Amid Grocery Retail Disruption, H-E-B Grows Digital Services

H-E-B has been a dominant force in South Texas business for decades.

Amazon began entering the fold as a same-day grocer option three years ago with the rollout of its delivery service that offers to turn around orders of produce and other supermarket items within hours. The e-commerce giant last month launched two-hour delivery of wine and beer through its subscription-based service Prime Now.

H-E-B responded within days by announcing a wine and beer delivery service of its own – no subscription required – through the delivery startup Favor, which the company acquired earlier this year.

Purchasing Favor was a step toward becoming a “digital retail industry leader,” an H-E-B spokesperson said.

“Providing customers with innovative and convenient ways to shop has been a part of H-E-B’s philosophy for more than 100 years,” the spokesperson said. “H-E-B strives to stay ahead of our customers’ evolving needs as we invest in both brick-and-mortar and e-commerce solutions.”

Amazon and H-E-B have been moving chess pieces as the Southtown-headquartered grocer’s near-monopoly appears to be facing its first veritable challenge in years. With Amazon-owned Whole Foods slashing prices since the acquisition in August 2017, a grocery retail expert and former Amazon executive said the Butt family-owned company is feeling palpable disruption.

“H-E-B has been impacted because consumers are seeing what’s going on out there and consumers are going to H-E-B and asking for things,” said Brittain Ladd, who headed Amazon’s last-mile delivery logistics and once pitched the company on buying H-E-B. “And H-E-B consumers are going to H-E-B and saying, ‘You know what? It would be beneficial to us if we had a better digital experience with you.’ It’s just the fact that the industry as a whole is going through a level of disruption, but there’s nothing going on out there that H-E-B won’t be able to adjust to.”

In recent years, the grocer has rolled out tech-powered services such as Curbside, which allows customers to purchase groceries online and pick them up at a designated parking spot. In San Antonio and other major cities, it offers same-day delivery through third-party delivery companies Shipt and Instacart. In addition to beer and wine, Favor runners can deliver a narrow selection of food and beverage items. H-E-B also has an in-house home delivery service from which customers can choose from the whole of a store’s inventory.

There’s a 3 percent markup on each item to cover online orders. Curbside and home delivery shoppers also incur a $4.95 fee on each order. Home delivery charges an additional $5 service fee.

The Rivard Report spoke to several H-E-B customers who said the additional costs are worth it. Some even said they save money without the temptation to make “impulse buys.”

Adrianna Addicks started using H-E-B Curbside last fall.

“My girlfriend and I started using it and, for better or worse, have never looked back,” Addicks said. “There are times when we tell ourselves ‘Let’s just plan our grocery list using Curbside and then we’ll actually go to H-E-B but in the end we always use Curbside.’ The 3 percent fee that they tack on and $5 service charge is money I’m willing to spend for the convenience of not dealing with the crowds.”

A mom of two and an elementary school teacher at Alamo Heights ISD, Celine Bordelon said she uses Instacart about once a week. Similar to H-E-B’s delivery service charges total about $10 to order delivery from Instacart, she said. In fact, an Instacart order was on its way to her as she spoke to the Rivard Report. Bordelon was with other mothers and children enjoying a day near Lake Travis when they started running out of food, she said.

“We went through everything much faster than we thought,” she said. “It’s just very handy for families.”

Instacart also delivers from Whole Foods, Costco, H-E-B’s Central Market, Natural Grocers, and Sprouts Farmers Market, among other local retailers. Shipt delivery is available from Central Market and Target in addition to H-E-B.

Shipt requires either an annual or monthly membership. San Antonio customers can expect to pay $99 for an annual plan and $14 for a monthly plan. Each delivery is free on orders costing more than $35.

Instacart also offers a flat annual fee for deliveries $35 and up through Instacart Express, which costs $149. Otherwise, its two-hour delivery service costs $5.99 per order.

H-E-B has been testing an app-enabled self-checkout service called H-E-B Go. In a beta phase, the app allows shoppers to scan their items, pay using their smartphones, and leave the store similar to Amazon Go, the Seattle company’s supermarket without a conventional checkout process.

Tonya Sottilo moved from Sacramento to San Antonio nearly one year ago and has been an H-E-B Go devotee. She shops at the location on Huebner Road and I-10 West; the stores on South Flores Street and in New Braunfels also offer H-E-B Go.

“I love that I can fill my bags the way I like them filled in my cart as I shop instead of stressing over filling the belt in a way that will force baggers to fill my bags in a sensible way,” Sottilo said. “It has even reduced some of the timing constraints of my trips to the grocery store. Before, I would worry about long lines if I went at certain times of the day, but since I just have to show an employee my phone before leaving, I have no lines to worry about.”

H-E-B Go allows her to buy two weeks worth of groceries within 20 minutes during the busiest shopping times, she said.

Purchasing produce they haven’t been able to touch or see and having items substituted for something similar when a product isn’t in stock are some of the drawbacks customers expressed with the Curbside and delivery experiences.

H-E-B Go gives Sottilo the best of both worlds, she said.

“I get to touch my produce and check expiration dates,” she said. “It also seems like a better deal from H-E-B’s perspective because I still walk by enticing displays and have been known to pick up a couple unintended purchases, which cannot happen with the other services.”

Ladd said H-E-B has taken several steps to improve digital offerings after a somewhat laggard adoption of device-powered retail innovations.

“Yes, there’s disruption in the industry, but H-E-B is very smart in that they’re not going to overreact to anything,” he said. “They’re going to make sure H-E-B is still designed to place the focus on the customer and to ensure H-E-B is always competitive on quality, price, and convenience. That’s why H-E-B’s going to be here for so many years into the future.”