Stanton Champion

Last time I wrote about HEB, I mentioned how their recent renovation added a much needed bulk food section. However the rest of their renovation has been less spectacular, and in an attempt to stay relevant compared to Wal-Mart and Target, HEB has started selling products such as electronics, furniture, and even sporting goods in some of their stores. These super HEBs, rebranded as HEB Plus, are probably 60% traditional grocery store and 40% something else.

The surprising part of the HEB Plus concept is how HEB has backtracked away from their earlier attempts at differentiating from their competitors. Their wildly successful Central Market concept took grocery shopping upscale in a way that trickled down to many of their other stores. When I lived in Austin several years ago, the HEB in my neighborhood featured many higher quality foods that were also found in the Central Market down the street. While the HEB Plus formalizes some of that upscale panache by carrying more premium goods, expanding out of groceries and into electronics is the wrong thing for HEB to do.

The key here is strategic focus. Organizations that focus on their competencies and do what they do well are stronger than those who thoughtlessly diversify. Consider Wegmans, who when faced with competition from Wal-Mart managed to take their stores further upscale, focus on great customer service, and even position their own store brand as a satisfactory alternative to regular national brands. All of this allowed them to avoid pricing pressure, even with their discount store branded products. Wegmans knows food and groceries, and their strategy has really paid off. They have loyal customers and very happy employees (they were #3 in the Fortune Best Places to Work list and have been on the list every year since it started).

HEB would argue that because they know grocery retail they know appliance retail, but I’m skeptical. Wal-Mart’s entry into the grocery market has not been an easy one, and if anything they’ve had to learn the hard way how different the two retail models really are. But Wal-Mart is making money off of their grocery department, and they have the capacity to invest until they finally get the formula right.

HEB is a regional grocer, and while they are successful in their market, they aren’t Wal-Mart. They too will have to invest to get non-grocery retail right, but without the resources of Wal-Mart, their lack of focus will likely cost them more than it will ever make in long-term returns.