994
Joined: January 17th, 2010, 2:36 pm
Has thanked: 2 times
Been thanked: 44 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by wnetmacman »

(WARNING - Very Long Post ahead)
Okay, I don't say this often, but in what you say, should it play out that way, you are indeed correct.

We don't have the pressure of Food Lion in Texas. HEB has abandoned the Pantry concept altogether. Albertsons/Tom Thumb is doing better in Dallas than Houston for sure.

But....(yeah, you knew it was coming)...I'm going to respond to a few things.
pseudo3d wrote:Sounds great, doesn't it? Well, forget it because most of those are only in the largest, most upscale locations, so unless you live in or at least near a very affluent part of town, that won't be your H-E-B store. You won't be able to weigh and package your own produce. No Cafe on the Run. No coffee shop (they may have some coffee at the deli, if you're lucky). No make-your-own pizza. No giant blocks of cheese. Well, at least you have your overpriced Whataburger ketchup and novelty tortilla chips. That is what life is like for most of us with H-E-B stores.
You're correct; HEB has some wildly inconsistent locations. More about that in a moment.

pseudo3d wrote:The stores inside and out have the worst aesthetics of any major supermarket, and before you start posting some fancy exteriors of new H-E-B stores in San Antonio, Houston, and Austin, those are the rare exceptions, and again, most of their stores run from Kroger-tier to Fiesta-tier (except without the interesting items Fiesta carries). The other advantage H-E-B has over Albertsons/Tom Thumb (and to a lesser extent, Kroger) is bigger stores (basically 65k square feet and up) whereas 65k square feet tends to be the cap for those stores. But it would be difficult trying to find locations, let alone trying to build mega stores in established areas.
I do disagree on this. Expecting to walk into a supermarket and turning into a deli or pharmacy just isn't realistic, because that does make them like everyone else. I know that Safeway of the 60's and 70's was the quintessential supermarket experience. You walked in, went past the checkouts, then into produce, and as you crossed the store, you caught the dairy, then the meat market along the back, then frozen in the middle. At the end of your journey, you went to the bakery and deli if your store had it, then checked out.

Folks just don't want that any more.

They want different. They want to see meat first, because that's how they plan meals. Then bread or produce and deli. THEN, and only THEN, do they want groceries. HEB tries to change that in every store, making each somewhat unique. Not every HEB has a pharmacy, deli or bakery. I know of one in Orange, TX down the street from a Market Basket and a Kroger Family Center (now signature) that is just produce, meat, grocery and frozen. No other peripheral departments, and it is always packed. I've been in several HEB stores, and each was nice in its own way, but different. They carry the same items, but in different quantities. Then there's the Plus stores with wider GM merchandise and larger peripheral departments.

Size, well, that really doesn't matter. I've seen tiny HEB stores whoop huge Krogers hands down. The bigger stores just can't slow down.
pseudo3d wrote:So in the end, H-E-B just becomes another grocery store, and it becomes an uphill and expensive battle to make their market share worthwhile. Even if Albertsons/Tom Thumb did essentially nothing, they would still face Kroger, which has been long established in Dallas just as it had in Houston.
In my eyes, Albertsons/Tom Thumb may want to watch their backs. What they are doing is minimal, seemingly only to keep alive, and some of that is so poorly Safewaycuted (I coined that; remember later) that it is going to hurt more than help. Kroger's establishment in both cities isn't a factor, as they haven't become #1 in Houston yet, remaining actually #3 behind Kroger and Walmart. (I'll come back to that)
pseudo3d wrote:You could bring up Houston, but Houston was a very different scenario.
Indeed. A perfect storm of sorts. Food Lion, the Pantry stores, the failure of Apple Tree and Albertsons just not catching on - you just can't make this up. It was just too many faults for each to overcome, and HEB took advantage of every one of them. Smartly so, in my opinion.
pseudo3d wrote:Plus, H-E-B can't really make a deluxe format in Dallas without risking a dilution of the Central Market stores of various sizes in D-FW
I don't think so. HEB would probably hit DFW more with Plus stores around the periphery to fight the Kroger Marketplaces, then take over some casualties inside. The Central Market stores attract a different shopper that wouldn't be cannibalized by these stores.
pseudo3d wrote:Aside from Kroger and Albertsons/Tom Thumb, WinCo Foods has entered Dallas with a distribution center in Denton
Indeed, and Walmart too, which wasn't a factor initially in Houston. HEB would have to bring Joe V's to Dallas to fight WinCo, and I don't think they'd win against them with that format, because it's still too new.
pseudo3d wrote:allegedly, there's a no-compete clause in place but those are just rumors
If this were the case, Central Market wouldn't be there.
pseudo3d wrote:the threat of H-E-B stores, even if they aren't going to bring doom to Albertsons if they do come, should keep Albertsons/Tom Thumb on its toes (and that's a good thing)
I think Albertsons will doom itself, and HEB will take advantage of the failure. Their toes are wearing out like orphan socks.
architect
Assistant Store Manager
Assistant Store Manager
Posts: 843
Joined: December 8th, 2015, 3:41 pm
Has thanked: 2 times
Been thanked: 7 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by architect »

A lot of good points made here. Honestly, at this stage of the game, I feel that it is simply too early to know what the DFW grocery market will look like in 10-15 years.

