H-E-B Own Brands

Case Analysis Template

Case Analysis Components
1. Problem
a brief specification of the problem being faced

2. Alternatives
an identification and explanation of the alternatives that could
address the problem

3. Critical Issues
an identification and discussion of the critical issues that bear upon
the choice of an alternative
4. Conclusion
a conclusion that deduces the best alternative from facts and
discussion of the issues.

2 2
Problem
{A brief specification of the problem being faced by H-E-B}

There is a challenge in balancing Own Brands and national brands in the store.
Own brands are critical to our financial health and differentiation. However, if
Own Brands dominate, they will lose the interest of the national brands .
The pricing process is complex which make them in a awkward position.

How should Own Brands respond to competitive price promotions? When should
HEB follow? What about national brand promotions?
What is the role of the H-E-B label Hill Country Fare as Own Brand labels? How
should these be positioned with respect to the other brands in the category?
What is the role of Own brand in H-E-B’s overall corporate strategy? Why is it
important? Should it be scaled up? Or dialed down? If so, in what products or
in what product categories?

3 3
Alternatives
{An identification and explanation of the alternatives that could address the problem}

1.
Position Glacia to compete to Evian or Ozarka.
2.
Own brands should compete to price promotion or have different pricing
strategies.
3.
Role own Brands should play in corporate strategy:
-Create a point of differentiation
-Price image
-Drive traffic

4 4
Issue 1
What effect has the introduction of Glacia had on the profitability of the
bottled water category from H-E-B perspective?
{Tips: analyze brand shares and category profitability before and after the
introduction of Glacia}

From the table E, we could know that in 1999, the water category of H-E-B
Own Brand’s profit percentage is -5%, however, the water category of fully
burdened category profit percentage is 7%.
In 2000, H-E-B launched Glacia in 2000. And in 2000, bottled water was an
important category to H-E-B, generating $36 million in sales. Category sales
were growing 20% annually.
Moreover, from table G, we notice that before launch Glacia, the dollar share
of single-serve bottle water is 0%, after launch is 22%.
Therefore, the introduction of Glacia helps H-E-B increases the market share
in bottle water category and also compete with other imported spring water,
because before launch other brands takes 12%, after launch other brands
take only 6%.
Profit per $1 of sales is $0.215 for Pre-launch Glacia, profit per $1 of sales is
$0.235 for Post-launch Glacia. Glacia took 6% from Evian and 16% from
Ozarka. 5
Issue 2
Should HEB change and position Glacia directly against Ozarka?
No. HEB should not position Glacia directly against Ozarka.
Glacia was target to against local volume favorite bottled water
Ozarka since launched as an imported spring water in 2000. Glacia
was shelving next to Ozarka with lower price and same package size.
While Ozarka consumers preference for Texas water was 44% higher
than Canadian imported water and there is high-quality water in
Texas, it was not the best choice to change and position Glacia
against Ozarka.
HEB should offer Texas-sourced spring water to compete against
Ozarka under the Hill Country Fare label.

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Issue 3
Should HEB position Glacia directly against Evian?
Yes. HEB should position Glacia directly against Evian.
As important as it was to have a Texas water, HEB should position
Glacia directly against Evian by shelving Glacia closer to Evian. HEB
should also increased tis price above Ozarka and heavy emphasis on
Canada as the source, which might make Glacia as the choice for the
Evian consumers.

Before the launch of Glaicia, Domestic spring water’s market share is

73%, which is high but go down later after launch. Evian may not
compete against well with HEB because its market share of HEB went
up after the launch.

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 Issue 4
How much is procurement income? Is it important?
{Tip: try to estimate procurement income and compare it with operating profit and
net income. There are data in the case to calculate them.}

Procurement income = 5-10% of sales in packaged goods

Total sales $9billion

own brand sales $1.4 billion
Non own Brand Sales $7.6 billion
Grocery Sales %3.5billion
only grocery has procurement in come.
(Grocery is 46$ of sales per Table C)
Procurement Income is from $175 M to $350M
Total sales $9.0 billion
Gross Margin $2.25 Billion assume 25%
Operating margin $405 Million assume 4.5%
Net income $135 Million assume 1.5%
Procurement income is greater than net income and about a half of operating
margin.
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Issue 5
H-E-B is analyzing how should Own Brands respond to competitive price
promotions. What trade-offs are in that decision?
{Tip: it may be related to procurement income}

Own Brands’ Response to Price Promotions:

For price promotions, H-E-B should promote their low prices by emphasizing that it’s the best quality
for the low cost. In doing so, H-E-B would remain a strong shopping option as compared to retailers
competing solely on cost such as Wal-Mart.
 
