H-E-B Own Brands

Case Study on H-E-B Own Brands Marketing 650 –Dr. Hansen Mohammed Al-Alassi, Christopher Boykins, Jwana Carson, Timothy Grant, Aaron Hussain, & Timothy Price April 2, 2012

Situational Analysis H-E-B’s Own Brand is key to the company’s ongoing success. A 1999 customer study indicated that customers perceived H-E-B’s Own Brand products as generally lower quality than national brands. Consumers also saw no distinction between H-E-B and Hill Country Fare brands. Product research revealed that in some categories, including diapers and feminine hygiene, the H-E-B products did not meet national brand performance. This violated the original standards the company set providing EDLP and quality. For example, Own Brand products that confused consumers were water and pasta sauce. Bottled water was an important category to H-E-B, generating $36 million in sales in 2000. Water was segmented both by source (imported spring, domestic spring, and purified) as well as by size. The sales leader in H-E-B’s market in the bottled water category was Ozarka, a Texas spring water. The leading imported spring water was Evian, from France. Purified drinking water was Coca-Cola’s Dasani and PepsiCo’s Aquafina, among others. H-E-B’s Own Brand was Glacia. Glacia was positioned as Evian-quality water. The product was bottled at the source at a spring in Feversham, Canada. While it was formulated against Evian, Glacia was shelved next to Ozarka, priced below Ozarka, and packaged in all the same key sizes as Ozarka. Rob Price, who became vice president of Own Brand in early 2000 commissioned customer research. When prompted without prompted without packaging, only 19% of Glacia consumers were aware the product was bottled in Canada. 64% believed it was from Texas. Even when prompted with packaging (which incorporated a red maple leaf and the phrases

“Product of Canada” and “Natural Canadian Spring Water”), only 74% of customers recognized Canada as the source. In the pasta category Hill Country Fare, which was an H-E-B Own Brand product was positioned against national entry brands such as Ragu and Prego, while the H-E-B brand competed against more premium sauces. The consumers were unaware that the HE-B brand was positioned to compete against premium products while the Hill Country Fare brand was positioned to compete against economy products. Major issued that impacted Own Brands was pricing. For example, if H-E-B sell Del Monte canned corn at 2 for a $1. Assume Green Giant offers a cost reduction that enables them to reduce their price temporarily to $.39. The H-E-B brand is $.35, and Hill Country Fare is $.33. What happens if a competitor like Wal-Mart prices Del Monte at 3 for a $1.00? H-E-B is in an awkward position. If they match the competitor’s price on Del Monte, then Green Giant becomes the highest priced product on the shelf. This would be unfortunate, given their support of H-E-B’s everyday low price stand. If they don’t match the competitor’s price on Del Monte, then they risk the perception that they have failed to honor the EDLP. Issue Analysis Duncan McNaughton, the VP of Grocery Procurement would make an alarming discovery about hidden downfalls to Own Brands. Since Own Brand operated privately, their products were shipped through its distribution channel solely. National Brands had other stores that could assist them in distribution as well as its own. Own Brand depended on National Brand for interest, and surpassing them in sales and revenue may have burned bridges in this crucial ingredient to Own Brand’s strategy. The pricing department in the company gradually became more complex with increasing competition. H-E-B

found themselves in the middle price wise of three competing products. One of the competitors shared their vision on low prices. If Walmart were to price their brand of products at a certain level it could destroy H-E-B’s slogan about low prices and great quality. It was a constant challenge in balancing Own Brands and national brands in the store. Own Brands were critical to H-E-B’s financial health and differentiation. However, if Own Brands dominated consumers may lose interest in the national brands. National Brands products generated the highest procurement revenue. Procurement income was an important revenue source, not just for H-E-B, but also for other grocery store chains. To remain a leader, and to be able to gain a larger share in the market, H-E-B has to perform and be more cost effective. As more and more companies fight for the same dollar, it is not enough to be selling well to be survive, you have to be able to be efficient in all aspects of business and to be able to deliver the best service possible, because prices are too similar. But if a company can provide the best service with the best price, they will be able to achieve maximum growth and survival in the industry. H-E-B has a comfortable market position, but the new trends with the low-cost nationwide chain of Wal-Mart pose as a serious threat to H-E-B. Critical Problem Changing the consumer's perception about the perceived value of H-E-B brand is a major challenge and is a problem at the moment that they conceive the product of company as comparatively lower quality than national brands in shelves. Diversified portfolio of products containing food items which are perishable is riskier one to maintain when there is huge lump of national brands substitutes is already in shelves with

