Breaking: HEB buys 6 Minyard Sun Fresh stores in DFW

[pseudo3d]

The other problem why they can't reopen as H-E-B stores anytime soon is that there's no distribution center set up. The regular stores have a different DC set-up than Central Market does, and they need a distribution center that can handle the demand. That is what I have been told in regards to not having stores in Dallas, and the nearest distribution center is 120 miles away (that isn't the farthest single store by a long shot, they have a few stores in Midland-Odessa), but the logistics don't work out currently for a wide-scale expansion. (Their logistics division is really a business in itself)

I didn't say anything about 'fair'. If you have good locations open them! Make Money! I don't know if that's not the way things work in Texas but it does pretty much everyplace else.

Yes, they do. It is how other chains do it. But far more often than not, those strategies ultimately end in failure.

[...]but time and time again, we have had operators that believed they could succeed in markets through brute force store additions and a perceived attitude that they were better [than the market's existing stores]. (The list is long if you include a wide variety of markets--Smith's, Albertsons, Food Lion, Harris Teeter, Haggen, The Fresh Market, Fresh & Easy...I'm sure there are others).

[wnetmacman]

The other problem why they can't reopen as H-E-B stores anytime soon is that there's no distribution center set up. The regular stores have a different DC set-up than Central Market does, and they need a distribution center that can handle the demand. That is what I have been told in regards to not having stores in Dallas, and the nearest distribution center is 120 miles away (that isn't the farthest single store by a long shot, they have a few stores in Midland-Odessa), but the logistics don't work out currently for a wide-scale expansion.

I'm going to quote Colonel Potter from M*A*S*H: Horse Hockey!

120 miles for distribution is, to say the least, miniscule.
The earliest Walmart distribution put all stores within a day's drive of the distribution center. We all know that Walmart grew too large to continue to maintain that, but it was how they begin.

For further comparison, the Albertsons stores in Lafayette, LA are now supplied out of Houston. The Randalls DC in Houston is 243 miles. Brookshire supplies all its Texas stores from Tyler. That's around 340 miles west to Sweetwater, their furthest store. They also supply their Lafayette stores from Monroe, LA, which is 177 Miles (and that's to the store in Carencro, they go another 25-30 miles south to Abbeville and New Iberia).

Distribution location is *not* the issue. I believe these 6 stores are part of their calculated approach to Dallas. I listed the companies earlier who tried and failed; they do not want to be on that list. HEB hasn't failed much, so when they do, it becomes very irritating to them.

[pseudo3d]

The other problem why they can't reopen as H-E-B stores anytime soon is that there's no distribution center set up. The regular stores have a different DC set-up than Central Market does, and they need a distribution center that can handle the demand. That is what I have been told in regards to not having stores in Dallas, and the nearest distribution center is 120 miles away (that isn't the farthest single store by a long shot, they have a few stores in Midland-Odessa), but the logistics don't work out currently for a wide-scale expansion.

I'm going to quote Colonel Potter from M*A*S*H: Horse Hockey!

120 miles for distribution is, to say the least, miniscule.
The earliest Walmart distribution put all stores within a day's drive of the distribution center. We all know that Walmart grew too large to continue to maintain that, but it was how they begin.

For further comparison, the Albertsons stores in Lafayette, LA are now supplied out of Houston. The Randalls DC in Houston is 243 miles. Brookshire supplies all its Texas stores from Tyler. That's around 340 miles west to Sweetwater, their furthest store. They also supply their Lafayette stores from Monroe, LA, which is 177 Miles (and that's to the store in Carencro, they go another 25-30 miles south to Abbeville and New Iberia).

Distribution location is *not* the issue. I believe these 6 stores are part of their calculated approach to Dallas. I listed the companies earlier who tried and failed; they do not want to be on that list. HEB hasn't failed much, so when they do, it becomes very irritating to them.