To effectively promote their Own Brands products, H-E-B should emphasize the value found at their low
prices; this means H-E-B would act competitively with respect to prices, yet not necessarily as low as
the Wal-Mart Superstores.
 
In addition, H-E-B should use promotional gimmicks such as “limit 10 items” for a certain product to
attract sales attention. H-E-B will therefore be able to create an image “value” for the promotion since
customers are limited in the amount of benefit or value they can receive from this deal.
 
Competitive Pricing Strategy:
To compete with other stores’ competitive price promotions, H-E-B should maintain their current
pricing structure (with the Own Brands and the Hill Country Fare brand in particular being the cheapest
options in each product category). H-E-B should work closely with the national brand names to
implement short price promotions by pricing their items as cheap as or cheaper than Wal-Mart’s EDLP.
H-E-B would strengthen their EDLP general strategy by issuing occasional additional price promotions.
This strategy ensures that customers feel an advantage through the superior service and quality at H-E-
B, even though prices may not always be as competitive as Wal-Mart.
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Issue 6
What is the role of the H-E-B label Hill Country Fare as Own Brand labels?
What is the role of National Brands?
{Tips: think on driving traffic, differentiation, price competition, profits, volume sales, etc.}
HEB:
Hill Country Fare has the primary role of challenging low-equity brands with
fragmented share, and taking share in low-price premium, high switching and/or low
consumer advertising categories. It served to compete against other store brands and
approach national brand quality. Targeted toward the price-conscious shopper, the
quality of Hill Country Fare products was intended to be “good” but not “cheap.”
*Create a point of differentiation
*Provide premium margins
The National Brands:
are usually well-known, good quality and higher priced, therefore they are always the
favorite and indispensable for the groceries. However, being competed directly against,
the National Brands play more as an role to set off and compare with HEB Own Brand
products.
*Drive traffic
*provide procurement income
Low price own brand(HCF):
*Price image
*lower margins, greater volumes

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Issue 7
According to the roles of HEB label HCF: Should it be scaled up? Dialed down?
If so, in what products or in what in product categories?
{Tips: review the categories in Table F. Are problems in the Own Brands in each of those categories?}

Ice cream: HCF should be dialed down because its sales are low hence the profits are not attractive.

Beef Brisk: HEB should be scaled up because it has a considerable sales and gross margin and the
leading brands’ gross margins is -10 %.

Pasta Sauce: In this categories, HEB and HCF should be all dialed down. Because the sales of these
two brands are too small in a low gross margin.

Flour: H-E-B should be dialed down because this own brand has small sales with general gross
margin– 18% which is lower than HCF. To the contrary, HCF should be scaled up. Because this brand
has enough gross margin with consideration sales.

Canned Vegetables: The H-E-B should be dialed down because the sales is too low although the
gross margin is high enough which is 18%. But the HCF could be scaled up because this own brand
has a huge sales with a considerable gross margin, 13%, compared with the leading brands which is
only 14%.

Frozen vegetables: It should be scaled up. The sales of own brands and gross margin are all more
than the leading brands. So there are a big potential to increase the revenue.
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 Conclusion
What do you recommend?

{Tips: recommendation for Glacia; how should Own Brands respond to competitive price promotions; what
should be the Own Brands in H-E-B’ s overall corporate strategy?}

1. H-E-B needs to work on its 4 P’s in order for the customer to perceive value correctly and to be able to make
informed decisions on which brands to purchase.
2. It will be important for Glacia not to just move its location on the shelf but also make several other key
changes such as:
• Re-label the water as “Glacia Canada,” since now even the name will draw attention to the fact that the
water is imported
• Repackage so that bottle sizes are comparable to Evian. For instance, have 0.5L, 1L and 1.5L bottles instead of
the 0.5 L and gallon sizes seen now.
• Move package to same shelf area as Evian
• Re-price to about $4.49 so that price will be comparable to Evian but still $1cheaper
3. H-E-B cannot compete directly with Wal-Mart on everyday low prices. H-E-B should promote their low prices
by emphasizing that it’s the best quality for the low cost and emphasize the value found at their low prices or
maybe also set some limitations for purchasing, such as “hunger marketing”
4. Certain product categories, such as drug, health, and beauty, need to be scaled down since consumers see
the private labels as not as effective as national brands. Other categories, such as deli goods, meat and
seafood, and home hardware & garden should continue to be focused on since private labels are successful
there. In particular, H-E-B should scale up effort in the home goods department by offering generic product
option for paper towels, cleaning supplies, and other standard home care items. The grocery perishables
department should continue to lead in that area. In general, H-E-B stores should focus on providing as many
Own Brand products in categories where there are not as many national brands competing so as to avoid
tension or conflict with suppliers. 12