History and challenges
H.E.B, the 11th largest grocery chain in United States, started 30 years ago. When the company was started, it was a predominantly private label company. Recognizing the customer drawing power of national brands, H.E.B took crucial steps to build a strong national brand presence. HEB was known for its superior quality products, its customer service and a broad assortment of merchandise. Additionally the company’s focus on delivering on its promise of everyday low prices, especially to the low income households that it catered to, was amongst its most critical success factors.
1. Competition :
In the 1990s, HEB faced a number of challenges, those in the face of increased competition from 1. industry consolidation of leading supermarkets namely Kroger’s acquisition of Fred Meyer, Alberston’s acquisition of American Stores and Safeway’s purchase of Randall’s Food Stores and 2. New entrants – Walmart’s amalgamation of its discount mass merchandise and grocery stores under one roof into Supercenters and its everyday low-price guarantee was a direct competition to HEB’s long standing ELDP strategy. More players entering the market drive profits down due to competition. HEB’s competitive advantage of EDLP (Every Day Low Prices) was under threat due to Walmart’s every day low prices. HEB, which operated only a regional level in Texas in the US, was faced with the challenge to beat the prices set by the supergiant that had national volume purchasing power and a huge supply-chain.
HEB had 60% share and was able to maintain its position due to its competitive pricing and focus on catering to regional specific products. H.E.B focused on differentiating itself from others, by offering a wide selection of products, outstanding baked goods, produce, flowers, meats, seafood, great customer service and growing its Own Brand assortment.
2. Private Labels :
H.E.B’s focus on manufacturing a wide range of products under its private label formed a critical part of its competitive advantage. H.E.B’s labels were positioned into 3 Brands – 1. H.E.B brand which offered products that equaled or exceeded national brand quality. This represented the niche segment 2. Hill Country Fare Brand which competed against other store brands and targeted towards the price sensitive shopper. 3. Generics – products of reasonable quality
1. Disconnect between company’s segments and customer’s awareness of the segmentation: In 2000, in a reality check of its Own brands, revealed that customers perceived H.E.B’s own Brand products as generally lower quality than national brands and also saw no distinction between the H.E.B and Hill Country Fare brands. 2. In some categories, H-E-B brand did not meet national brand performance – Product research also revealed that in some categories, H-E-B brand did not meet national brand performance. 3. Balancing Own Brands and national brands – Own brands were an important contributor to HEB’s financial health and differentiation constituting 19% of sales at HEB, putting HEB in the top tier of private label products. On the other hand, if Own Brands dominate, HEB might risk losing the interest of National brands which constitute a huge portion of HEB’s revenue. 4. Pricing – HEB set up its own independent pricing group to deliver on its promise of everyday low prices, and competition rose, the pricing process has become increasingly complex to the extent that the company needs to formulate a competitive pricing strategy.
The company faced the important question of what the role of the H-E-B and Hill Country Fare private label brands are and how should they be positioned and priced with respect to other brands in the category and whether HEB’s Own Brands should be scaled up or dialed down. If so, in what products or product categories.
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