H.E. Butt Grocery Company
Jae-Young Chung
Ian Kwan
Doris Lim
WonShik Woo
Company Overview

12th largest grocery retailers

Over 7 billion in sales

260+ supermarkets, mostly in Texas


Gas 'N Go outlets.
Operates facilities for processing milk,
meat, ice cream, and baked goods.
Industry Overview

A wave of Consolidation
- Through acquisition to increase efficiencies
and strengthen market positions
- Some small & localized stores – bankrupt

Online grocery
- customer segment - save time and the
trouble involved in going to the store.
Total Electronic Grocery Spending
Dollars: billions
$12
$9
$6
$3
$0
1998
1999
2000
Specialty

2001
2002
2003
Full-service
Percentage of industry total
1999
0.11%
2000
0.23%
2001
0.49%
2002
0.98%
2003
2.05%
Suggested Services by HEB

Online Service
- Provide info services: recipes, food safety info.
- Kiosks in the stores for web site access
- Provide value added services & retain customers

Transactional Pharmacy Web Site
- Order online and receive delivery via direct mail
- Leverage existing assets, build e-commerce expertise

Pick Up Service
- Pick up from the stores or convenient location
Efficient Consumer Response (ECR)



Industry cost-reduction initiative
Responsive, consumer-driven systems –
combine manufacturers, brokers and
distributors – maximize consumer value &
minimize the supply chain cost.
Example: use of paperless system
between retail checkout & the
manufacturing line.
Structure of new supply chain

Store Replenishment System
- Use POS data to produce a perpetual inventory
- SRS – judges stock-outs at the shelf level, not
warehouse level.

Fast – Slow Warehousing
- To manage fast & slow-moving items from
different distribution centers & delivery systems

Intranet & B2B infrastructure
- Use of Extranet – collaborate with suppliers
- Use of Intranet for info exchange within HEB
Differences of its approach





Avoid last mile delivery by having depots
Kiosks inside the stores to provide
access to their web site
Launch transactional pharmacy web site
Use Internet to accompany its retail store
business
Focus on improvements in its retail store
Comparison between HEB and others
HEB
Own
Peapod
Contracted
Homegrocer
No
Physical
Store:
Sell groceries Build expertise in the Sell groceries
Core:
SW and logistics
surrounding Internet
grocery home delivery
Delivery No last mile Deliver door-to-door Deliver door-todelivery
door
method:
Delivery Use Depots Use refrigerated trucks Use refrigerated
trucks
vehicle:
NetGrocer
No
Offer national
services, but only
sell shelf-stable
products
Deliver door-todoor
Use Shipment
carriers
Benefits created by its approach






Reduce shipping cost by avoiding last
mile delivery
Depots could be used as cross-docks to
enable home delivery model in the future
Tap into new market
Deepen relationship with customers
Increase data volume for internal
marketing analysis
Give options to customers
Challenges of the approach:



Process Engineering
Huge Investment (8 digit)
Increase in fixed costs
Electronic Tagging
Currently no electronic tagging due
to expensive price and ethical
concerns
Should implement in the future
 Price decreases
 Customers are willing to allow HEB
to check down on their behaviors
Conclusion


HEB’s approach (establish online
presence and improvements in
operations and supply chain) will
work given the benefits outweigh
the costs
Implement electronic tagging and
loyalty card program in the future