FOOD MECCA

LYNNE MILLER / Additional reporting: Roseanne Harper

For food lovers, H.E. Butt Grocery's Central Market offers a true feast that's become a moneymaking destination in and of itself.

The sprawling produce aisle is full of color, and the meat and seafood departments emphasize hands-on service. Throughout the store, associates encourage shoppers to have a bite of this, or a sample of that. Fresh food is the focal point here. About 75% of store sales come from the fresh food departments, according to officials who accompanied SN on a recent store tour.

Now, having passed its 10th anniversary, the original Central Market here in Austin, Texas, is akin to a tourist attraction. The 70,000-square-foot store, well known for its dazzling produce, unique merchandising and offbeat layout, is the city's second-most-visited destination behind the state capitol. Central Market is widely recognized as a top-notch specialty food operation that attracts visitors willing to travel long distances to see the store.

"It's not uncommon during holiday weeks for the stores to be filled with family and relatives of our regular shoppers, visitors who are in from out of state," said Stephen Butt, senior vice president for H-E-B's Central Market division.

For all its star power, though, Central Market faces stiff challenges as it grows up. Fending off competition from a growing number of specialty retailers, and keeping the format fresh, fascinating -- and accessible to a broader base of shoppers -- are chief among the challenges.

"The store has to stay ahead of customers' tastes," Butt said. "We've got to keep bringing the next new thing forward."

Working with him to keep the format fresh is the father of Central Market --John Campbell, H-E-B's vice president of innovation and the creator of the original store concept.

"We need forward thinking," Campbell agreed. "Competitors copy what we do. The things we do become more mainstream."

Central Market is a mecca for items cooks have trouble finding at conventional stores, whether they're looking for haricots verts, the slender French green beans prized by chefs, or premium fresh Berkshire pork, or boxes of chocolate truffles imported from France.

The signature produce department offers a bounty of fruits and vegetables -- including 40-some varieties of apples -- in a 15,000-square-foot area. Creative merchandising can be found here. For instance, fresh cranberries floating in water in a large galvanized tub brought to mind images of cranberry bogs. Artichokes were displayed in a huge tub of ice in the middle of the aisle. The meat and seafood departments feature unusual and premium products, including fresh Key West shrimp, fresh wild salmon, dozens of varieties of fresh sausages made in-store and exotic items like ostrich and venison.

Eight hundred varieties of specialty cheeses are available at the Central Market Tasting Bar, where shoppers can sample unusual varieties and get tips on compatible wines. There's an extensive food-service department and a sizeable in-store cafe with seating for 250. On nice days, diners stake out tables outdoors where mature oak trees add to the ambience.

To date, H-E-B has taken a conservative approach to growing the format. The company operates seven Central Market stores in five Texas markets, and plans to open store No. 8 in the Dallas-Fort Worth market in 2006. Officials are looking at nontraditional retail venues for future growth and are considering expansion to other states.

Given the format's enviable reputation, some industry observers questioned its relatively slow pace of growth.

"In 10 years' time, seven stores -- that's far too conservative given that Whole Foods is building dozens of stores per year," said Burt Flickinger III, managing director of Strategic Marketing Group, a New York-based consultancy. "Central Market is one of the finest food retailers anywhere worldwide. It should be more profitable, and should be taken to a scale much more quickly."

Officials at H-E-B use a different measuring stick to evaluate the format.

"The success of the format really has been measured in its positive impact on the total organization, rather than the number of stores we built," Butt said, noting Central Market at times serves as a laboratory for testing strategies and products that ultimately find their way into conventional H.E. Butt supermarkets.

"We believe Central Market can grow in a variety of ways," he added. "We're at a point now to consider additional locations for the future. The notion of taking it out of the state is a possibility."

With its heavy focus on fresh foods and specialty groceries -- not to mention the winding layout -- Central Market looks nothing like a conventional supermarket. That was the whole idea.

The seeds for change were planted more than a decade ago when Charles Butt, chairman and chief executive officer of H-E-B, issued a challenge to executives -- reinvent food shopping so customers would actually enjoy it. With that directive, company officials turned the traditional model upside down. What they came up with is a format that injects razzle-dazzle into the food shopping experience. To make it unique, mundane products like diet soda and laundry detergent were left out of the plans -- a radical move for supermarket officials who cut their teeth on one-stop shopping.

In the early days, it was an open question whether Central Market would succeed -- and become profitable, company officials told SN during a recent interview and tour of the original store.

"In 1994, we didn't know whether we were whistling Dixie," said Campbell. "The store was absolutely a risk."

