H-E-B BUILDS UP NONFOOD IN TEST 2004-03-01 (2)

DAN ALAIMO

SAN ANTONIO -- H. E. Butt Grocery Co. is testing a large-scale nonfood presentation in its newest store in San Juan, Texas, said spokeswoman Debbie Lindsey-Opel.

The H-E-B Plus store, which opened last month, devotes 30,000 square feet of its total 109,000 square feet to nonfood categories, and represents H-E-B's biggest selection of nonfood to date, she said. Industry observers noted that the prototype is the latest volley in the supermarket industry's battle to stave off competition from mass merchants' supercenters.

While Lindsey-Opel declined to discuss H-E-B's plans for the format, a source told SN that a similar store is planned for Waco, Texas, within a few months. Test stores in H-E-B's major marketing areas -- San Antonio, Houston and Austin -- also are under consideration.

"We talked to our customers and got some feedback on what they thought was important, and incorporated some new items into the store," she said. "When we look at the store and some of the things that are in it, we see it as a strategic move," she added, declining to provide specifics about the store's selection.

However, Lindsey-Opel did confirm reports from local observers that the store includes both general merchandise and health and beauty care. Among its offerings: books, compact discs, a large baby care area, barbecue grills and outdoor products. As part of the grand opening, a leather furniture set sold for about $800. "That would be expensive from a grocery store standpoint, but it was actually a great value for our customers," she said.

San Juan is located near McAllen, over 200 miles south of San Antonio and near the Mexican border. Its population, an average 25.5 years old, is younger than statewide levels, while the percentage of Hispanics, at 95.1%, is above the state average, according to an Internet resource.

The new H-E-B store opened at about the same time that the Kroger Co., Cincinnati, restructured its Smith's and Fred Meyer divisions in a move seen by some as increasing its emphasis on nonfood.

"This is significant because it indicates testing a shift in what the nature of the business is going to be," said Neil Stern, retail consultant, McMillan/ Doolittle, Chicago. "[H-E-B is] moving away from a traditional supermarket model to something more akin to what Wal-Mart does with its supercenters."

Stern noted that two of the world's best food retailers, Tesco in the United Kingdom and Loblaws in Canada, have adopted this kind of model "where you become a hybrid supercenter of sorts."

Supermarkets have lost an average of 10 annual trips per household to the supercenters from 1999 to 2002, said Jim Lucas, senior vice president and director of strategic planning and research, Draft, Chicago. "Supermarkets aren't just competing against other supermarkets anymore. They are really competing against new formats. That's where supercenters have really started to capture a large portion of the supermarket dollars that were there in the past," Lucas said.

However, supermarkets should focus less on supercenters and more on getting sales back from the drug channel, said Jeff Manning, managing partner, F&M Merchant Group, Lewisville, Texas. "The big thing is, just get drug back. Let the supercenters go because you can't get that big. But if you can get drug back and the basics from the drug store, you've got a home run," he said.

"If H-E-B is really serious and wants to go after nonfood, they will find the return on GM and HBC to be far above anything they would ever do in perishables with the amount of space and investment. And it is truly the way to make it a one-stop shop and go after drug," Manning said.