Even if HEB does not enter the market with their mainstream stores, pressure from Walmart, Kroger, Winco, Aldi and Lidl will create stiff competition for Albertsons on the pricing front. On the other hand, HEB seems fairly set on expanding the Central Market banner in DFW (cross reference post here: http://www.retailwatchers.com/viewtopic.php?f=11&t=1581). Between CM, Whole Foods and Trade Joe's, it may be difficult for Albertsons to skew the Tom Thumb banner into the high-end and specialty territory which is so popular with younger and more urbanized shoppers. The first real test of this will be the success of the two urban Tom Thumb stores opening in Dallas later this year/next year.
wnetmacman wrote:
pseudo3d wrote:So in the end, H-E-B just becomes another grocery store, and it becomes an uphill and expensive battle to make their market share worthwhile. Even if Albertsons/Tom Thumb did essentially nothing, they would still face Kroger, which has been long established in Dallas just as it had in Houston.
In my eyes, Albertsons/Tom Thumb may want to watch their backs. What they are doing is minimal, seemingly only to keep alive, and some of that is so poorly Safewaycuted (I coined that; remember later) that it is going to hurt more than help. Kroger's establishment in both cities isn't a factor, as they haven't become #1 in Houston yet, remaining actually #3 behind Kroger and Walmart. (I'll come back to that)
pseudo3d wrote:You could bring up Houston, but Houston was a very different scenario.
Indeed. A perfect storm of sorts. Food Lion, the Pantry stores, the failure of Apple Tree and Albertsons just not catching on - you just can't make this up. It was just too many faults for each to overcome, and HEB took advantage of every one of them. Smartly so, in my opinion.
pseudo3d wrote:the threat of H-E-B stores, even if they aren't going to bring doom to Albertsons if they do come, should keep Albertsons/Tom Thumb on its toes (and that's a good thing)
I think Albertsons will doom itself, and HEB will take advantage of the failure. Their toes are wearing out like orphan socks.
On the other hand, even if HEB does enter the market with their mainstream stores, they will still have to battle intensely for market share. Upper-class suburbs will not be a problem for them, as they will immediately pull market share from Walmart due to pricing alone, and they can also compete strongly with Kroger if they keep a similar strategy to Houston. The biggest challenge will be moving into the urban parts of Dallas, which are much more Texas transplant-heavy and are so often comprised of shoppers who have no loyalty to HEB (or have just heard of them via Central Market). This will also be an expensive proposition considering the crazy real estate market in DFW right now. Meanwhile, while pushing for market share in DFW, they will also have to fend off competition from Aldi, Lidl and Walmart statewide, along with continuing to invest in store renovations/replacements in older regions such as Austin and San Antonio. Do I think that HEB could make a solid run in DFW, yes. However, they will need to truly understand the market before coming in, as like pseudo3D said, their Houston strategy can't exactly be duplicated here.
pseudo3d
Posts: 3851
Joined: November 12th, 2015, 7:01 pm
Has thanked: 5 times
Been thanked: 77 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by pseudo3d »

wnetmacman wrote:(WARNING - Very Long Post ahead)
I don't like super-long quote chains but let me hit on some of your rebuttals.
Expecting to walk into a supermarket and turning into a deli or pharmacy just isn't realistic, because that does make them like everyone else. I know that Safeway of the 60's and 70's was the quintessential supermarket experience. You walked in, went past the checkouts, then into produce, and as you crossed the store, you caught the dairy, then the meat market along the back, then frozen in the middle. At the end of your journey, you went to the bakery and deli if your store had it, then checked out.

Folks just don't want that any more.

They want different. They want to see meat first, because that's how they plan meals. Then bread or produce and deli. THEN, and only THEN, do they want groceries. HEB tries to change that in every store, making each somewhat unique. Not every HEB has a pharmacy, deli or bakery. I know of one in Orange, TX down the street from a Market Basket and a Kroger Family Center (now signature) that is just produce, meat, grocery and frozen. No other peripheral departments, and it is always packed.
Most of the H-E-B stores built or remodeled now are based after the Wegmans model of putting all the perishables on one side, and for H-E-B that involves produce in the front corner of the store, and then the perishables toward the back. Sometimes (less commonly) they're on islands facing toward the middle of the store, but for the stores that weren't former Albertsons or Pantry stores, that would cover the Waco H-E-B Plus, three of the College Station/Bryan stores, the Bunker Hill store, and the Pearland H-E-B Plus. I think all the new stores are being built this way and have been for several years.
Indeed, and Walmart too, which wasn't a factor initially in Houston.
As an aside, the other big difference in the grocery wars in Dallas was that Wal-Mart Neighborhood Market gained a far better hold than it ever did in Houston.
pseudo3d wrote:allegedly, there's a no-compete clause in place but those are just rumors
A bit of reading says that the agreement was with United Supermarkets, and that agreement supposedly became invalid when Albertsons bought the chain, but I also did hear from multiple people a few years ago that Randalls and H-E-B had a gentleman's agreement to stay out of each other territories during the 1970s and 1980s, with the "end" coming with Randalls buying Tom Thumb (which was in Austin), rather than the H-E-B Pantry invasion which I guess didn't count because it was technically a different format (much like Central Market). Still, there are intriguing questions, like why the Lake Highlands store has yet to reopen as anything.
pseudo3d wrote: I think Albertsons will doom itself, and HEB will take advantage of the failure.
Back in 2012, I wondered if the Albertsons in North Texas would be sold to H-E-B, just as they had sold most of the remaining stores in Central Texas. A similar opportunity was presented as Safeway deteriorated for Tom Thumb. In retrospect, it sorta made sense since those stores were smaller than what H-E-B prefers, and perhaps disappointing stores made of former Albertsons stores (the H-E-B in Clear Lake, a former Albertsons, won't impress anyone). I mean, Albertsons isn't doomed yet...Tom Thumb can still be saved. No card, lower prices (already partially achieved?), a better merchandise mix (another big one, including more local items), better execution, and newer and bigger stores (some new stores coming). It won't help the disaster Albertsons has in terms of their default store brand (H-E-B wins that one hands down, no question) but doing any of those things will slow H-E-B down and lessen the chance of them showing up.
architect wrote: On the other hand, even if HEB does enter the market with their mainstream stores, they will still have to battle intensely for market share. Upper-class suburbs will not be a problem for them, as they will immediately pull market share from Walmart due to pricing alone, and they can also compete strongly with Kroger if they keep a similar strategy to Houston. The biggest challenge will be moving into the urban parts of Dallas, which are much more Texas transplant-heavy and are so often comprised of shoppers who have no loyalty to HEB (or have just heard of them via Central Market).
Honestly, I think part of H-E-B's loyalty is a similar thing with Publix, in that they get extra praise since it's head and shoulders above everything else (Walmart, Winn-Dixie). With Dallas, there's already a pretty diverse team of supermarkets competing, and it would be foolish to assume that H-E-B will win the grocery war because it's H-E-B. (That's the sort of thing that got Albertsons in big trouble)
SoleOwnerOfMyName
Stock Clerk
Stock Clerk
Posts: 25
Joined: July 27th, 2017, 8:05 pm
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by SoleOwnerOfMyName »

It is true that some H-E-B stores are nicer than others. For example, the new one in Cleburne is nowhere near as nice as the H-E-B Plus in Burleson or the large H-E-B store in Granbury. Then again, Cleburne is a smaller market than the other places - so the store is sized accordingly.