Albertsons also chooses to source its Florida stores from the Eastern Division DC even farther away, but we all know that Albertsons isn't exactly stellar at operations these days. I'm not saying that distributing to Dallas from Temple can't be done (it can), but that's what H-E-B's logistics have chosen in their optimization processes, and that there's not much say in the issue if you don't work there.

I believe we are in agreement that H-E-B will not likely open the stores as grocery stores anytime in the next year though, despite the disbelief from our colleagues in the West Coast (yet they have seen doomed supermarkets arrive in SoCal with similar prospects).

[wnetmacman]

I believe we are in agreement that H-E-B will not likely open the stores as grocery stores anytime in the next year though, despite the disbelief from our colleagues in the West Coast (yet they have seen doomed supermarkets arrive in SoCal with similar prospects).

I am torn on that. I know companies like Winn Dixie that survived on paying rent for a closed store base that was 60% of the open one for some time. I don't see HEB leaving them closed long. They know based on Houston and Lufkin what to do with a closed or former Albertsons, so I think they may reopen soon, though I don't know if it will be an HEB or a Central Market.

[pseudo3d]

I believe we are in agreement that H-E-B will not likely open the stores as grocery stores anytime in the next year though, despite the disbelief from our colleagues in the West Coast (yet they have seen doomed supermarkets arrive in SoCal with similar prospects).

I am torn on that. I know companies like Winn Dixie that survived on paying rent for a closed store base that was 60% of the open one for some time. I don't see HEB leaving them closed long. They know based on Houston and Lufkin what to do with a closed or former Albertsons, so I think they may reopen soon, though I don't know if it will be an HEB or a Central Market.

Winn-Dixie's dark store strategy was widespread and absolutely flawed, plus they did it in a (failed) bid to keep competitors out, especially considering that even in its peak Winn-Dixie wasn't a great operator, and when all this came to a head in their 2005 bankruptcy, they had not been in growth mode for a number of years by that point. H-E-B's strategy is completely different than that.

They definitely have the resources to keep the stores dark (it's only six, and I'm sure that they got a good price for them) while they work up to Dallas from the south, because there's no competitive advantage to opening them right here, right now. Those expecting some Wegmans-like experience would probably leave disappointed, most other people would just assume "oh, another operator in the old Albertsons space" and others who might've heard of it would find it too similar to Kroger (except no card). Now, I suppose they could amp up the perishable/specialty departments at the expense of the center store mix, but compound those problems with the fact that H-E-B has an annoying tendency to replace its brand with store brands (up to and including Betty Crocker cookie mixes and Softsoap hand soap), then you've got a potentially messy situation where H-E-B can never hope to expand its market share without a ton of money and potentially diminishing returns, and that's a best case scenario, because once you fail in a market, that's pretty much it...your reputation as a company is tainted and your name as a company is unofficially banned from ever entering the city again. It can also carry some devastating financial consequences...far more than just keeping stores dark for a few years.

[klkla]

The other problem why they can't reopen as H-E-B stores anytime soon is that there's no distribution center set up. The regular stores have a different DC set-up than Central Market does, and they need a distribution center that can handle the demand. That is what I have been told in regards to not having stores in Dallas, and the nearest distribution center is 120 miles away

San Diego is 120 miles from Los Angeles and all the operators down there get their merchandise delivered from L.A. area distribution centers. And we're not talking about a handful of stores. Upwards of 200 San Diego area stores are supplied by L.A. area DCs. A company can drive to the store, unload, and drive back without overtime even with SoCal traffic so I would think it would be doable in Texas.

[pseudo3d]

The other problem why they can't reopen as H-E-B stores anytime soon is that there's no distribution center set up. The regular stores have a different DC set-up than Central Market does, and they need a distribution center that can handle the demand. That is what I have been told in regards to not having stores in Dallas, and the nearest distribution center is 120 miles away

San Diego is 120 miles from Los Angeles and all the operators down there get their merchandise delivered from L.A. area distribution centers. And we're not talking about a handful of stores. Upwards of 200 San Diego area stores are supplied by L.A. area DCs. A company can drive to the store, unload, and drive back without overtime even with SoCal traffic so I would think it would be doable in Texas.

