storewanderer wrote: ↑April 19th, 2022, 1:10 am
WinCo is a competitor that plays the game on price. They double down on price and they will hold prices down and force competitors to either hold prices down too or look stupid. This will absolutely impact HEB. WinCo's pricing is much stronger than Wal Mart's pricing. WinCo buys massive quantities of products and they are able to hold prices down longer due to how they buy/their store count (they buy as if they have 5-10 times the number of stores they have).
That is definitely a problem for Walmart whose entire value proposition is the perception that they are the low-price store. Someone else being perceived as being less expensive than Walmart is definitely a threat to them. Indeed, I recall once reading an article where WinCo was described as a "Walmart killer."
But HEB is in the fortunate position of not having to play such a race to the bottom as there are a multitude of other reasons why people shop at HEB in addition to the fact that they offer low prices. HEB can merely have low prices - not necessarily the
lowest prices - and its customer base is not going to be fazed. HEB has the luxury of deciding when and on what items to engage in price wars with.
Also, keep in mind that HEB is no stranger to price wars with a vastly larger competitor. Competition between Walmart and HEB has been downright brutal at times - especially in Mexico. Yet HEB has managed to maintain and grow its market share verses Walmart.
There are other reasons why I think HEB has no particular fear of WinCo and why WinCo would be more likely to fear HEB than the other way around.
Let's take a look at the DFW sales ranking from the other thread I linked to in my previous posting.
Things get interesting if one divides the numbers in the store count column into the total sales column to come up with the DFW average sales per store for each chain. If one does so, the ranking for the various chains is quite different:
Central Market/HEB $66.13 million per store
Walmart $61.46 million per store
WinCo $55.42 million per store
Kroger $45.27 million per store
Target $39.80 million per store
Tom Thumb $29.16 million per store
Albertsons $27.72 million per store
Fiesta Mart $19.28 million per store
Walmart Neighborhood Market $17.02 million per store
Here is what I find fascinating: HEB tops sales per store despite the fact that six of its eleven DFW stores are
Central Market locations(!!!). For those not familiar, Central Market is an HEB format with large stores devoted entirely to fresh and specialty items. Let's just say that you will not find Diet Coke or Doritos at Central Market. Let's just say that Central Market appeals far more to an upscale niche than it does the mainstream mass market.
A regular HEB store, by contrast, does have a very broad-based mass-market appeal so the inclusion of Central Market in those numbers definitely drives down their average sales per store in DFW.
How much so? Well, I became curious - and it also occurred to me that the DFW numbers for Walmart and WinCo might not be typical for those chains either. DFW is massively saturated with Walmart locations which will drive down their average per store numbers and Winco is still fairly new in the market.
Thus I turned to this ranking of top grocery retailers and broke each chain's nationwide numbers out on average per-store basis:
https://www.supermarketnews.com/retail- ... lers-sales
HEB (USA Only) $31.75 billion 351 stores =
$90.46 million per store
Walmart (Nationwide, includes Sam's Club) $433.9 billion sales/5342 stores =
$81.22 million per store
WinCo (Nationwide) $8.93 billion 129 stores =
$69.22 million per store
In all three cases, each chain's stores nationwide average higher sales per store than they do in DFW. But, here too, observe just how much higher the per store average is for HEB verses Walmart. WinCo is in a distant third.
Now, total sales does not tell the entire story - what matters in the long run is how much profit one earns on those sales. And WinCo's no-frills format does have certain advantages when it comes to lowering operational costs - particularly with regard to labor and marketing.
But when it comes to buying power - HEB certainly has just as much, if not more, leverage in that area as WinCo does, especially if one considers that these sales numbers do NOT include their several dozen Mexican stores which they stock with much of the merchandise they procure for their USA stores. If you look at the label on most (but not all) HEB store brand items, you will see descriptions in both English and Spanish and distributed by notices for both "H-E-B San Antonio" and "Supermercados Internationales H-E-B" out of Monterrey NL
Compare HEB's annual revenue of $31.75 billion to WinCo's $8.93 billion (both of which are dwarfed by Walmarts $433.9 billion). Add to this the fact that HEB has many years of experience contending with intense price wars with Walmart. Somehow, I think they will be able to hold their own with WinCo on any particular products that they might need to.
Now consider the overall market appeal of HEB versus WinCo beyond just price. HEB has an almost cult-like following in its markets for a reason. Unlike national chains, they
really understand the particular tastes of the Texas market. and they stock their stores with products specially tailored to that market. National chains are not necessarily inclined to stock their stores with any such items that might not enjoy a similar level of success if sold in the states where the majority of their stores are located.
Not just that - in Texas a very significant percentage of the population consists of Mexican immigrants or descendants of Mexican immigrants. These are people who tend to have larger sized families than the typical USA household and they are big-time buyers of groceries as they are much more likely to eat at home than the average USA household. This is a market that is very particular about certain things - for example, Mexican immigrant shoppers place a much higher value on fresh produce than does the typical USA household. And one will notice that when it comes to both quality and price, it is extremely difficult to beat the produce sections found in most HEB stores. HEB knows this market very well as a result of operating a large number of stores in Mexico that are as large and nice as their Texas counterparts.
I suspect WinCo's Texas operations have higher distribution costs for its DFW stores than does HEB. WInCo operates a distribution center in Denton, north of Dallas which serves its 10 DFW stores plus 3 in Oklahoma City and one in Tulsa. HEB serves its DFW stores from a distribution center in Temple. According to a 2020 press release announcing an expansion of that distribution center, it, at the time served 50 stores between Austin and DFW. DFW is at the far range of that distribution center - but Temple is closer to HEB's DFW stores, which already outnumber WinCos than Denton is to the three stores in OKC and much closer than Denton is to Tulsa.
On top of that, just based on my observation, DFW has historically never gone in a big way for bland, boring stores that offer the trade-off of rock bottom prices. I remember when Food Lion came to town in the 1990s loudly saying that they were going to take over due to their competitors all operating large, inefficient and thus expensive stores. They came to town with tiny, bland stores that were lower in price - and the market pretty much yawned. The stores struggled until the ABC hit piece against Food Lion pretty much ended the chain's time in Texas. Back in the day, Tom Thumb enjoyed a very nice share of the market despite having the highest prices. But, back in the day, Tom Thumb had the nicest stores, large for their time, and offered a premium shopping experience - before even Walmart started stocking specialty foods, Tom Thumb was one of the few places one could find many items. (Today they still have high prices but stores that are merely mediocre by today's standards - "Tom Thumb: Albertson's quality...at Whole Foods prices!!") There are, of course, many people in DFW who are price conscious and will seek out the rock bottom price. But the market as a whole is not as price-conscious as it is in many other parts of the country.
So when HEB comes to town - I think the very same things that give them a cult following in other markets are going to go over very well in DFW. They offer large stores with a shopping experience second to none with products tailored to their particular market both at the high end of that market and the price-conscious end as well.