If you had a few minutes to explain Texas to an alien, you would do well to take it to an H-E-B. Knock out basic geography in the snack aisle with Texas-shaped tortilla chips. The alien could learn about recent migration trends by scanning the international foods section, where Vietnamese fish sauce sits near Bavarian sauerkraut and curry pastes. Give it a taste of the local cuisine too, with Big Red soda and Whataburger spicy ketchup. Get it a fresh tortilla, made in-house, and something from the endless wall of salsas.
It might ask: Who built this palace? The answer: the Butt family, a Texas dynasty that turned Florence Butt’s Hill Country grocery store, started with $60 in 1905, into the sixth-largest private company in America and the largest private employer in Texas. Consider state employment trends and famous families explained.
And how did they get all the land to build this thing? Well, as much as H-E-B has perfected the art of customer service and SKU management, it only got to where it is by becoming one of the state’s sharpest operators in retail real estate.
H-E-B is Texas in a box. It was an industry pioneer in developing shopping centers around its stores, but it has begun to move away from that approach. Now it builds that entire shopping center inside its stores, filling ever-bigger boxes with restaurants, beauty shops, florists and home goods aisles. As H-E-B moves into new markets, it is opening stores that pack an entire strip mall inside its doors.
Like its home state, H-E-B is in a phase of relentless growth. To know where Texas is headed next — its flavors or its real estate — look to H-E-B.
H-E-B (which stands for Howard E. Butt, Florence’s son and successor) has more than 145,000 employees and posts annual sales over $34 billion. The company operates more than 400 stores in Texas and Mexico.
The Butts have an estimated net worth of $17.8 billion, making them the 15th-richest family in the United States according to Forbes. The magazine ranks them ahead of the Du Ponts and the Hunts, as well as real estate dynasties like the Ziffs, Goldmans and Dursts. Bloomberg’s Billionaires Index pegs the family wealth at a more modest $9 billion.
On its way to supermarket supremacy, H-E-B has become one of the most important players in Texas retail real estate. As it expanded through the supermarket revolution of the 1950s into the Walmart age and beyond, it often developed its own stores and the strip malls around them. H-E-B was an early believer in the strength of grocery-anchored retail, capitalizing on the increased spending a grocery store of its caliber brings.
The company controls nearly 5 million square feet of real estate and leases space to more than 1,500 tenants. Even the parking lots have value — food truck licenses run between $900 and $1,200 a month.
“Real estate for H-E-B is like solving a puzzle — a puzzle that will shape the way Texas will look 10 years in the future.”
H-E-B has an in-house development team and employs its own brokers for in-store and in-center leasing. Lead brokers who came in with little real estate experience have worked their way to the top, according to LinkedIn profiles. At a higher level, H-E-B tends to incubate talent in-house, with several of its top real estate executives going from Harvard Business School straight to H-E-B, where they have stayed for decades. One notable exception is Brooke Schroder, recently hired as the firm’s senior director of real estate. Previously, Schroder spent almost 12 years with 7-Eleven’s real estate team.
H-E-B’s employees are dedicated, but its customers are downright fanatical.
When H-E-B debuted in Frisco last year, its first store in the DFW Metroplex, a crowd of 1,500 people lined up to get in on opening day.
“We’ve got The Star, Dallas Cowboys and PGA, but I am not sure anything has had this level of excitement in this community,” Frisco Mayor Jeff Cheney told the Dallas Morning News on the eve of the store’s opening.
Last year, H-E-B added more square footage than any other grocer in the country, according to JLL. Confetti dropped at store openings in boomtowns across Texas. In just the past 10 months, stores opened in McKinney, Nutty Brown, Leander, Lake Austin, Mansfield, Cibolo, Alliance and Plano.
Hunger
We think of the brain as the body’s quarterback, but when it’s hungry, the stomach calls the shots.
Real estate investors were reminded of this during the pandemic. As all stripes of stores closed and people were told to stay indoors, grocery spending grew by about 15 percent. During that run, the all-consuming power of the stomach made grocery-anchored shopping centers the hottest retail assets in the country.
Grocery stores have stood up to e-commerce: Nearly 90 percent of grocery sales last year were in person. They’re also resilient to economic downturns — money is yet another thing the stomach doesn’t care about. Even in a bad economy, people need to go to the grocery store, and once they’re there, they’re more likely to get a pedicure next door.
H-E-B is reinventing grocery-anchored retail, just as the asset class becomes the most coveted retail subtype and retail sheds its status as a four-letter word.
