Some grocery giants think massive scale is the only way to win. H-E-B begs to differ.

American consumers have beef with their grocery stores. Shoppers in Texas can’t relate. 

For most Americans, the nearest grocer is likely a Walmart or a brand owned by Kroger, Albertsons, or Ahold Delhaize. In the aisles of those conglomerates, consumers have felt prices jump more than 25% since 2019, and there’s plenty of resentment to go around. 

In Texas? H-E-B, a privately owned chain with over 400 stores in the Lone Star State and northern Mexico, is the dominant chain. And Texans aren’t just happy with it — they love it. 

H-E-B has been No. 1 for the past two years in Dunnhumby’s Retailer Preference Index, which ranks grocers based on customer opinions. Texans love their local grocery store in a way most of the country doesn’t. 

It’s not just H-E-B: Publix is dominant in Florida, as is Hy-Vee in Iowa and much of the Midwest. All three are privately owned and have built cult followings. 

H-E-B, for one, is known for providing disaster relief and being a decent place to work, often paying well above the $7.25 hourly minimum that’s still the floor in Texas. Its mascot, H-E-Buddy, is an anthropomorphic paper bag with carrot greens for hair.

“Even though it’s in a pretty competitive landscape, the brand loyalty that H-E-B has among Texans is so strong,” said Simon Somogyi, a professor of agricultural economics at Texas A&M University. “Consumers in Texas are way less likely to be swayed by national chains.”

This is particularly pertinent at a time when food prices are top of mind for Americans and a central theme of the presidential campaign. It’s also at the center of an FTC challenge to a proposed merger between Kroger and Albertsons, which would further consolidate the industry nationwide. 

Over the past few decades, a handful of companies have swallowed up smaller chains. They usually keep their branding, creating the illusion of a patchwork of regional grocery stores that are actually part of the same few national companies. 

Harris Teeter and Mariano’s? Owned by Kroger. Safeway and Kings Food Market? That’s Albertsons. Giant and Stop & Shop? Ahold Delhaize.

But the playing field has diversified. Walmart and Target, which sell much more than groceries, have expanded, and Costco, the wholesale club, has become a more popular place to shop for groceries. 

The grocery market is extremely competitive. Kroger argues that’s why its proposed merger should go through: so that it can have the scale to compete with the likes of Walmart. 

But some of the most competitive grocery stores are independent regional chains that don’t have the scale Kroger is chasing. And in the markets where they’re present, they often beat both Kroger and Walmart. 

“Guerrilla warfare”

Albertsons has locations in the Dallas-Fort Worth area and El Paso. Kroger has a presence in North Texas and Houston. In the rest of Texas, H-E-B competes mostly with Walmart and Costco.

H-E-B has no locations in El Paso. The chain only recently entered the Dallas-Fort Worth market, and its entrance has made a splash there, where Walmart and Kroger dominate.

“My guess would be that Kroger is not going to welcome us with open arms, so we're going to have to be good at what we do,” Scott McClelland, a former H-E-B exec, told a crowd at Texas Christian University in 2022, shortly after it announced plans to expand into the area. 

H-E-B is known for being hard to compete with. In 2021, Hy-Vee said it was expanding to the South but not in Texas because “we just don’t need to go poke that bear,” in reference to H-E-B. Walmart did exactly that a decade ago with an expansion in Texas, and H-E-B maintained its market share.  

“It was guerrilla warfare,” McClelland said in the panel. “We did stuff that a big national competitor couldn't, wouldn't, or didn't, and we knew we had an advantage because as Texans we eat differently than people in Arkansas, and we live differently.” 

Part of that strategy included offering products that other stores didn’t have, like Whataburger spicy ketchup and local barbecue sauce, or through unique private labels like the ones you’d find at a Trader Joe’s. McClelland said H-E-B sells $1 million of its brisket queso dip a week, and its in-store guacamole, which originated as an idea to reduce waste, nets $60 million a year. 

Randall Onstead, the founder of the Texas grocery chain Randalls, said H-E-B is strategic and patient when it enters a market. H-E-B got into the Houston market in the late 1990s, and it recently beat out Kroger for the highest market share in that metro area. 

“I don’t think there’s any question that over time H-E-B will have the biggest share of the grocery market in Dallas-Fort Worth,” said Onstead, who has since sold his chain and is now an adviser at Chapman Partners, a consulting firm.

“They just know that customer.”

Doug Munson, an adviser at RetailStat, said that when a grocery store becomes part of a national chain, it often loses some personality. Albertsons has a history of leaving chains “completely bastardized,” while Kroger is a bit better at letting chains “retain their magic,” he said. 

“A national chain has a geographical footprint in different divisions, versus H-E-B, which just wakes up every day and it’s Texas,” Munson said. “They just know that customer.”

Randalls is one of the dozens of smaller chains that have been swallowed up over the years. It was sold to the private-equity giant KKR in 1997 and then bought by Safeway in 1999. In 2014, Safeway merged with Albertsons, bringing the 27 Randalls' locations in the Houston and Austin areas with it. 

Onstead said there are upsides and downsides to becoming part of a large, publicly traded chain. The merchandise gets more homogenized, which gives them more bargaining power with some suppliers and allows them to nudge down prices. But it's harder to be attuned to local trends and consumer habits, and the desire to meet Wall Street expectations can get in the way of long-term goals. 

H-E-B is the fifth-largest private company in the US, with an estimated annual revenue of $43.6 billion in 2023, according to Forbes. (Publix is No. 3.) As private companies, less is known about their finances, but compare their behavior to national chains like Walmart or Kroger and it's clear they don’t have Wall Street investors breathing down their neck. 

Onstead said H-E-B can compete with the likes of Walmart because they have such high volume. “But they also don't have margin expectations from shareholders that are continually improving,” he said. “They don’t have the pressures of living quarter to quarter.”

H-E-B merchandises very differently based on location, whereas Walmart merchandises for the average American consumer. As a result, an H-E-B can look drastically different depending on where it’s located. 

Some have more premium products than others. An H-E-B in a town by the US-Mexico border may sell fresh tortillas and have signs in Spanish, while a location in a Houston suburb with a large Asian population may rival an H-Mart. 

H-E-B declined to comment for this story. In a 2022 interview with the Federal Reserve Bank of Dallas, H-E-B President Craig Boyan said the chain’s goal was “to serve a state rather than a segment of customers.” When asked about the Kroger-Albertsons merger, Boyan said “they’re already way bigger than us, and that’s only going to put more pressure on companies like H-E-B.” 

But luckily in the grocery business, scale isn’t everything.

“You can’t just have one warehouse in the middle of the country to serve food to every corner,” he said. “So there are some benefits in a highly perishable business to being local.”