The single biggest factor why H-E-B will be successful in D/FW is price. H-E-B has nice stores and nice store brand products - but they also have very nice prices. And that matters to people who buy lots of groceries. It might not matter as much to young, affluent singles who eat out as much as they eat in because groceries are not that large an expense for such people. But for families with multiple mouths to feed trying to make ends meet - saving 50 cents on this and a dollar on that etc., quickly adds up. That is why Walmart became so dominant - it certainly wasn't because the stores were particularly nice and Walmart's checkout lines can be downright brutal.

H-E-B's prices are comparable and at times better than Walmart - and the shopping experience and product assortment is a whole lot better.

Tom Thumb and Albertson's prices are high to the point of absurdity. I am guessing that their remaining customers are not all that price sensitive - otherwise, why would they shop there except perhaps for those who have enough free time to cherry pick their loss leaders? I personally find the product assortment and shopping experience at H-E-B to be better than Albertsons/Tom Thumb - but that is something that can vary according to individual preferences. The one downside of H-E-B is that most of the stores I have visited tend to be very busy, especially on the weekend. I rarely see a Tom Thumb or Albertsons location anywhere near as busy - and that might be a plus for some people. The only problem is that Albertsons checkouts tend to be so understaffed that it can take longer to go through the line of a low traffic Albertsons than a busy H-E-B.

Speaking for myself - I eat a lot of fresh produce which constitutes the bulk of my grocery expenditures. Right now, my current default for produce in Fort Worth is Sprouts - it has the best combination of price and quality. Sprouts has better produce prices and far better quality than Walmart. And the produce prices at Tom Thumb and Albertsons are high like all their other prices. The quality of produce at Tom Thumb can vary. I have seen some locations with poor quality and very limited stock of any given item. But I noticed that the quality of produce at the two so-called "urban" Tom Thumbs in Fort Worth looked pretty decent. Meanwhile the H-E-B Plus in Burleson typically beats Sprouts on quality and variety with prices that are comparable and they usually have specials that blow Sprouts away.

One of my many eccentricities is that I enjoy sardines. I usually have a can of sardines in water for breakfast. No omega 3 or fish oil supplements for me - I get the equivalent in every can of sardines. There is no species of fish that is called "sardines" - the term applies to one of several different types of fish. The sardines from the Pacific (usually sold in the round tins) are very different than the ones off the shores of Canada or the ones from the Baltic. One of my favorites is Moroccan sardines - they are larger, thinker and have a nice texture and meaty taste. They are not easy to find - and when one does find them they usually cost $1.50 or more per can. H-E-B sells them for 85 cents per can- less than the lower quality sardines (usually Canadian) one finds at other stores.

Every couple of months I take a brief road trip to Burleson and buy out H-E-B's entire stock of the Moroccan sardines in water - and then head to Cleburne to do the same. And while I am there, I do my week's produce shopping. One time I was in the Burleson store and a short lady asked for my help in reaching some jars of H-E-B pasta sauce at the far back of a higher shelf. Turned out she was buying out the store's entire stock of the sauce because she enjoyed it so much and, like me, lived too far away to shop at H-E-B regularly.

How many people from out town do you suppose come to the Metroplex and make a point to buy out the entire stock of some Albertsons or Safeway branded product? My guess is it does not happen very often (and most probably couldn't afford to anyway)
architect
Assistant Store Manager
Assistant Store Manager
Posts: 843
Joined: December 8th, 2015, 3:41 pm
Has thanked: 2 times
Been thanked: 7 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by architect »

SoleOwnerOfMyName wrote:It is true that some H-E-B stores are nicer than others. For example, the new one in Cleburne is nowhere near as nice as the H-E-B Plus in Burleson or the large H-E-B store in Granbury. Then again, Cleburne is a smaller market than the other places - so the store is sized accordingly.
I have noticed this with the Waxahachie HEB too; it is decent store but definitely trails the HEB plus in Burleson. It seems like the biggest factor with these exurban locations is demographics. For example, the Waxahachie store seems to have far more shoppers coming from surrounding country towns, vs. Burleson which attracts suburban residents both from the town itself and the southern portions of Fort Worth (and beyond in some cases, more on that in my next comment).
SoleOwnerOfMyName wrote:Every couple of months I take a brief road trip to Burleson and buy out H-E-B's entire stock of the Moroccan sardines in water - and then head to Cleburne to do the same. And while I am there, I do my week's produce shopping. One time I was in the Burleson store and a short lady asked for my help in reaching some jars of H-E-B pasta sauce at the far back of a higher shelf. Turned out she was buying out the store's entire stock of the sauce because she enjoyed it so much and, like me, lived too far away to shop at H-E-B regularly.