As other grocery chains focus on smaller boxes, H-E-B is leaning into its H-E-B Plus format. These superstores have all that strip-mall retail inside, much of it run by the grocer itself. With H-E-B Plus, there’s no need to develop the whole block — the whole block is inside the store.
Walmart is the Everything Store in small towns across the country, but H-E-B Plus is doing that for Texas.
The H-E-B Plus at 9238 North Loop 1604 West in San Antonio has a gas station, a notary, a flower shop, clothes and tailgating supplies. Prepared meals include sushi by Sushiya. H-E-B’s barbecue restaurant was recently ranked the state’s top barbecue chain by Texas Monthly.
Many of the company’s newest, grandest stores, like the two-level Lake Austin H-E-B, are standalone stores without other retail nearby on the lot. Shoppers can still make all of the tangential purchases they would at the traditional neighboring strip mall, but now H-E-B gets the proceeds.
Tackling the Big D
Retail follows rooftops, the saying goes, but for H-E-B, it’s the other way around.
“Real estate for H-E-B is like solving a puzzle — a puzzle that will shape the way Texas will look 10 years in the future,” Ben Scott, an H-E-B real estate executive, said on the firm’s website.
The brand has long had a strong presence in Austin, Houston and San Antonio, where it is headquartered, but until recently, it had never extended its reach north of Waxahachie, a city 30 miles south of Dallas. H-E-B owned Central Market locations in Dallas-Fort Worth, but there were no H-E-B brand stores in Dallas or any of its growing satellites.
It’s not that H-E-B had no interest in Dallas — it was just waiting for the right time to strike.
The company built a sleeper cell of properties in Dallas-Fort Worth. It has spent more than a decade banking land and monitoring demographics in Dallas, Plano, Frisco and other Metroplex towns. Now its plan is in motion.
H-E-B’s first two stores in the Metroplex are in the high-growth cities of Frisco and Plano, north of Dallas. “You would’ve thought that the Beatles had re-formed and were on tour,” said James Cook, JLL’s head of retail research.
“They can just hold on to that land. It allows them to be very strategic.”
There are H-E-Bs under construction in Alliance and Allen, and a second is coming to Frisco near Little Elm, the fastest-growing place in the Metroplex.
“They’ve been the most strategic of any grocer in being able to break into the North Texas market,” said Danny Lovell, president of the Rainier Companies, a commercial real estate firm with a portfolio of more than 5 million square feet of grocery-anchored assets. “They have been way out in front of everybody.”
Part of that strategy is land banking. By the time the population spreads to the next city, H-E-B already owns the best commercial parcel near land zoned for residential uses.
A handful of large commercial parcels in northern Fort Worth, like 8600 Quail Valley Drive, 200 East Bonds Ranch Road and 6351 West Bailey Boswell Road, belong to H-E-B, sitting undeveloped until their owner decides to build.
By focusing its U.S. operations just on Texas, H-E-B has been able to keep an edge.
“They can just hold on to that land,” Cook said. “It allows them to be very strategic” and not need to push for fast growth as public companies would, he added.
The H-E-B Plus in Kyle, a booming suburb south of Austin, shows how H-E-B perfected the long-term development play. In 2006, the company signed a lease to anchor Kyle Marketplace, a 300-acre commercial district in the heart of the town, which didn’t even have its first traffic light until the following year. Its financial stake in the project is unclear, though it signed alongside Barshop-Oles as part of the ownership group in a 2007 agreement.
Kyle’s population grew by about 65 percent between 2010 and 2020, and another 25 percent from April 2020 to 2022, according to the Census Bureau.
With the 140,000-square-foot H-E-B as an anchor, all sorts of other developments have risen around it. Oaks on Marketplace, a 254-unit apartment complex, cropped up in 2017. Another large multifamily project is in the works nearby, with 30 more acres zoned for residential use right next to the grocery.
Last year H-E-B opened 12 stores and made several more land purchases, though the extent of its development site holdings is unknown because the company is secretive about where it may choose to build next. It declined to make executives available or comment for this article.
Grocery is a cutthroat business built on slim margins and regional fiefdoms. As H-E-B’s turf grows to cover the entire Texas Triangle, a region spanning nearly 70 percent of the state’s population, the competition is on edge.
“They are feared by other grocers in the North Texas market,” Lovell said. “They control so much land, and they have such a compelling pitch to the communities when they come in.”