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H-E-B vice president shares consumer insights with TCFA members

By Jennifer M. Latzke


CONSUMER DEMAND—Mike Jarzombek, vice president of Meat Operations with H-E-B, shared consumer insights with the 2012 Texas Cattle Feeders Association Annual Meeting, Oct. 29, in San Antonio, Texas. Jarzombek explained that having a wholesome product is part of the sale, but more important is addressing the needs of consumers' pocketbooks and consciences. (Photo courtesy Cattlemen's Beef Board.)

Understanding consumer questions and concerns about livestock production is key to understanding their buying habits.

This was the central theme of the 2012 Texas Cattle Feeders Association meeting Oct. 29 and 30 in San Antonio, Texas.

Members heard about consumer and retail trends from Mike Jarzombek, vice president of Meat Operations with H-E-B, the largest privately held company in Texas and the 12th largest food company in North America.

Demographics

Jarzombek said by far beef is the largest category across all store categories for sales in the company--last year averaging about $700 million in revenue for H-E-B. With nine different lines of beef, there is a line for any H-E-B customer.

"We feature beef in our ad every week," he said. "Beef is our main trip driver and I'm not telling you that just because you're beef people. It drives a big basket. If you're going to buy a Prime steak or natural steak, you're spending some money." You'll buy the whole meal with it, he added, so you'll buy a nice bottle of wine, the sides, and more. "I haven't seen a chicken breast customer buy a nice bottle of wine; they aren't going to spend $40 on a bottle of wine," Jarzombek said. Beef is critically important to H-E-B because it drives sales throughout the store.

H-E-B can say this because it has gathered so much demographic and marketing data on every customer and every basket sold in the store. They use this data to tailor the various formats of stores to the neighborhoods they serve. Jarzombek outlined the many different formats of H-E-B grocery stores, from value, to core to more upscale.

"No two stores are exactly alike," he explained. "We build our stores and tailor them to the community. Before we assort a store, before we put anything on the shelves, we specialize it to the community we serve. We do tons of demographic work before opening." From the H-E-B Plus stores, with their expanded general merchandise offerings, to the Central Market stores, which are geared toward those with more disposable income and offer the ultimate foodie experience, Jarzombek said there's an H-E-B store that fits any demographic.

With its large presence in Texas and Mexico, much of H-E-B's demographic includes Hispanics, and its Mi Tienda stores target first and second generation Hispanics. "Our partners (H-E-B employees) greet customers and speak in Spanish first," Jarzombek said. Many traditional food items, like tortillas, are made fresh each day from corn stored on site. They've also opened Joe V's Smart Shops, which Jarzombek called research and development stores. Here, he explained, it's all about price. "We limited our services, so it's just a grocery store, stripping a lot of labor out of the facility and plowed those savings into the price of the goods," he said. The Joe V stores also only accept cash, debit card or government assistance cards--no checks or credit cards, which reduces loss.

H-E-B is unique, Jarzombek said, in that with these many store variations, they can sell any cut--from head to tail. "We run one of the highest volume meat departments in the country," he said. Whether it's a service meat case that's full of premium, natural beef cuts for higher end consumers, or H-E-B's value format carnicerias for Hispanic and value consumers, there's a spot of real estate for all parts of the steer.

Jarzombek explained that the carniceria concept came about as a way to help customers stretch their dollars at the end of the month. "We offer value beef, non-graded beef there," he said. "Whereas our service meat case is our showcase for our Prime and natural cuts, this only offers select and non-graded." He explained that often Hispanic consumers, especially toward the end of the month, prefer to buy meat by the piece, rather than in a prepackaged format.

"They have $5 or $10 to spend, so they tell us they want $5 of this or $3 of that, that's how they like to buy," he said. "So, if it's prepackaged in the case, they might not buy meat that trip and I lose that customer."

Sales

For 2011 to 2012, all beef sales at H-E-B were up 8 percent, but volume was a little flat, and Jarzombek detailed how the economy and media influences those sales.