How many people from out town do you suppose come to the Metroplex and make a point to buy out the entire stock of some Albertsons or Safeway branded product? My guess is it does not happen very often (and most probably couldn't afford to anyway)
I actually lived in an HEB market back in college. Since moving to DFW, several college friends and I in the area will actually make HEB runs every month or two and stock up both on items for ourselves and any items which friends in the group request. One person has a preferred coffee, another a type of pasta sauce, Meal Simple meals for another, numerous frozen items, Whataburger products, plus a round of Texas-shaped tortilla chips to go around. Browse through HEB's Facebook page sometime; there are posts of shoppers after shoppers doing the same thing coming from both DFW and points north. If that doesn't describe brand loyalty to an extreme, nothing can (not that this guarantees success for HEB in DFW if do decide to enter further). Meanwhile, Albertsons is often cutting back on private-label products, which is a major turnoff in a world where Trader Joe's, Aldi and Kroger are largely building their respective chains' success on private-label offerings,
pseudo3d
Posts: 3851
Joined: November 12th, 2015, 7:01 pm
Has thanked: 5 times
Been thanked: 77 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by pseudo3d »

architect wrote:
SoleOwnerOfMyName wrote:It is true that some H-E-B stores are nicer than others. For example, the new one in Cleburne is nowhere near as nice as the H-E-B Plus in Burleson or the large H-E-B store in Granbury. Then again, Cleburne is a smaller market than the other places - so the store is sized accordingly.
I have noticed this with the Waxahachie HEB too; it is decent store but definitely trails the HEB plus in Burleson. It seems like the biggest factor with these exurban locations is demographics. For example, the Waxahachie store seems to have far more shoppers coming from surrounding country towns, vs. Burleson which attracts suburban residents both from the town itself and the southern portions of Fort Worth (and beyond in some cases, more on that in my next comment).
SoleOwnerOfMyName wrote:Every couple of months I take a brief road trip to Burleson and buy out H-E-B's entire stock of the Moroccan sardines in water - and then head to Cleburne to do the same. And while I am there, I do my week's produce shopping. One time I was in the Burleson store and a short lady asked for my help in reaching some jars of H-E-B pasta sauce at the far back of a higher shelf. Turned out she was buying out the store's entire stock of the sauce because she enjoyed it so much and, like me, lived too far away to shop at H-E-B regularly.

How many people from out town do you suppose come to the Metroplex and make a point to buy out the entire stock of some Albertsons or Safeway branded product? My guess is it does not happen very often (and most probably couldn't afford to anyway)
I'm not going to buy out their entire stock, but the Albertsons family fresh-made tortilla chips are quite good, and I usually get 'em when I'm in the area (haven't been to a store recently so I don't know if they still have 'em in all stores, they may be discontinued in some stores). But there's no item at H-E-B I would buy the entire stock of.
architect wrote: I actually lived in an HEB market back in college. Since moving to DFW, several college friends and I in the area will actually make HEB runs every month or two and stock up both on items for ourselves and any items which friends in the group request. One person has a preferred coffee, another a type of pasta sauce, Meal Simple meals for another, numerous frozen items, Whataburger products, plus a round of Texas-shaped tortilla chips to go around.
I'm very familiar with probably the exact H-E-B you went to, but the thing is, the H-E-B is largely successful because it has a great location (along with its sister stores to the south and north) and it was the closest store to campus, which guarantees its success no matter what the situation was. Even an Albertsons to the east hung on for years long after the surrounding stores in the entire region were closed or sold off, and the Kroger stores (also two) have routinely been packed out during daytime hours (even during the summer). The only stores that really weren't doing well was Village Foods (former AppleTree) that had its access messed up by construction and was a declining independent despite some attempts at differentiation, and a Kroger (former Greenhouse) that had been given up on years ago and was riding out its lease. As for most of the population goes, that leaves only an Aldi and a few Walmarts. This is kind of like the whole "liking H-E-B due to a lack of alternatives" thing mentioned.

That's not to say I don't think private brands matter. There are a few items I like (their cheese slices, which are good quality and have a nice plastic case; their fruit on the bottom yogurts, Kroger's is too sour; the "More Fruit" jams, and the pasta sauce, I guess) but the main reason why I tend to prefer them is because the Kroger store doesn't (Kroger doesn't stock the tub of Dole Baby Spinach, or have any frozen fruits beyond small bags of the premium store brand). Maybe it is a good thing ABS is cutting back on store brand, nothing worse than a store that refuses to stock real brands in favor of its garbage store brand (and the ABS/SWY brand is nothing worth writing home about). I think I ended up buying Kroger's "Simple Truth" spinach, and it was more expensive than Dole. (I rather enjoyed the comfy "Kroger of the Villages" in Houston, but my local Kroger, despite a reasonably decent floor square footage, ends up feeling a bit like a large convenience store, especially with its small produce selection which isn't even full as some of them are used as non-produce displays, like being full of bulk peanuts).
SoleOwnerOfMyName
Stock Clerk
Stock Clerk
Posts: 25
Joined: July 27th, 2017, 8:05 pm
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by SoleOwnerOfMyName »

pseudo3d wrote:
So in the end, H-E-B just becomes another grocery store, and it becomes an uphill and expensive battle to make their market share worthwhile. Even if Albertsons/Tom Thumb did essentially nothing, they would still face Kroger, which has been long established in Dallas just as it had in Houston.

....

Plus, H-E-B can't really make a deluxe format in Dallas without risking a dilution of the Central Market stores of various sizes in D-FW (including, remarkably, a former Marina Safeway), and harming those stores would make the entire Dallas-Fort Worth area unusable (note that D-FW has several Central Market stores--despite dominating the market, San Antonio and Houston have just one).

Aside from Kroger and Albertsons/Tom Thumb, WinCo Foods has entered Dallas with a distribution center in Denton, which will not only further subdivide market share but also snipe lower-income areas, further limiting H-E-B's impact in the area. So their only real options at this point to effectively get market share is to buy out weaker competitors or brute-force their way into the market at a high cost with diminishing returns.

I don't know the real reason why there aren't H-E-B stores in Dallas (allegedly, there's a no-compete clause in place but those are just rumors), but the threat of H-E-B stores, even if they aren't going to bring doom to Albertsons if they do come, should keep Albertsons/Tom Thumb on its toes (and that's a good thing).

Here is my speculation as to why they are not here and whether an invasion of D/FW would work. I think the latter depends on how one defines what "works." Could H-E-B enter the market in a big way, capture lots of market share, wreck havoc and have profitable stores? Let's say that the answer is yes. But what does that do for the company as a whole? Time and focus spent on one thing is time and focus that is not available for something else. The logistics and struggles of establishing one's self in a new market would divert focus and resources away from existing markets - and perhaps provide an opening for competitors to exploit in their existing territory. So even if they were profitable in D/FW - at what cost?

