Key development: Marking H-E-B's 100th anniversary.
What's next: Deciding whether to expand its U.S. operations into Dallas or move outside Texas.
For Charles C. Butt, growth is a matter of corporate survival.
Being a regional chain -- with all but a handful of its 300 stores in Texas -- H.E. Butt Grocery Co., San Antonio, is at somewhat of a disadvantage in terms of size compared with the national operators it competes against. But with sales estimated at $11.1 billion, H-E-B has been a giant killer on its home turf, able to chase a host of competitors out of town over the years.
Butt was named president of the company in 1971 and has been chairman since 1991. During his tenure H-E-B has grown from a chain of strictly conventional stores to a diversified operator with supercenter-style H-E-B Plus stores, upscale Central Markets and limited-assortment Pantry Foods stores, plus 21 stores in Mexico.
Now, however, faced with tough head-to-head competition from the industry's two powerhouses, Wal-Mart Stores and Kroger Co., Butt must decide whether his company can survive as a Texas-only retailer or whether it's finally time, after 100 years, to look at other geographies outside the state.
"Charles Butt knows Texas, and he's not been ambitious about going outside the state," Tom Haggai, chairman and CEO of IGA, Chicago, told SN, "but he might have to think about it someday once he's plowed all the furrows he can in Texas."
H-E-B marked its 100th anniversary this year, but even in the midst of looking back, Butt told SN he continues to look ahead. "I want to focus more on the future than the past."
That focus includes figuring out how to outgun Wal-Mart, how to become a stronger factor in the Houston market and whether to expand to Dallas or untapped Southwestern markets.
H-E-B has been gradually losing market share to Wal-Mart here on its home turf, and last year Wal-Mart passed H-E-B's market share statewide, according to reports. But no one is counting H-E-B out. "H-E-B is a tough operator that has historically taken a 'scorched earth' policy and not given up any share very easily," Ed Blair, a marketing professor at the University of Houston, told SN.
"H-E-B has worked hard to reinvent its business from the ground up by placing great emphasis on finding ways to run stores profitably while keeping prices competitive with Wal-Mart," said an industry consultant.
The chain opted to take on Wal-Mart, along with Kroger Co., when it moved into the Houston market with conventional stores in 2001. Its market share there is approaching 14%, behind Kroger's 27% and Wal-Mart's 22%, and H-E-B has set a goal of 25% market share in Houston within five years.
"In Houston, H-E-B has made a strategic commitment to the market, and it's determined to be a long-term player there as the market shakes out," Blair told SN. "I don't see H-E-B fighting Wal-Mart so much as making life miserable for Kroger and [Safeway-owned] Randalls, the same way Wal-Mart makes life miserable for all of them."
Some observers told SN they believe a move by H-E-B to Dallas makes sense. "It's a logical expansion market for H-E-B," said one, "and it could establish a strong price position there."
Others suggest H-E-B may be closer than ever to making an acquisition that could expand its borders into other states.
In an interview with a Fort Worth newspaper a few years ago, Butt said he recognized the broad possibilities inherent in the supermarket business. "I saw that a business could be a creative and constructive part of communities," he said.
Haggai said Butt feels an obligation because of his family's history. "While he knows he doesn't have to prove who he is, he understands the importance of having the same name as the founder and the obligation that comes with that in terms of putting something back into each community," he pointed out.
