The line of cars at the drive-thru Tuesday wound around the side of the store. Inside, the aroma of smoked brisket greeted a dozen or so guests placing orders at the register and seated at tables in the bright, brick-walled dining room where Dierks Bentley’s “Home” played from speakers overhead.
Visible through the entryway was a colorful floral shop and a row of checkout lanes where midday shoppers paid for their groceries at the newest H-E-B to open in San Antonio.
The Northside store located at Bulverde Road and Loop 1604 opened Aug. 11 at a time of rapid change in the retail grocery industry. Just this week, Amazon’s $13.7 billion acquisition of Whole Foods was approved by shareholders and regulators, and Google announced its new partnership with Walmart, called Google Express.
German grocery chain Aldi also announced the launch of a new delivery service in partnership with Instacart in Atlanta, Dallas, and Los Angeles starting Aug. 31. Some say the discount grocery is taking aim at Whole Foods with a new store design, while another growing German chain, Lidl, has reportedly purchased land to build a store on the Eastside, not far from an H-E-B store there.
“It’s looking more and more that 2017 will be the year where the physical and virtual grocery shopping worlds got their peanut butter in one another’s chocolate,” wrote Jon Springer, retail editor at Supermarket News.
One of the nation’s largest regional grocery retailers, H-E-B dominates the San Antonio and South Texas grocery market, competing mostly with Walmart.
At 112 years old, H-E-B has been around longer than the “supermarket,” which marked its 87th anniversary this year. With sales of more than $23 billion and more than 370 stores in Texas and Mexico, the privately owned grocery chain is adapting to industry changes, keeping it fresh in more ways than one.
The new store on Bulverde features the first Optical by H-E-B Eye Care Center in San Antonio, plus a True Texas BBQ Restaurant with drive-thru, and H-E-B Curbside, a service that lets customers order online, choose a pickup time, and stop by the store to collect their groceries when it’s convenient.
The 117,000-sq.-ft. store is one of three standard H-E-B concepts in San Antonio: H-E-B Stores, H-E-B Plus, and Central Market. It is designed to meet the needs of residents in that suburban area in the same way H-E-B’s downtown store at South Flores does with its 12,000-sq.-ft. “food market” featuring more to-go meals suited to area workers and tourists.
In June, Amazon announced it was purchasing Whole Foods, a move experts said was intended to let the world know the online giant was taking on Walmart in the brick-and-mortar world.
Then, on Tuesday, Sridhar Ramaswamy, senior vice president of ads and commerce at Google, announced a major partnership with Walmart to accept orders via voice commands using Google apps and devices, and deliver those products to users’ homes.
When rumors of Amazon’s entry into the grocery industry floated last year, Supermarket Guru blog author Phil Lempert wrote, “You can almost smell the fear of some retailers … [but] I see it a bit more iffy. I’m afraid that Amazon may well be looking at the past iterations of grocery shopping with a few technology whiz-bangs rather than looking to the future, as they try to fill in a niche between two already successful formats that are on the cutting edge” – convenience stores and in-store dining.
The Food Marketing Institute reports that supermarkets remain “the primary channel of choice for food shoppers,” with 85% of consumers shopping at such stores most frequently. However, less-traditional channels are attracting more shoppers.
Members-only supercenters like Sam’s Club and Costco, conventional discount stores, limited assortment stores, dollar stores, and convenience stores all grew substantively in shopper visits last year. Although online retailers came in last as a channel of choice, they contributed to “channel fragmentation and present a significant opportunity for food retailers in refining their business models in the future,” according to the FMI report.
Meanwhile, brick-and-mortar supermarkets keep getting bigger. The average size of stores has expanded from 35,100 sq. ft. in 1994 to 46,000 sq. ft. in 2014, and the average number of items on shelves is 39,500, with dry goods making up the bulk (25.6%).
It’s a market worth chasing. U.S. consumers spent $668 billion at 388,441 supermarkets last year, according to Progressive Grocer Magazine. The USDA has estimated Americans spend 5.5% of their disposable income on food at home and 4.3% on food away from home (2014 figures).
This year, for the first time, H-E-B made it into the Top 3 of America’s favorite grocery retailers, based on a survey of 12,700 shoppers by Market Force Information. Trader Joe’s was at No. 2, behind Publix and Wegmans, which tied for first place.
Roger Dooley, author of Brainfluence: 100 Ways to Persuade and Convince Consumers with Neuromarketing, has said that what sets H-E-B apart is its use of techniques “geared to the way our brains work.” In addition to coupons, freebies, and samples, H-E-B appeals to shoppers’ sense of commonality.
“As a Texas-only store, H-E-B works the Lone Star connection into every aspect of its marketing,” he wrote in a 2014 Forbes article. “This strategy would help in any area, but is particularly effective in Texas. That state has an unusually strong sense of identity, and most Texans are proud to emphasize their association with the state.”
“As a company, innovation has been at the root of who we are,” said Julie Bedingfield, H-E-B public affairs representative. “And we have a focus on seeing what those innovations are, and once again being a retailer for all Texans, and understanding that not all Texans shop the same and making sure we’re providing the opportunities they want.”
If it’s convenience they want, as Amazon and Google propose to offer, then H-E-B is already in that game. Who will win in this competitive and evolving industry is anyone’s guess.
“I think we’re still waiting to see what that looks like – it’s a little soon to tell – but of course e-commerce is a big part of our strategy moving forward,” Bedingfield said. “That’s part of the investment that we’re making right now, in things like our app and Curbside and grocery delivery through Instacart and Shipt. We will continue to keep an eye on those things as well.”
At the True Texas BBQ Restaurant inside the new Bulverde Road store, the barbecue is smoked on-site, and the restaurant here and at eight other locations in the state is overseen by Randy Evans, executive chef and director of restaurants for H-E-B. “He’s bringing a lot of expertise to the table for us,” Bedingfield said. And not just in the ‘cue.
“It’s about bringing together what people want in a dining experience with their grocery shopping, about giving them some time back and creating convenience and efficiency as well, but also giving them a pleasant dining experience.”
True Texas is open for breakfast, lunch, and dinner, offering craft beers and a happy hour from 4-9 p.m. It also sells barbecue by the pound, with all the usual sides. Orders can be placed online or as part of a Curbside Service order.
Another feature of the new store is an expanded “Meal Simple” department with prepared meals, or what the industry calls Retailer Meal Solutions.
One study – the 2015 Retailer Meal Solutions Consumer Trend Report by Technomic – found that consumers are purchasing prepared foods more often, with 84% now buying such meals at least once a month, compared to 79% in 2012. The increase is driven largely by consumers aged 18-34. The median age in San Antonio, by the way, is 32.9 years and the largest age segments, according to U.S. Census reports, are 20-29 and 30-39.
Future plans for H-E-B call for another store opening this November in the Alamo Ranch neighborhood on the far Northwest side.