For example, if and so long as the return on a dollar invested in upgrading and/or adding new stores in their existing territory is higher than the return on a dollar invested in expanding into a new market - it probably makes sense for them to primarily focus on their existing territory.

My speculation however is that the reason H-E-B is not in D/FW beyond its Central Market stores has nothing to do with Tom Thumb/Albertsons (which is a merger of unsuccessful struggling companies that undoubtedly has all sorts of serious internal issues far larger than any single market that must be dealt with and consume a great deal of management attention in order for that merger not to end up another Kmart-Sears type of merger). My guess is Kroger isn't even a big factor. My guess is that it is entirely about Walmart.

Walmart aggressively attempts to challenge H-E-B in every market H-E-B operates in - including Mexico where I understand the competition between the two is intense and nasty.

I recall reading a few interesting stories about H-E-B and Walmart - but obviously have no way of knowing how true they are. One story I heard was that years ago Walmart made an offer to acquire H-E-B because it felt H-E-B was one of the very best operators that they could learn from in their own entry into the grocery market. When H-E-B turned the offer down, the story went, Walmart made a point to go into H-E-B markets on the premise that if they could learn to compete with H-E-B they could compete with anybody.

The other story I have heard is that the reason the Dallas/Fort Worth area is so saturated with Walmart Supercenters (it is very difficult to find a location in the Metroplex where there is not at least one Walmart Supercenter within five miles) with Neighborhood Markets placed between the supercenters in strategic parts of town is because Walmart wanted to build a "firewall" to stop a northward expansion of H-E-B.

Whether or not the story is true, I somehow doubt that Walmart would just stand back while H-E-B invades its turf anymore than H-E-B stands back when Walmart or anyone else attempts to invade H-E-B territory. By saturating the market, Walmart has made an H-E-B invasion of D/FW much more expensive. And given the fact that, in terms of corporate size, Walmart dwarfs H-E-B (something like $485 billion verses $13 billion annual revenue according to a quick Google search) the thought of Walmart aggressively defending its D/FW turf has to give H-E-B pause.

On the other hand, despite - and, in fact, perhaps even because of - its size and success, Walmart has a lot of potential vulnerabilities. For example, while H-E-B primarily has to worry about competing with Walmart and, in some markets, Kroger, Walmart has to compete pretty much with everybody on a global basis. For example, in the UK where the company operates under the Asda name Walmart is struggling and has been for some while. Not only that, the company is spending a lot of time and resources and furiously building fulfillment centers in an attempt to aggressively compete head on with Amazon.com - which I am sure consumes a great deal of management time and focus. Plus, very large corporations tend to be clunky and face the ever constant danger of becoming sclerotic and bureaucratic and have to be on guard against that at all times if they wish to survive in the very long-term. I am sure the history of the rise and fall of one time giants such as A&P (which was once more dominant in the US grocery market than Walmart is today), Woolworth, Sears, Kmart, etc., strikes fear into the hearts of Walmart executives as a model of what NOT to become.

In Dallas/Fort Worth, Walmart's saturation of the market and the fact that it operates huge supercenters makes it potentially vulnerable on many fronts. Those supercenters have to be very expensive to operate and the only way a store that large can survive in an industry with small markups is by volume. Anything that undermines the volume that goes through the supercenters puts Walmart in a potentially vulnerable position. If the volume goes away the only alternative to maintain revenue is raising prices - but if Walmart raises its prices, why go there? That is what killed Albertsons in D/FW. And there are a number of competitive forces at play which jeopardize the supercenter's traffic. For example, small stores such as dollar stores and Aldi siphon off traffic. Such stores are limited enough in selection that they cannot fully replace what a customer seeks from Walmart. But they do divert shopping trips from Walmart not just because of price but also convenience. Walmart's checkout lines can be brutal to get through - which is something I think also hurt Kmart back in the day. And given the fact that well over half of a Walmart supercenters space is filled with non-grocery items, many of which people are now starting to buy online, the rise of online shopping is undoubtedly going to impact the volume of sales that go through the supercenters. The big danger for Walmart in D/FW is if per store volume starts to decline, it may very well find itself in the same position that Macy's, JC Penney and other brick and mortar stores are in with more store locations than they can support. At some point, Walmart might be forced to consolidate the number of supercenters in the Metroplex in order for the format to remain locally viable.

On top of that is Winco. Winco is definitely on H-E-B's radar. For example, there is a Winco in the far southern part of Fort Worth. In the H-E-B Plus in Burleson I have seen price comparison signs touting how H-E-B is lower on a particular item than Winco.

I don't know that Winco is as much of a competitive threat for H-E-B as it is for Walmart. I have been to a few Winco stores and the only thing that I find at all impressive about them other than being open 24 hours is their prices. Their product selection is extremely underwhelming. It consists of the basics plus lots and lots of processed convenience foods. if you want an illustration of why the diets of lower income Americans are so unhealthy just walk through Winco - though of course, they do have healthy foods as well. But I noticed that their prices tend to be the same as, if not less than, what one would find at Walmart. If you have a lot of hungry mouths to feed or you want deep discounts on a lot of snack foods, Winco is the place to go.

H-E-B can compete against Winco on quality and variety and still be price competitive. The problem for Walmart is that the sort of customer that Winco seems to be targeting is also Walmart's core customer. That, of course, is a huge potential threat towards Walmarts ability to keep generating the level of volume needed to maintain the number of large, expensive to operate supercenters it has in the Metroplex.

So my guess is H-E-B is playing a waiting game. I think they are waiting for the right combination of events to line up that will overwhelm Walmart and make them vulnerable in D/FW. Winco's entry into D/FW is also not without risk for Winco. I think H-E-B is more than patient and willing to watch Walmart and Winco beat each other up while Walmart simultaneously is engaging in an expensive, bitter fight with Amazon while enduring thousands of small cuts from the Aldis and dollar stores of the world. I think H-E-B is just lurking like a cat in the southern fringes waiting until they see some real blood in the water - at which time they will pounce hard.

