Founded in 1905, H-E-B is a supermarket chain headquartered in San Antonio, Texas. It operates more than 400 stores throughout Texas and Mexico, with brands such as Central Market, H-E-B, H-E-B Plus, Joe V’s Smart Shop, and Mi Tienda. With more than 120,000 employees (who are internally called partners), it is the largest privately held employer in Texas and the 11th-largest privately held company in the United States. H-E-B’s annual revenue has recently exceeded $28 billion.

When the coronavirus hit the world in 2020, many organizations had to scramble in the middle of the unprecedented crisis. In contrast, H-E-B had an emergency plan since 2005. That year, Hurricane Katrina hit the neighboring state of Louisiana and caused major damage. Alarmed, H-E-B developed its response plan after Katrina and appointed a full-time, year-round director of emergency preparedness.

The plan was continuously refined and sometimes activated—in 2009 in response to the H1N1 swine flu and in 2017 in response to Hurricane Harvey, which caused major flooding in the Houston area. In the second week of January 2020, before Wuhan, China, was locked down, H-E-B started paying attention to the development of the virus and ran a tabletop simulation as an exercise. On February 2, when most people (and some of H-E-B’s competitors) did not believe that the virus would hit the United States, H-E-B activated its response plan and commenced preparation.

On March 4, it activated an Emergency Operations Center in San Antonio (inside its new 1.6 million-square-foot superwarehouse). H-E-B was in close contact with retailers and suppliers in China and Italy, which were devastated ahead of the United States. Information from Chinese retailers was especially valuable in terms of how quarantine affected the supply chain, how shopping behavior changed, how firms worked to serve communities with total lockdowns, and what actions they wished they had done early in the cycle to get ahead of it. Throughout late February and early March, the first wave of panic buying for stockpiling household goods took place in Texas. Household hygiene items such as face masks, hand sanitizer, paper towel, toilet paper, and wipes;
and basic staples such as bread, eggs, meat, sugar, and water were often cleared out. In toilet paper alone, H-E-B sold in two weeks what it would normally sell in two months.
Limiting the quantity, such as one dozen eggs per shopper, became necessary. H-E-B remained steadfast in making sure warehouses were functional and able to meet the demand.
On March 11, President Trump gave a major speech on the virus and the National Basketball Association (NBA) suspended its season, triggering a second wave of furious buying. To cope with the onslaught, H-E-B implemented store hour reductions. Starting on March 14, the hours of all stores, including those that normally would operate 24 hours a day, were reduced to 8 a.m.–8 p.m. Stockers could not keep up with the tremendous volume, so the headquarters called for “all hands on deck.” Thousands of employees ranging from cart pushers and baggers to corporate office workers all helped with stocking—day in and day out.
Even with a plan, improvisation was still a must. H-E-B’s supply chain excelled in pulling products from the rest of the country and feeding them to Texas. However, sourcing and delivering became a huge challenge in a pandemic where every part of the country was under stress. Suppliers were receiving significantly expanded orders from all retailers. Although sizable, H-E-B as a regional player was only the 15th-largest retailer in the country—much smaller than national giants such as Amazon, Costco, Target, and Walmart. Therefore, its orders might not always receive the highest priority from suppliers. H-E-B, thus, had to creatively solve the sourcing challenge.
For basic items such as milk and meat, H-E-B operated some of the largest plants in Texas by itself. It could crank up such in-house operations from a regular 9-to-5 shift to a 24/7 schedule with less headache. One change was to reduce the diversity of meat products. Instead of carrying several hundred meat products, H-E-B focused on the top 50 basic items. This enhanced efficiency by reducing changeover delays and shipping more volumes.

Having sourced the tremendously expanded volume of products, delivering them to stores throughout a state whose land area is twice the size of Germany in a timely manner was another challenge. In addition to relying on its own trucks, H-E-B was also tapping into the resources of other distributors. For example, Labbatt was a food distributor in Texas that specialized in delivering to schools, institutions, and restaurants. However, most of these places were shut down, and Labbat’s trucks and drivers became idle. Therefore, bolting onto H-E-B’s need for the conventional grocery supply with Labbat’s trucks and drivers became a win-win arrangement for both firms. Overall, it was a team effort with suppliers and distributors to get items to people throughout Texas.

“It’s not lost on us that we are offering an essential public function,” said one executive. “We’re here to take care of our partners [employees],” commented another executive,

“take care of our customers, and take care of our community.”

“We’re not in a super glamorous job,” noted H-E-B president Craig Boyan. “We have a lot of hard-working people doing hard jobs. But there’s a strong sense of pride at H-E-B.”

Despite such a strong sense of pride, the hazard of contracting the virus while working in the store was real. On March 16, H-E-B gave all employees a $2 per hour raise, as some began agitating for hazard pay given their interaction with the public. It also activated a coronavirus hotline—

headed by a chief medical officer—for employees in need of information or assistance. Given the long extended hours and the superbusy schedule, H-E-B also set up an essential store for employees inside its main warehouse, where they could pick up necessities such as canned foods, toilet paper, and water for their families. However, in March H-E-B also made two ethically agonizing decisions: 

(1) Do not offer a separate hour for senior shoppers (“not the best and safest option for our customers”), 

(2) Do not allow employees to wear face masks or gloves in fear of upsetting customers. (In early April, H-E-B changed its policy and required employees to wear face masks and gloves.)

Unlike a hurricane whose end could be seen almost from the beginning, nobody at H-E-B at the time of this writing

(April 30, 2020) could see how and when the coronavirus would end. One lesson, according to Boyan, is “to try to adapt as quickly as humanly possible.”

CASE DISCUSSION QUESTIONS 

1. How would you characterize H-E-B’s organizational capabilities? What are the most valuable?

2. What are the pros and cons of in-house operations? What are the pros and cons of outsourced operations?

3. If you were CEO of an H-E-B competitor, what are the lessons in terms of do’s and don’ts you can learn from this case?