GLOBAL RETAILING 1998-03-16 (3)

SAN ANTONIO (FNS) -- H.E. Butt Grocery Co. here, one of the first U.S. food retailers to venture into Mexico, could add five additional sites in Monterrey, Nuevo Leon, over the next year, according to a source close to the company.

in the upscale San Pedro Garza Garcia section, opened in February 1997.

The company is set to open its second Mexican supermarket, an 80,000-square-foot unit, in Contry, which is on Monterrey's Southern side, in May.

Howard Butt III, chief executive officer of H-E-B's Mexican division, declined to comment on future expansion. "Nothing has been finalized yet," he said.

Industry watchers said being the first company to enter a particular market can be a competitive advantage down the road.

"The first guy in gets the best locations," said Michael J. O'Connor, a Wilmette, Ill.-based consultant to the retail food industry. "And I can tell you, [H-E-B] will get the best locations."

O'Connor said Charles Butt, H-E-B chairman, who pioneered the company's move into Mexico, is adept at scouting out optimal locations.

In a 1997 interview, Butt told SN he began thinking about Mexican opportunities while finishing college at the University of Pennsylvania's Wharton School. He did his thesis on U.S. supermarkets in Mexico and spent the summer before graduation touring Mexico. He said that the Mexican market was underserved and provided an opportunity for U.S. retailers.

In the early 1990s, with Texas operations thriving, the company was in a good position to make the move into Mexico. Monterrey was targeted because of its dense population, about 3 million, and its upscale demographic profile. In addition, it is only 130 miles southwest of McAllen, Texas.

H-E-B's Monterrey store has a heavy emphasis on perishables. It features 150 varieties of fresh bread, 140 types of cheese and 1,800 varieties of wine, beer and liquor.

A survey of Monterrey shoppers, which was published earlier this month in the Mexican newspaper El Norte, rated the H-E-B Chipinque store highest in service, image, cleanliness, variety and price among the area's supermarket chains. In addition to H-E-B, many other U.S. retailers are investing resources in the Mexican market. Wal-Mart Stores; Sears, Roebuck & Co.; JCPenney; and Dillard Department Stores have all opened locations in Mexico to capitalize on the country's improved economy.

Several international companies are either currently competing for food sales or plan to do so in the near future.

Soriana, a 93-year-old chain of grocery and discount department stores based in Monterrey, has about 60 stores in Northern and Central Mexico, and maintains about a 50% market share in Northern Mexico. Wal-Mart last year completed its acquisition of 51% of Cifra, the Mexico City-based retailer that had been Wal-Mart's joint-venture partner. Wal-Mart operates about 23 supercenters and 28 Sam's Clubs in Mexico, with additional units planned.

Carrefour, the French hypermarket firm with sales of $24.5 billion and 252 locations, will be coming to San Pedro Garza Garcia within a year in a joint venture with Grupo Gigante, one of Mexico's leading food retailers, which has more than 20 stores in Monterrey and several hundred across the country.