Meanwhile, they are using Central Market to exploit the higher end of the D/FW market where Walmart is not a competitive factor. I think Central Market is H-E-B's step into the door in D/FW the way the Pantry stores were in Houston. I suspect that future higher end D/FW H-E-B stores will resemble Central Markets in certain respects and perhaps certain Central Market locations will morph into high-end H-E-B stores. It is interesting that Central Market continues to expand in D/FW but H-E-B has explicitly stated that it does not plan an expansion of Central Market in Houston beyond its one existing store. Building up Central Market in Dallas enables it to study the market and build up experience and logistics while avoiding the expense of competing with Walmart directly.

Meanwhile, as for Albertsons/Tom Thumb, I think they are screwed in the long run. They seem incapable of competing on price. They are useless for anything other than being a high priced convenience store to anybody who is at all price conscious- which is most middle and lower income households. But their stores are underwhelming on the upper end of the market compared with a Central Market. The problem with Central Market is one can't buy things such as Diet Dr. Pepper or toilet paper or garbage bags which upper income people buy just as much as low end people do. So there is a need that Albertsons/Tom Thumb is currently able to meet for the portion of D/FW shoppers who are not price conscious. But if those non-price conscious people in higher income parts of town were suddenly offered an alternative where one could buy Central Market type items in addition to garbage bags and Diet Dr. Pepper and at lower prices to boot - why go to Albertsons/Tom Thumb? They can't compete with Central Market or a possibly revitalized Whole Foods on the high end - and they certainly can't compete with Walmart or Winco on the low end. And with HEB they will find themselves with a competitor who is able to compete both on the high end and the low end according to the particular neighborhood.

Anyhow, that is just my wild guess as to why H-E-B is not in D/FW. I hope I am wrong - I would much prefer them to come here sooner rather than later.
pseudo3d
Posts: 3851
Joined: November 12th, 2015, 7:01 pm
Has thanked: 5 times
Been thanked: 77 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by pseudo3d »

SoleOwnerOfMyName wrote:
pseudo3d wrote:
So in the end, H-E-B just becomes another grocery store, and it becomes an uphill and expensive battle to make their market share worthwhile. Even if Albertsons/Tom Thumb did essentially nothing, they would still face Kroger, which has been long established in Dallas just as it had in Houston.

....

Plus, H-E-B can't really make a deluxe format in Dallas without risking a dilution of the Central Market stores of various sizes in D-FW (including, remarkably, a former Marina Safeway), and harming those stores would make the entire Dallas-Fort Worth area unusable (note that D-FW has several Central Market stores--despite dominating the market, San Antonio and Houston have just one).

Aside from Kroger and Albertsons/Tom Thumb, WinCo Foods has entered Dallas with a distribution center in Denton, which will not only further subdivide market share but also snipe lower-income areas, further limiting H-E-B's impact in the area. So their only real options at this point to effectively get market share is to buy out weaker competitors or brute-force their way into the market at a high cost with diminishing returns.

I don't know the real reason why there aren't H-E-B stores in Dallas (allegedly, there's a no-compete clause in place but those are just rumors), but the threat of H-E-B stores, even if they aren't going to bring doom to Albertsons if they do come, should keep Albertsons/Tom Thumb on its toes (and that's a good thing).

Here is my speculation as to why they are not here and whether an invasion of D/FW would work. I think the latter depends on how one defines what "works." Could H-E-B enter the market in a big way, capture lots of market share, wreck havoc and have profitable stores? Let's say that the answer is yes. But what does that do for the company as a whole? Time and focus spent on one thing is time and focus that is not available for something else. The logistics and struggles of establishing one's self in a new market would divert focus and resources away from existing markets - and perhaps provide an opening for competitors to exploit in their existing territory. So even if they were profitable in D/FW - at what cost?

For example, if and so long as the return on a dollar invested in upgrading and/or adding new stores in their existing territory is higher than the return on a dollar invested in expanding into a new market - it probably makes sense for them to primarily focus on their existing territory.

My speculation however is that the reason H-E-B is not in D/FW beyond its Central Market stores has nothing to do with Tom Thumb/Albertsons (which is a merger of unsuccessful struggling companies that undoubtedly has all sorts of serious internal issues far larger than any single market that must be dealt with and consume a great deal of management attention in order for that merger not to end up another Kmart-Sears type of merger)[1]. My guess is Kroger isn't even a big factor. My guess is that it is entirely about Walmart.

Walmart aggressively attempts to challenge H-E-B in every market H-E-B operates in - including Mexico where I understand the competition between the two is intense and nasty.

I recall reading a few interesting stories about H-E-B and Walmart - but obviously have no way of knowing how true they are. One story I heard was that years ago Walmart made an offer to acquire H-E-B because it felt H-E-B was one of the very best operators that they could learn from in their own entry into the grocery market. When H-E-B turned the offer down, the story went, Walmart made a point to go into H-E-B markets on the premise that if they could learn to compete with H-E-B they could compete with anybody.[2]

The other story I have heard is that the reason the Dallas/Fort Worth area is so saturated with Walmart Supercenters (it is very difficult to find a location in the Metroplex where there is not at least one Walmart Supercenter within five miles) with Neighborhood Markets placed between the supercenters in strategic parts of town is because Walmart wanted to build a "firewall" to stop a northward expansion of H-E-B.

