Charles Butt 2007

MARK HAMSTRA

Charles C. Butt
Chairman and CEO
H.E. Butt Grocery Co.

Since taking the helm of the company in 1971, Butt has led the chain from $250 million in annual sales to about $13.5 billion and has carved out a dominant market position in southeastern Texas. He has driven the retailer to develop several new formats, including the highly regarded Central Market banner and the massive new H-E-B Plus superstores.

Charles C. Butt has been running one of the most successful supermarket chains in the country, but he has never stopped being a student of what he describes as “the art and science” of retailing.

The chairman and chief executive officer of San Antonio-based H.E. Butt Grocery Co., Butt has had many teachers through the years — his father, his fellow executives, the other successful chains that he has visited in Europe and North America, and his own customers, who have helped shape the company through their response to H-E-B's innovations.

“I've probably been what I would call an ‘incrementalist,’ improving the business bit by bit over the years,” he told SN. “I believe in sticking to the basics while exploring new avenues and new ideas.”

In recognition of Butt's success as the leader of one of the most admired supermarket chains in the country, known for its experimentation with new formats and its close connection with its customers, SN is recognizing him by naming him as one of three inaugural inductees into its new Hall of Fame.

“They have been real leaders in developing new store formats that are not only efficient, but that more effectively meet the needs of the shopper,” said Jon Hauptman, partner, Willard Bishop, Barrington, Ill.

Butt became president and CEO of the company in 1971, when H-E-B was a local operator ringing up $250 million in annual sales, and has grown it to become a 304-store regional powerhouse generating $13.5 billion in volume from multiple formats.

Its Central Market concept, which combines elements of specialty retailing with farmers' market-style merchandising, is one of the most admired concepts in American food retailing. In addition, the chain has recently begun opening supercenter-sized stores with expanded general merchandise called H-E-B Plus and a Hispanic-oriented format called Mi Tienda.

Butt said the company has learned from all of its retail experiments, even the ones that are no longer operating, such as the H-E-B Pantry concept, a price-impact format that helped H-E-B refine its cost-management skills at a time when Wal-Mart Stores was making inroads in Texas with an aggressive price stance.

The eight-unit Central Market format has perhaps solidified H-E-B's reputation as a successful innovator, however. The first Central Market opened in Austin in 1994, and continues to slowly expand under the leadership of Charles Butt's nephew, Stephen Butt.

“They are a format that serves a more affluent and generally a well-traveled, well-educated customer,” explained Charles Butt. “Those locations have influenced the rest of our company toward higher standards, particularly in perishables, which represent most of our sales, so they have been a great role model.”

H-E-B is also one of the few U.S. retailers to venture outside the nation's borders for expansion, and its 28-unit division in Mexico is continuing to expand there. The idea to extend into Mexico, where H-E-B's operations are headed by Howard Butt III, was originally conceived by Charles Butt as a research project for a business-school class.

“It's been a very gratifying experience, and it has afforded us some opportunities in cross-border procurement in fruits and vegetables,” he said.

A humble man with a dry sense of humor, Butt attributes the success of the company to his fellow workers. He credited his father, Howard Butt, with establishing a solid foundation for the business and for instilling in him the importance of surrounding himself with good people.

“My dad was a very smart businessman, and not only did he have a merchant's sense, but he was very good at real estate, and he was a strong reader of people — a great judge of character and people's abilities,” Butt said.

He said he believes that selecting workers based on their character is as important as their skill sets.

“I think historically I've looked for people with two characteristics: I've looked for people who I thought brought a good business mind to the company, and to our responsibilities to the customer, and also people who have a good heart,” Butt said. “It's not particularly difficult in America to find smart people, and there are a lot of good-hearted people, fortunately, but finding people with both those characteristics does require some careful looking, and I encourage everyone in our company to combine those characteristics in hiring, and most importantly in promotions.

“I think that concept has been a factor in getting people of real quality who have the customer in mind, who have their fellow partners in mind and are generally concerned about our communities and our society.”

In addition to learning from his father, Butt has also benefited from the tutelage of others over the years. He credited as some of his early mentors some of the chief operating officers the chain has employed, such as Duane Peters, who was COO when Butt first took over the chain in 1971.

“I was 33 and scared to death,” said Butt. “He sort of became a father figure to me.”

Peters, who came to H-E-B from Ralphs in Los Angeles, helped Butt transition the company to stay in sync with Texas' evolving business climate, from a rural, agrarian economy to the more urban economy it has today. Butt also credits other executives, developed both inside and outside the company, as further honing the chain's expertise.

Although he said he prefers to promote from within and has a new internal development program for nurturing executives, some managers recruited from other retailers have also helped give H-E-B a more global perspective, Butt said. That perspective has been further enhanced by Butt's career-long effort to visit other retailers and seek to glean new knowledge from them.

“We have always made a habit of traveling extensively,” he said, recalling a trip he arranged through Michael O'Connor, the former head of the Supermarket Institute, to visit some leading operators of the time shortly after he became head of H-E-B in 1971. The visit included meetings with the heads of Lucky Stores in Southern California, Sears-Roebuck in Chicago and Supermarkets General, the forerunner of Pathmark, in New Jersey.

H-E-B has continued to make a habit of traveling to see other concepts throughout North America and Europe. Butt cited the complexities of rolling out a successful private-label program as one of the important lessons he has learned from his company's discussions with Canadian and British retailers.

Even as a child, working in his family's supermarkets, Butt was learning lessons about the business that would later pay dividends.

“I had some great store managers that didn't cut me any slack — my father, I'm sure, told them to be sure that I was hustling all the time, and they definitely complied with his request — and those were great experiences, and learning about the customer and what her issues are,” he told SN.

Butt said understanding low-income customers in particular is critical in today's economic environment. One of the ways the company attempts to stay in touch with those customers is through a program in which executives are asked to feed their families on a very small allowance for one week.

“That has opened our eyes as to how difficult it is to put a meal on the table for a family of three or four or five,” he explained. “I think it has increased our acuity in terms of what we offer our customers.

“That will be a continuing challenge: How management stays in touch with the needs of all Americans — it's easy to stay in touch with the affluent, but staying in touch with a customer who is struggling on a tight budget is more challenging.”

Although Butt projects ongoing innovations in store formats and new concepts, he stressed the importance of focusing on the basics.

“Fundamental blocking and tackling continues to be very important,” he said. “One wants to have a balance between experimentation and innovation and keeping the trains running on time.”