H.E. Butt Grocery Co.: A Leader in
ECR Implementations
Case Study
Industry Focus
 Huge, $376B industry
• heavily fragmented
• top 5 companies account for only 21% of sales
 Grocery chains under great pressure from
Wal-Mart type store to become more
efficient
 Massive inefficiencies present in channel
• forward buying
• poor inventory management
Industry Focus (cont.)
 Industry is highly geographically focused
• top 3 companies in each region have 70% of
market
 Food retailing industry is an industry where
technology has potential to effect
significant restructuring
Company Focus
 Mid-sized food retailing chain
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•
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200 stores and 7 warehouses
ranked #13 in country
sales of $3.2B
strong commitment to technology
 Dominant presence in region (Wal-Mart
also located in this region)
Company Focus (cont.)
 Heavy growth in sales/employee in last
decade
 Growing in org. complexity as it handles
more products and faster inventory
 Recent commitment to EDLP strategy
 Recently reorganized around “category
management”
• led to replacing all but 1 of its buyers
Company Focus (cont.)
 HEB’s new incentive plan is built around
profits
 HEB is concerned with Wal-Mart’s contract
with P & G for new EDI-based order entry
system
 Little room for failure given their size and
position in market place with Wal-Mart
Porter's Value Chain
Firm Infrastructure
Human Resource Management
Technology Development
Manufacturers
Factory/
Warehouse
Procurement of Resources Stores
Distributors
Warehouse
Storage/
Shelves
Porter’s Five Forces Model
Threat of new
entrants
Bargaining Power
of Suppliers
Rivalry Among
Existing Competitors
Bargaining Power
of Buyers
Threat of Substitute
Products or Services
Interaction between opportunities and threats
Key Success Factors at HEB
 Ability to maintain low pricing (core
differentiator)
 Use of technology to drive costs down and
sustain them (technology seen as key
enabler)
 Highly reliable technology (system failure
can lead to significant sales losses)
 Properly timed investments in the tech
curve
HEB Technology Initiatives
Unix Mini-computers linked to POS and
then linked to HQ via VSAT system
 e-mail, automated attendance reporting,
automated DSD, Motorola hand radios
 Ordering done by scanning labels and
entering quantities into computer then
uploading, still largely manual checking

HEB Technology Initiatives (cont)
 CRP and EDI
•
•
•
•
PC pilot with P & G
moved to m/f
grew to 60% of orders
improved stockout levels, transportation costs,
elliminated forward buying, lowered inventory
costs
– some up front costs for vendors
Efficient Consumer Response
 See http://www.fmi.com
 One aspect was to link POS to CSO to
implement CRP
 Optimize retail space and selection
 Maximize promotions in value chain
 Maximize new product introductions
Situation at HEB at end of case
 1994, 60% of inventory handled via CRP
 96% of orders handled via EDI
 Generating 100X more data
 Warehouse stockouts dropped from 6% to
1%
 Potential problem of POS accuracy
• 90-95% accurate; can’t support on-line access
 Threat of new entrants?
• Any barriers needed?
Update to HEB case
 Major initiative to improve scanner
accuracy
• improved scanner maintenance
• replaced older scanners
• disqualified vendors for poor bar coding
– improved accuracy to 99.98% by end of 1995
– increased data 1000x
– asset and inventory responsibility moved down the
value chain
– pay via AFT
Update to HEB case (cont.)
 1998 HEB initiated Peapod
• designed for two income families
• PC-based home grocery shopping
• depends more on efficient warehousing rather
than shopper-friendly stores
 Loyalty cards started by Tom Thumb
• HEB debating whether to start one
– system cost vs. cost of not knowing customers
Update to HEB case (cont.)
 HEB began performing “basket analysis”
• 1997 FMI report encouraged them to reduce
number of products carried
• HEB elliminated 700+ items
• Basket analysis showed many of these items
were present in the most profitable baskets
– allows data mining for Lays vs. Pringles analysis
• HEB restored these items and added 700 more
in the gourmet area
Update to HEB case (cont.)
 Moved to 12th largest grocery chain
• largest private company in Texas
 Expanding into Mexico and Louisiana
 Chosen retailer of the year 1996
 1998 sales increased to $7B with 7.7%
growth
Lessons Learned from Case
 Revolutionary changes take time
• threat of Wal-Mart always there
 Creating an IT infrastructure can lead to
future opportunities
 High staff turn-over with cultural change
 Previous IT successes can determine level
of success in future IT projects
 Cross-industry collaboration can work