Whether or not the story is true, I somehow doubt that Walmart would just stand back while H-E-B invades its turf anymore than H-E-B stands back when Walmart or anyone else attempts to invade H-E-B territory. By saturating the market, Walmart has made an H-E-B invasion of D/FW much more expensive. And given the fact that, in terms of corporate size, Walmart dwarfs H-E-B (something like $485 billion verses $13 billion annual revenue according to a quick Google search) the thought of Walmart aggressively defending its D/FW turf has to give H-E-B pause.[3]

On the other hand, despite - and, in fact, perhaps even because of - its size and success, Walmart has a lot of potential vulnerabilities. For example, while H-E-B primarily has to worry about competing with Walmart and, in some markets, Kroger, Walmart has to compete pretty much with everybody on a global basis. For example, in the UK where the company operates under the Asda name Walmart is struggling and has been for some while. Not only that, the company is spending a lot of time and resources and furiously building fulfillment centers in an attempt to aggressively compete head on with Amazon.com - which I am sure consumes a great deal of management time and focus. Plus, very large corporations tend to be clunky and face the ever constant danger of becoming sclerotic and bureaucratic and have to be on guard against that at all times if they wish to survive in the very long-term. I am sure the history of the rise and fall of one time giants such as A&P (which was once more dominant in the US grocery market than Walmart is today), Woolworth, Sears, Kmart, etc., strikes fear into the hearts of Walmart executives as a model of what NOT to become.

In Dallas/Fort Worth, Walmart's saturation of the market and the fact that it operates huge supercenters makes it potentially vulnerable on many fronts. Those supercenters have to be very expensive to operate and the only way a store that large can survive in an industry with small markups is by volume. Anything that undermines the volume that goes through the supercenters puts Walmart in a potentially vulnerable position. If the volume goes away the only alternative to maintain revenue is raising prices - but if Walmart raises its prices, why go there?[4] That is what killed Albertsons in D/FW.5 And there are a number of competitive forces at play which jeopardize the supercenter's traffic. For example, small stores such as dollar stores and Aldi siphon off traffic. Such stores are limited enough in selection that they cannot fully replace what a customer seeks from Walmart. But they do divert shopping trips from Walmart not just because of price but also convenience. Walmart's checkout lines can be brutal to get through - which is something I think also hurt Kmart back in the day. And given the fact that well over half of a Walmart supercenters space is filled with non-grocery items, many of which people are now starting to buy online, the rise of online shopping is undoubtedly going to impact the volume of sales that go through the supercenters. The big danger for Walmart in D/FW is if per store volume starts to decline, it may very well find itself in the same position that Macy's, JC Penney and other brick and mortar stores are in with more store locations than they can support. At some point, Walmart might be forced to consolidate the number of supercenters in the Metroplex in order for the format to remain locally viable.

[...]

So my guess is H-E-B is playing a waiting game. I think they are waiting for the right combination of events to line up that will overwhelm Walmart and make them vulnerable in D/FW. Winco's entry into D/FW is also not without risk for Winco. I think H-E-B is more than patient and willing to watch Walmart and Winco beat each other up while Walmart simultaneously is engaging in an expensive, bitter fight with Amazon while enduring thousands of small cuts from the Aldis and dollar stores of the world. I think H-E-B is just lurking like a cat in the southern fringes waiting until they see some real blood in the water - at which time they will pounce hard.[6]

Meanwhile, they are using Central Market to exploit the higher end of the D/FW market where Walmart is not a competitive factor. I think Central Market is H-E-B's step into the door in D/FW the way the Pantry stores were in Houston. I suspect that future higher end D/FW H-E-B stores will resemble Central Markets in certain respects and perhaps certain Central Market locations will morph into high-end H-E-B stores. It is interesting that Central Market continues to expand in D/FW but H-E-B has explicitly stated that it does not plan an expansion of Central Market in Houston beyond its one existing store. Building up Central Market in Dallas enables it to study the market and build up experience and logistics while avoiding the expense of competing with Walmart directly.[7]

Meanwhile, Albertsons/Tom Thumb I think they are screwed in the long run. They seem incapable of competing on price. They are useless for anything other than being a high priced convenience store to anybody who is at all price conscious- which is most middle and lower income households. But their stores are underwhelming on the upper end of the market compared with a Central Market. The problem with Central Market is one can't by things such as Diet Dr. Pepper or toilet paper or garbage bags which upper income people buy just as much as low end people do. So there is a need that Albertsons/Tom Thumb is currently able to meet for the portion of D/FW shoppers who are not price conscious. But if those non-price conscious people in higher income parts of town were suddenly offered an alternative where one could buy Central Market type items in addition to garbage bags and Diet Dr. Pepper and at lower prices to boot - why go to Albertsons/Tom Thumb? They can't compete with Central Market or a possibly revitalized Whole Foods on the high end - and they certainly can't compete with Walmart or Winco on the low end. And with HEB they will find themselves with a competitor who is able to compete both on the high end and the low end according to the particular neighborhood. 8

Anyhow, that is just my wild guess as to why H-E-B is not in D/FW. I hope I am wrong - I would much prefer them to come here sooner rather than later.
To try to break down your post (it was good), I've bolded some areas to respond to.

1. Gotta admit, I thought the same way about Safeway and Albertsons. The key differences are that Safeway and Albertsons are similar enough businesses that they can integrate their systems (rather than Kmart and Sears, which were different formats and I don't think ever really integrated their logistics that well). They also have better management. Sears had money (a lot of money actually) but was taken over by an idiot who seems intent on running it straight into the ground and spending that war chest Sears had built up when it was a valued brand. The real fear when Albertsons bought Safeway was that they would start liquidating divisions for money (which, based on Mervyn's and the handling of LLC's NorCal and Florida divisions wasn't that unfounded).

2. Sam Walton took a lot of notes from other grocers and discounters (including 1988's Auchan in Houston) but H-E-B and Wal-Mart had co-existed in markets for decades (like Marlin, which has a small late 1970s Wal-Mart and an H-E-B with an ancient facade...at least it was like until recently). But if they were going after regionals, I can't imagine that NOBODY has taken them up on that offer, especially with Kroger's and Albertsons' ambitious mergers.

3. I think you're right. I think that Walmart does have an effect on H-E-B. I believe I said that the Dallas and Houston markets were somewhat similar with a few key differences, and one of those was that the rise of H-E-B Pantry (and later the full stores) helped lock out the Neighborhood Markets from gaining a big share in Houston. Meanwhile, Walmart's aggressive growth in the 1990s and later snapping up several shells Albertsons left behind in the mid-2000s did make it a major force in the industry.

