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The Houston Chronicle has a story about H-E-B’s Joe V’s Smart Shop chain of nine stores, which was designed to “serve low-income people who struggled to find affordable, fresh and healthy food.

Roxanne Orsak, who runs the division, says, “I grew up like our customers … we had no money. I wore my brother’s hand-me-down clothes until the eighth grade. I have a passion for studying what’s important to them. Food is an important part of their social lives and the moms who shop here take great pride in providing for her family and finding the best deals. Planning a great dinner is her value.”

According to the story, “These customers need low prices, but they also expect fresh, quality ingredients. The trick, Orsak said, was to squeeze costs out of the store, not offer second-rate items.

Orsak starts with a metal building, not fancy architecture. There is no pharmacy, seafood service counter, massive bakery or butcher service. Space at the front of the store is rented out to banks and other vendors to share real estate costs. A grocer can also reduce costs by narrowing the selection. A typical H-E-B sells 37,000 to 40,000 items in 100,000 square feet or more. Her new store would sell only 6,500 items in 55,000 square feet. Instead of offering 1,200 produce items, she’d offer the 250 fruits and vegetables her customer really wants, saving on labor and spoilage.

“To lower labor costs, she stocks the store with pallets to minimize hand-stacking. Customers bag their own groceries. There are no store coupons because Orsak spreads the savings year-round.”

The pricing rule is firm - Joe V’s stores are expected to have prices that are 15 percent lower than the competition’s, and “if the wholesale cost rises, Orsak expects store managers to reduce costs, not raise prices.”
KC's View:
All of which explains why H-E-B, which also operates Central Market, one of the best formats in the country, is a company that continues to thrive even in tough competitive markets.