It took a while for the format to catch on and make money. In its third or fourth year of operation, the original store started to turn a profit, Butt recalled. More stores followed, and they turned profits more quickly for the company.

"I'd say from its beginnings, the sales and earning potential was often not a priority," Butt said. "The priority was developing a unique and powerful new concept. As the years have passed, and we've had time to work with it, we're pleased that Central Market delivers a very attractive return for the H-E-B organization. We believe that the new stores for the future can become an important part of our company's sales and earnings growth picture."

During the late fall and winter months, an interesting phenomenon plays out at the stores. Customers fill their shopping carts high with extra food in preparation for the big food holidays. The newer Central Market stores typically experience at least a 40% bump up in sales during the seven days leading up to Thanksgiving and during the week prior to Christmas, while some of the older stores post sales increases ranging from 55% to 65% during those two weeks, officials said. Those numbers are quite a bit higher than the pre-holiday sales spikes seen at conventional stores.

Officials find that kind of business gratifying, but at the same time, they're focused on making Central Market more of an everyday store, albeit a special one. For his part, Butt wants to speed up the process by which shoppers "adopt Central Market as their primary food store." Special event marketing has taken on new importance as a vehicle for driving sales during non-holiday periods. For instance, Central Market threw a party in late August to promote Hatch chilies, a local favorite. Associates promoted Hatch chili scones made in the bakery, stuffed seafood items sold in the seafood department, and other foods seasoned with the fiery green chilies from New Mexico.

In search of new ideas, Campbell has traveled to London, Spain, Portugal and elsewhere to see how retailers conduct promotions and create buzz in their stores. He and Butt consider the travels essential to Central Market's future survival, especially in an environment where nontraditional food sellers are proliferating.

One competitor was doing his homework in the store on the day SN visited. While leading SN on a store tour, Campbell pointed out a fellow in the prepared-foods area. Speaking into a cell phone, the man was detailing the items offered on the recently expanded salad bar. Campbell recognized him as a representative from Whole Foods Market. The leading natural and organic food retailer competes with Central Market here and elsewhere in Texas. Whole Foods intends to open an 80,000-square-foot store in Austin in spring 2005.

That kind of competition keeps both companies on their toes, and ultimately benefits consumers, Flickinger pointed out.

"One reason both Central Market and Whole Foods are two of the finest food retailers found anywhere in the world is because they're such great competitors," he said.

"Being so great, they make each other better every single year. Rather than taking business away from each other, they make each other's businesses that much stronger."

Tweaking the Format

AUSTIN, Texas -- Virtually all the fresh-food departments at H.E. Butt Grocery's original Central Market were tweaked, expanded or enhanced in some way as part of a recent remodeling.

In produce, for instance, all organic items are stocked together to make a stronger statement about the sheer size of the offering, and to make shopping easier and more appealing for organic buyers, including those who feel strongly about keeping organic and conventional produce separate, officials said. The store, which carries 140 to 150 organic produce items, marked by yellow plastic signs, used to integrate organics with the conventional fruits and vegetables.

"Listening to focus groups, we weren't getting credit for all our organics," John Campbell, the retailer's vice president of innovation, told SN.

In the seafood department, which offers more than 100 items, associates are stationed in front of the counter to encourage more interaction with consumers. The associates on duty during SN's visit seemed eager to answer any questions and show off the merchandise. "We find out what you're planning to make for dinner," an associate told SN. "We talk through what just came in, what's great for the grill. We'll let you smell it. We'll throw out recipes for you. It's more hands-on. It lets us talk to the regulars."

The meat department created 24 additional feet of service space from what used to be self-service, and added a number of fresh meats, including dry aged beef, organic beef, buffalo, ostrich and venison. At the head of the meat and seafood aisle, SN observed a demo station where associates could be seen cooking brisket and encouraging shoppers to have a taste.

The specialty cheese department was relocated to bring it closer to the wine department, and dedicate more space for the prepared-foods aisle. A friendly associate stationed at the Central Market Tasting Bar was available to offer shoppers wine and cheese samples. The bakery, featuring a large selection of whole-grain breads, was redesigned to look more like the other Central Market bakeries. Shoppers have more choices of soup at a self-serve station, and greater variety on the salad bar. Both areas were expanded. The popular in-store restaurant also has a new look, with updated colors and decor.

"On Sunday, you can barely get in here," said Stephen Butt, senior vice president for H-E-B's Central Market division. "We freshened it up. The new menu will have a focus on chef's specials, with the menu changing daily. We're going to take advantage of the bounty of the store."