4. But H-E-B buys in volume too, just like ShopRite and Walmart. Their stores tend to run high-volume even in competitive markets but if they aren't, they won't bother (that's why H-E-B tends to be cheap). Rockdale's H-E-B closed without replacement in 2005 when the Wal-Mart opened a new Supercenter because there wasn't a market for it and the low-volume couldn't be justified even if it was being subsidized by better stores. I should also point out that there were a number of H-E-B Pantry stores that closed in Houston without replacement.

5. It was a little more complicated than that. Obviously raising its prices when it was the cheapest in town going in did it no favors, but the fall of Albertsons had largely to do with the over-expansion of the company in the 1990s and the fall of that. In 1992, Albertsons just about tripled its market share by purchasing the Skaggs Alpha Beta stores (well, they were branded as Jewel-Osco at the time of purchase but they were better known as Skaggs Alpha Beta) and kept expanding, even in areas where they shouldn't have been. Meanwhile, the rapid growth of stores in Houston, in Florida, flyover country, and of course American Stores strained the company where they started raising prices and ultimately driving shoppers away. The D-FW division probably went to LLC partly on the heavy Wal-Mart/Kroger competition they were getting (along with Rocky Mountain) and of course H-E-B (in Austin, once part of the San Antonio division).

6. Perhaps, but why didn't they go for Albertsons when it was the weakest? Before the breakup of Albertsons in 2006, south of Dallas, Albertsons had two stores in New Braunfels and Kerrville (each, which had been spared from San Antonio and points south), the Austin market (which was also formerly the San Antonio division), one in Waco, and three in Bryan-College Station (which was spared from Houston, but fighting a losing battle to Kroger and H-E-B). The Waco store and one of the BCS stores went first (both miserable locations not far from better H-E-B stores that also better locations) in 2006, as well as a handful of Austin stores. Then the rest of the Austin stores went to H-E-B, a second BCS store went (to Wal-Mart, which didn't reopen it as a Neighborhood Market but to partially demolish it to expand their store), and in 2011, the Kerrville, NB, and the last BCS store went. H-E-B only wanted the Kerrville store (it had another store nearby) but accepted all three as a package deal (the other two stores permanently closed). With this, and the remaining Dallas-Fort Worth stores doing relatively well with some nice locations, it would've made sense on some level to go ahead and purchase most of the Dallas stores entirely, just as Albertsons had done with 49 Florida stores and Publix. A similar move also could've been attempted with Tom Thumb when it started to become clear that Safeway's "Lifestyle" plan was not going to save the company's branch divisions.

7. There's a lot of overlap with Central Market and regular H-E-B stores, enough that CM features and products can be integrated into regular (higher-end) stores in H-E-B stores and still keep CM "special". With the Dallas market (especially with more Central Market stores, even after buying MSFM), the lines between CM can be blurred and it essentially locks out higher-end H-E-B stores from being a "thing", which would be disappointing since higher-end H-E-B stores seem to be what people want. If they wanted to put in "real" H-E-B stores, then buying MSFM would've been the opportunity, jump-starting the "eating into the Metroplex from the South" strategy. With San Antonio, South Texas, and Waco-Temple-Killeen a total win, Austin a #1 no contest, already 2:1 to Kroger in BCS, neck to neck in Houston with Kroger, clearly H-E-B isn't stupid, so why do they seem to let every opportunity in Dallas pass by? The real reason isn't known, but they seem to know what they're doing.

8. But there's also Kroger in D-FW, and even though they aren't in every market, they can also compete high/low like H-E-B can. Plus, H-E-B doesn't actually go into low-end markets anymore. A number of Houston stores in low-income areas planned years ago as H-E-B are opening as Joe V's, and the stores that were opened (often hyped-up stores with tax credits) have downscaled dramatically (for instance, the Gulfgate store). Despite the fact that H-E-B can compete in that area, anyone can open and try to stay open if enough TIF subsidies are waved in their face. And if what Architect said in another thread is anywhere close to correct, the prices are coming down at ABS/TT...too bad the stores still aren't that great in terms of product selection and general upkeep.
pseudo3d
Posts: 3851
Joined: November 12th, 2015, 7:01 pm
Has thanked: 5 times
Been thanked: 77 times
Status: Offline

Re: Why an H-E-B invasion of Dallas won't work

Post by pseudo3d »

Looking back at my post, I may have answered my own question as to why Minyard Sun Fresh Market weren't bought as H-E-B stores--even after converting, they'd never get the volume to succeed. Lower-volume stores would be likely lower volume stores when converting, and a number of those is fatal to H-E-B's operation. Unless those stores didn't become instant successes (a HUGE gamble to make) and regularly had decent crowds (as H-E-B stores tend to have), this is what would happen.

1. Dallas Division raises prices significantly to compensate for lower volume. Instantly the "price" argument goes away and it becomes much more equal to Tom Thumb/Albertsons and Kroger, just without a lot of the niceties that tend to be at those supermarkets.

2. All divisions raise prices slightly to compensate for lower volumes at Dallas Division, competitors will seek weakness and attack the markets that H-E-B has dominance in.

Either way, the division would have to be largely high-volume to succeed, and if it's anything less than H-E-B will probably just take the loss before pulling the plug on it. Since H-E-B is private and doesn't have to report to shareholders, they can do this indefinitely though if things don't improve it will happen sooner or later, especially if it starts to limit development in other divisions. The stigma of closing will keep at least the H-E-B name from Dallas-Fort Worth indefinitely and it may harm operational/higher-volume stores in the area (not to mention stunting the growth of the entire chain...if a chain bombs hard in a marketplace it often means it never expands organically to new markets again, look at Smith's, Safeway, Albertsons, A&P, Winn-Dixie, Food Lion...). While it would be nifty to see Tom Thumb inherit some 90k square foot superstore it means that H-E-B has failed, and overall that's a worse future.
Post Reply