News | Grocery war tactic: feeding the foodies

February 17, 2015

By Erin Mulvaney | Houston Chronicle 

The latest effort to capture the fancy of Houston grocery shoppers includes a sit-down restaurant with a full-time chef, a spice-blending station for stay-at-home gourmets and a long refrigerated aisle dedicated to yogurt - nearly 500 varieties of the stuff.

The H-E-B opening Wednesday in tony Tanglewood boasts 91,000 square feet of not just traditional staples but also such foodie bait as a sushi bar, hummus in bulk sizes and a booth to order takeout barbecue. It's just 2 miles from a Whole Foods Market that opened last fall trumpeting an in-house brewery and a souvlaki grill. And it opens at a time when the Houston area is forecast to add more than 30 new groceries, including Trader Joe's, Aldi and Wal-Mart, in the coming year.

Kroger has already announced it will invest $409 million in the Houston region with new stores and upgrades. An estimated half of the 2.7 million square feet of retail development underway in Houston is said to be grocery.

"It would be naive to not look at our competition," said Scott McClelland, president of Houston H-E-B. "If someone has to drive by a competitor to get to my store, then I better have an awfully compelling reason for them to come."

Serving upscale neighbors

McClelland's newest, 5895 San Felipe at Fountainview, caters to its affluent residential surroundings with an emphasis on organic and gluten-free foods. On sale in the household goods section are wine glasses and high-end bottle openers. The wine itself is stored in temperature-controlled coolers with LED lighting.

H-E-B hopes the biggest draw will be Table 57, its first chef-driven restaurant inside a store. The menu focuses on fresh produce and locally inspired dishes. The restaurant features wooden tables, booths and a glass-walled kitchen where guests can watch their food being prepared.

There's also a wine and beer bar, a large patio with a children's play area and a stage for live performances.

Analysts say stiff competition is making Houston's grocery scene more dynamic.

"The name of the game is market share," said Jason Baker of the retail brokerage firm Baker Katz. "Everyone is clamoring for their share."

That's different from decades past, Baker said, when Randalls, Kroger and H-E-B coexisted in relative tranquility. Now, new players such as Sprouts, Aldi, Trader Joe's and Fresh Market are challenging the status quo, even if some of the newer players have struggled. He singled out H-E-B, which arrived in Houston with its smaller Pantry stores in 1990 and now commands a 25 percent market share.

Baker said the chain does a good job of fitting into its neighborhoods and promoting its Texas brand.

"They are committed to gaining more, and they are absolutely doing it," he said. "They are a force to be reckoned with. ... Consumers are the beneficiary of these grocery wars, and it seems like they will continue."

Sees retail growth

While new apartment and office development slows amid falling oil prices, retail remains underdeveloped in the Houston region, said Jazz Hamilton, vice president of retail brokerage services with CBRE. In contrast with today, he said, Houston in 2007 had 12 million square feet under retail development. He said rising land costs in the Inner Loop have curbed retail development somewhat, but he said there is a pent-up demand for more.