A Texas Grocer Thrives Down in Old Mexico

By David Lincoln Ross

In Mexico, corn is king when it comes to tortillas. So what U.S. company would be loco enough to market white-flour tortillas to Mexicans--and price them at a premium?

The H. E. Butt Grocery Co., based in San Antonio, Texas, had no doubt that customers at its 20 stores in northern Mexico would gobble up the tortillas, because Hispanic customers at its 280 stores in Texas and Louisiana had already taken to their chewy texture and toasty flavor. That's just one example of the cross-border synergy that's helping H-E-B, as the chain is called, expand sales and profits in both countries.

Founded in 1905 in Kerrville, Texas, by the late Florence Butt, H-E-B, named for the initials of her son, is still family owned and today is run by Florence's grandson, chairman and CEO Charles Butt, 65. In a business increasingly dominated by huge national chains, H-E-B is a rare regional firm that has found a niche where it can beat the giants. Long established in San Antonio and Austin, H-E-B is making a major push into Houston--with 50 stores open and seven more to come this year--and into Mexico, where it plans to double the number of stores within five years and open a 300,000-sq.-ft. warehouse in 2004. Charles Butt says 2002 companywide sales were $9.8 billion, up from $8.9 billion in 2001; sales in Mexico were $571 million in 2002, up from $429 million. (The company doesn't disclose profits, but H-E-B is thought to run profit margins close to the industry average of 1.4%.)

What most sets H-E-B apart is its canny customization of stores. At the H-E-B in Houston's Alief section, live tilapia and catfish swim in a tank in the seafood department, and fresh lemongrass and rambutan are stacked in the produce aisle--all favorites of Alief's large Asian community. In San Antonio's Deco-District there are fresh-baked pan dulce and nopalitos, an edible part of a cactus plant, for the area's many Hispanic shoppers. And in Houston's Westchase H-E-B, Indian shoppers can pick up aromatic ajwain and black mustard seeds.

The ideas flow from as well as to the Mexican operation. That's how agujas de Nortena, an extremely thin cut of chuck steak popular in Mexico but rarely sold north of the border, found its way to H-E-B meat counters in the U.S. --By David Lincoln Ross