Regional grocer in Texas-size fight with Wal-Mart

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Victoria, Texas, had eight grocery stores serving 57,500 people-40% of them Hispanic-when Wal-Mart came to town in 1994. Within a year, Albertson's, SuperKmart and two local operators closed, but H.E. Butt, a century-old, family-owned supermarket chain with stores in both Texas and Mexico, took on Wal-Mart.

HEB battled directly on price, doubled the size of one store, added fuel services at another and stepped up advertising. Today, four grocery stores serve Victoria: two HEBs, a sprawling Wal-Mart and one local shop.

"They have a lock on the Hispanic shopper [at HEB]," said David Rogers, president of DSR Marketing Systems, a retail-research firm based in Deerfield, Ill., that tracks Wal-Mart's expansion. "They carry their perishables and brands and it goes way beyond Goya. Most chains think if they have a collection of Goya products, they've targeted the Hispanic market."

HEB deliberately taps into both the Hispanic heritage of family and celebrations and Texas patriotism. "They don't miss a beat reminding everyone they are a Texas company, they care for Texas and they care for the Texas shopper," Mr. Rogers added. "One of the other big issues is sheer fighting spirit and HEB has that in spades. They are determined to win."

STILL SECOND

Even so, Wal-Mart has overtaken HEB as the No. 1 grocer in Texas, with 321 stores. HEB, an $11 billion retailer, is second with 300 Texas stores and 21 in Mexico, where Wal-Mart is the No. 1 retailer. A study by NOP World found that Wal-Mart was the most popular choice among U.S. Hispanics asked to name their favorite store. In a February 2005 telephone poll of 500 Hispanic adults, 36% called Wal-Mart their favorite store, way ahead of Target, JCPenney and Sears, Roebuck & Co., all tied for second place at 4%.

In the ferociously competitive Texas market, regional players like HEB and smaller players like Houston-based 50-store chain Fiesta have survived in part because they appeal more than traditional grocers to the state's large Hispanic population.

HEB's tagline is "low prices and a passion for quality." Howard Blevins, account manager at HEB's agency, Richards Group, Dallas, said the positioning challenges Wal-Mart directly on price, yet avoids a tradeoff in the minds of Hispanic consumers who value quality.

"The key thing is to make sure the stores are relevant and have the food offerings that are important to Hispanics," said Mr. Blevins.

HEB operates three different store formats: traditional, Hispanic-oriented HEB Fresh, and Central Market, aimed at "foodies." At an HEB Fresh, at least half the food is fresh-produce, baked goods, meat and seafood-and there are dozens of peppers, olive bars and tortillas baked in ovens on the store floor. And HEB's 21 stores in northern Mexico serve as a kind of test market. "When a promotion works in Monterrey, you definitely try it in Texas," Mr. Blevins said.

Not only does the retailer's experience in Mexico lead to consumer insights into the Hispanic customer, but also as the largest immigrant group in Texas, brand familiarity translates across the border.

HEB's Hispanic advertising was less savvy than the stores' product mix. Cory Basso, HEB group VP-marketing and advertising, ended the retailer's practice of dubbing general market campaigns into Spanish and recently hired the first manager of Hispanic advertising. "You can't take a general-market idea, put in different actors and a different voice-over and call that a campaign," he said.

Hispanic spots created on a project basis last year by Rives Carlberg, Houston, were all about sharing, barbecues and a fiesta atmosphere, Mr. Basso said. General-market spots focused on famous baseball players like Roger Clemens who live in Texas.

Late last year, HEB consolidated all creative and media planning and buying at Richards Group. Rives Carlberg retained media buying in Houston. A series of humorous commercials, created by Richards, includes a Spanish-language spot that broke last week promoting the chain's private-label HEB Baby line of diapers and wipes. In a hypothetical training session for HEB employees observing babies using the product, an overzealous employee speaks up and asks how these babies can really be trusted, since babies can be kind of shifty. The point: "We test the products. We don't just ask people in focus groups, we make sure products actually work right," Mr. Blevins said.

Strategy: HEB covers all its bases with three formats: a traditional market, Hispanic-targeted Fresh and foodie-focused Central Market.

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