Admittedly that was before the Dallas purchase but that's what I've been told (repeatedly). It can definitely be done, but it's just a difference in how H-E-B wants to operate.

So I was thinking about H-E-B's purchase of the stores (while eating a meal composed of ingredients entirely from H-E-B down to the plastic fork and styrofoam bowl) and I think that they already made one tactical mistake--they announced it before they even made up their minds about what they are going to do with the stores. Somehow, as the news spread across social media that H-E-B will open in Dallas, and that means that either the first impression of H-E-B in Dallas is going to keep the stores locked up for a long period of time OR being forced to play their hand too early by opening stores that would kick off a disastrous failure.

Indeed, H-E-B has reaffirmed that the stores are going to be either Central Market or disposed of: http://dfw.cbslocal.com/2016/08/16/heb- ... expansion/

If there's one thing to be learned about the debacle, then RLS Supermarkets is getting rid of its grocery stores in a hurry as this did not come long after selling the remaining Minyard stores and a few Sun Fresh stores to Fiesta. The only ones they seem to be running now is two Minyard stores they converted to "Cash Saver" in January, and I don't expect those to last much longer at this point. This is probably why they sold out so quickly instead of selling to H-E-B secretly and then running their stores as a sub-lease.

[klkla]

It was already mentioned on Monday in the Dallas Morning News article that the Central Market name was likely to be the initial focus. "At this time, Central Market continues to be the primary format for the Dallas-Fort Worth," said Todd Piland, H-E-B executive vice president of real estate. "We are currently evaluating the feasibility of each site to determine the most effective use of the properties." But they now own (or have leaseholds depending on how this latest deal was structured) 26 properties in Northern Texas. There's just no way they would buy that much property just to sit on them. If those properties were in areas where they already operated a lot of stores I could see them owning some of the properties as a strategic block but that theory doesn't make sense here.

I assume Central Market stores have higher margins because it's more of an upscale format than a regular HEB, so it would make sense to start with that format but could Northern Texas support 30 Central Market locations?

How big are the current Central Market locations?

[storewanderer]

The Central Markets seemed smaller to me, I am not even sure if they are 40,000 square feet. They could have definitely been more spacious.

Very productive stores. I suspect they give Trader Joe's a run for its money on sales per square foot. I wasn't real impressed with them, but many other people are.

[pseudo3d]

How big are the current Central Market locations?

The Central Markets seemed smaller to me, I am not even sure if they are 40,000 square feet. They could have definitely been more spacious.

Very productive stores. I suspect they give Trader Joe's a run for its money on sales per square foot. I wasn't real impressed with them, but many other people are.

Like other H-E-B stores, Central Market stores vary on size. A few of them (namely in the areas that only have one CM, like Houston) go up to 75k square feet but the Dallas ones tend to run a little smaller on average (60k square feet, on par with former Albertsons) and can go down to 30k square feet (a former Borders/Marina Safeway). The layout makes them feel much smaller than they really are.

But they now own (or have leaseholds depending on how this latest deal was structured) 26 properties in Northern Texas. There's just no way they would buy that much property just to sit on them. If those properties were in areas where they already operated a lot of stores I could see them owning some of the properties as a strategic block but that theory doesn't make sense here.

I assume Central Market stores have higher margins because it's more of an upscale format than a regular HEB, so it would make sense to start with that format but could Northern Texas support 30 Central Market locations?

I'm not sure what exactly H-E-B wants to do with Dallas. They obviously have some interest in it and building regular stores, but while land is relatively easy to maintain and hold onto, buildings less so. I don't think H-E-B will sell any of their properties (just sublease), nor will they open a CM and then convert that to H-E-B.

If they did decide to back out and quietly dump the SFM properties, that would save face in their Dallas expansion while waiting for the time to return (if they opened them, that's another issue...)