significant market share. But when we talk of products like cooked meat, no comparable product is in shelves but less discounted prices could be hindrance in sales of such product where own brand are conceived to be low quality. Possible Alternatives & Evaluations One alternative is to reposition the H-E-B Own Brands and dissolve the other brands in the category (per page 5), meaning having fewer options for customer to choose from. The second alternative is to reexamine the 4P’s of the existing H-E-B brand products. Currently H-E-B offers specialty brands to compete against national brands, Hill Country Fare to compete against economy brands, and H-E-B brands to compete against premium brands. It would be in the interest of the company to offer the H-E-B brand to compete against premium and economy brands and eliminate the Hill Country Fare brand altogether. This will also help as to not confuse the customer about the products and they will still have the variety to choose different products. For the second alternative, let us examine the application of the 4 P’s to H-E-B’s Glacia bottled water. From the consumer research results, H-E-B saw that there were two segments to target in the bottled water market: First segment valued imported water, second segment didn’t care about imported water, more specifically, this segment valued Texas spring water. H-E-B Glacia, as an H-E-B brand, should be positioned as an upscale entry against imported waters such as Evian. Imported water customers even preferred Canadian water to French water. So, Rob Price could change his strategy on the Four P’s by implementing the following:

1.Product - Packaging is very important. We understand from the case that valuable features of the product don’t come forward in current packaging. Rob Price needs to work on a new packaging to make these features, such as Canadian spring water, more visible. 2.Promotion - When prompted without packaging, only 19% of Glacia consumers were aware the product was bottled in Canada. 64% believed it was from Texas. Even when prompted with packaging, only 74% of customers recognized Canada as the source. H-EB needs to advertise this product to emphasize the Canada message. In-store promotion such as staff introducing and explaining the features would work. Also direct selling through representative or offering deals by product bundling could be considered as promotion strategy for making a successful product mix to harvest lucrative benefits. 3.Price – Increase the price to be higher than Ozarka but lower than Evian. Check the price elasticity for products like cooked meat to make a better pricing decision for getting eventually high net profit margins. 4.Placement - Move the Glacia product closer to Evian to give the impression that they are in the same category. Whereas food products are concerned, H-E-B need to consider the other distribution channels as well rather than just relying their own shelf space. Recommendation H-E-B has done a great job balancing their own brand while maintaining procurement revenue form national brands. However, there are major issues with packaging and placement of the products. H-E-B needs to work on its 4 P’s in order for the customer to perceive value correctly and to be able to make informed decisions on which brands to purchase. This way, cost-conscious consumers can build loyalty towards H-E-B brands depending on what type of quality they prefer. At the same time, the

general public will remain interested in shopping at H-E-B due to its variety and available national brands. The availability of national brands gives customers options to purchase whatever product they like at convenience. Products should clearly state information about production and value. Customers should know what the H-E-B brand is comparable to. This helps with product identification. For example, the H-E-B water should be next to the comparable product so the customer can see the price difference. Consistency in quality is an issue too. According to the charts from the article the majority of the H-E-B brand products are supposed to be of greater quality than regular or generic brands. If this is not the case, this should be advertised or evident. H-E-B cannot compete directly with Wal-Mart on everyday low prices. When Wal-Mart puts national brands on sale, they attract customers who are loyal to national brands only. Wal-Mart, however, does not have the ability to cater to regional customers’ tastes as H-E-B does. If H-E-B communicates the position of its Own Brand products as high quality, unique products tailored to meet the needs of the community, it will be successful as a grocery store that gives customers the option to purchase certain national brands for the food they choose as well as the option to specialty products only available at H-E-B for others. Customers don’t have to choose between buying national brand products only or Own Brand products only. At H-E-B, however customers can purchase, for example, premium baked goods by Own Brand as well as have the satisfaction of knowing that they can purchases Springdale milk at an affordable price, even if it may not be the lowest available. With Hill Country Fair items, the store can retain its everyday low price promise, even if it does not apply to national brands.