"Ground beef and Select beef sales were up this year and those two lines represent 80 percent of H-E-B's beef sales," he said. "Value beef sales were up 18 percent and volume up 8 percent and that tells us that a lot of people are switching over to the value cuts."

H-E-B sells more Prime beef than any other retailer in the United States. Since the decline in the economy has consumers dining at home more, sales of Prime beef has gone through the roof, except this year, where sales at H-E-B stores were only up 3 percent and volume was down 12 percent. Jarzombek attributed that to simply trying to source Prime beef this year.

H-E-B's Dry Aged line showed a 43 percent increase in sales, and a 47 percent increase in volume. Its grass-fed line was up 110 percent in sales and 104 percent in volume. And, its organic line was up 38 percent in sales and 36 percent in volume.

"This trend for organic and grass fed, is mostly media driven," he said. "It's in the media about antibiotics and hormones, and in my view it's pushing customers to the product and that's why numbers up significantly this year." Specialty beef is hot right now, he said.

Elsewhere in the meat case, chicken was the biggest winner this year as far as tonnage, and Jarzombek blamed the economy. Sales were up 12 percent and volume was up 9 percent, and it's skewed toward the value format.

"Customers are having a hard time affording beef, they just are," Jarzombek said. "We're committed to selling beef but at the end of the day I can't force them. I'm trying to make it as affordable as possible."

Again, the natural and organic phenomenon has reached the poultry categories too. H-E-B saw a 57 percent bump in sales of natural chicken and 52 percent increase in volume.

Cart drivers

It's no secret that the economy has been bad for several years, and it's affected the grocery business just like everyone else.

Jarzombek explained that H-E-B has about 20 stores in the two poorest counties in Texas, Hidalgo and Cameron. "These are counties with poverty wages," he said. "We have customers who come into our stores with $20, and that's not for today, but for three or four or five days. How do I keep beef affordable for them?"

Doctors and nutritionists have been emphasizing reducing red meat consumption for health. "You should eat only a portion the size of your palm," Jarzombek said. "Well, at 4 to 6 ounces, that's just enough steak to make me mad. But consumers are looking for those smaller portions and yet our cattle aren't getting any smaller." H-E-B in the last decade has changed tray sizes three times to accommodate larger cuts from larger cattle.

"We're not asking you to grow them smaller, but we as retailers have to figure it out," he said. H-E-B just finished retraining every meat cutter in its stores at significant cost because it recognized they needed to do more muscle harvesting.

"A roast used to be $8 if it was cut right, and today it's double that," Jarzombek said. "Customers cant afford a $15 cut of meat. So, we remove the top blade and put out smaller portions. We're still providing value for customer. It's about lowering the unit price and selling through. We can't sell monster chucks anymore." A package of three to five top blade steaks goes for a unit price of $4 to $5, he explained. For a value customer with limited income, that means there's a piece of meat for everyone at the dinner table.

H-E-B is also doing an initiative to educate its customers, called Cooking Connection, where chefs demonstrate cooking methods of various cuts and educate consumers about the health of beef.

And consumer perceptions about the safety of beef, about how it's raised and handled play into the meat case as well. Media and social media play a giant role in this, Jarzombek said. He said when the Lean Finely Textured Beef story hit Twitter, it went viral in a matter of hours, while the beef industry and the government took weeks to respond.

"By then, BPI was crippled, and you can see what the impact of media and social media have on our business, good and bad," he said. "Be prepared."

He said he used to get questions about price, tenderness and selection in the meat case and now he gets questions from customers about pathogens and animal welfare.

"The latest was about gestation crates with hogs," Jarzombek said. "They're specific questions, 'does H-E-B buy pork from that particular supplier, and if you do I won't buy from you.' Eventually, somebody will be targeted."

Jarzombek reminded TCFA members that innovation will continue to be the driver of success, both in the grocery store and in the feedlots and ranches. "We need your help and we are committed to relationships with our suppliers. We're all in this together."

Jennifer M. Latzke can be reached at 620-227-1807 or jlatzke@hpj.com.

Date: 11/19/2012



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