Wal-Mart studies HEB for lesson in ‘fresh’

Wal-Mart can do grocery home delivery as good as any retailer given its successful model used by ASDA in the United Kingdom, but it’s looking closely at Texas-based HEB for a tutorial on “fresh," according to Jack Sinclair, executive vice president of the grocery division at Walmart U.S.

Sinclair last week told a group of analysts attending the retailer’s annual investor meeting that “HEB is the best food retailer in the world, particularly on fresh.”

He said Wal-Mart opened an office in San Antonio to work with HEB vendors to learn how to do fresh better, specifically meat and produce. At the time, he said “people still want to feel their apples before buying them,” which is why he believes mainstream grocery delivery in the U.S. in still years away. At the same meeting Wal-Mart said it was expanding its test on grocery home delivery into the Denver market, adding to the ongoing tests in San Francisco.

But the retailer’s bigger initiative is in trying to convince the American shopper it can do “fresh” as good as anyone and at a better price. With that, Wal-Mart has set its sights on HEB, the nation’s 13th largest retailer in food and beverage sales, according to Retail Net Group.

HEB is a full-service grocer with annual sales of $13.7 billion, roughly 10% of Wal-Mart’s food and beverage sales last year. The supermarket chain operates 350 stores in Texas and Northern Mexico, under the banners HEB and its upscale Central Market. The company has been in business more than 100 years.

HEB isn't always the least expense grocer in its market, but it is a strong favorite throughout south Texas, rolling out hot baked bread every hour for 99 cents a loaf. Many stores have a fresh sushi bar and cooking center with chefs on staff that provide hot meals to go. The produce department at HEB offers a wide range of fresh fruits and vegetables, locally sourced including a broad assortment of organically grown items.

ATTRACTING CONSUMERS
Analysts like Jason Long, of Shift Marketing Group, is familiar with HEB and applauds Wal-Mart’s focus on “fresh” because it seems to make strategic sense.

“To grow beyond their core customer – those on a limited budget – Wal-Mart needs to think and act differently. This is a step in the right direction,” Long said.

Leon Nicholas, retail expert with Kantar Retail in Boston, also said Wal-Mart’s play toward enhancing its “fresh” presence is also geared toward attracting more affluent shoppers who may be in the supercenter to purchase Halloween items or some other general merchandise, and who might not typically cross the isle for produce or meat. He said Wal-Mart hopes to woo the higher-income families with an improved store experience and better prices on the “fresh” grocery. But there’s a limit to how far the Wal-Mart way will stretch.

Long said the “fresh” agenda is a public relations win for Wal-Mart as talk of fresher fruits and vegetables enhance the company’s image and increases the number of potential Wal-Mart shoppers.

“Strategically it seems that Wal-Mart is stuck-in-the-middle – Aldi’s and Dollar Stores on the bottom and traditional grocery stores at the top. A focus on higher quality produce could help mitigate competition from the top end and give those consumers a reason to give Wal-Mart another look,” Long said.

Wal-Mart is not the only retailer focusing on “fresh.” Carol Spieckerman CEO of New Market Builders, said “it’s the sexiest grocery category today” with convenience stores, dollar stores, supermarkets, big boxes and e-tailers all trying to win marketshare. 
She has said doing “fresh” right is crucial to a retailers’ reputation and it’s important in driving repeat traffic into the big box stores. She said consumers can be unforgiving when they expect fresh and it’s not delivered day-in and day-out.

WAL-MART PLAN
The 100% money-back produce freshness guarantee unveiled in June by Wal-Mart was modeled after HEB, and the retail giant also expanded its produce expertise with additional hires, according to Sinclair. Wal-Mart continues to market the initiative with its “Fresh Over” campaign, stepped up training and quality control checks throughout some 3,400 stores each week.

Sinclair said in June the improvements in the retailer’s “fresh” business were a sustainable move as well as an answer to what customers want today. Wal-Mart’s efforts to improve its reputation in “fresh” include delivering produce from farms to store shelves faster by purchasing fruits and vegetables directly from growers, something its been doing since 2010.

So what’s really different? Wal-Mart said the difference involves a third-party auditing process that goes into the retailer’s stores each week, checking the produce for quality and freshness. The results are then reported to every level of store management. The retailer also expanded the training to 70,000 employees who ensure that fresh produce is stocked and restocked in its stores across the country.

Sinclair told analysts those efforts were starting to pay dividends toward Wal-Mart’s goal of $25 billion in “fresh” sales annually. He said the plan involves using a 33% share in consumables as the benchmark. To date, Wal-Mart has a 21% share in bananas, which Sinclair said was linked to better sourcing. They have a 9% share in strawberries, but he said they have hired a guy from Driscoll’s Strawberry Associates to help them figure it out.

“I do think Wal-Mart is somewhat limited as to how far they can take the campaign. Given their size and scale, sourcing is one area they certainly have an advantage in,” Nicholas said. “I think perhaps they have an admiration for HEB, but it’s a different model.”

Long said Wal-Mart should consider taking a page from other grocers as not all stores are created equal and there’s plenty to learn in this highly competitive space.