Latest / The Pivot Podcast with Fexingo: How Businesses Change Direction and Survive Disruption / How a 50-Year-Old Grocery Chain Beat Amazon Fresh at Its Own Game
Transcript
- Lucas: So Amazon spent something like $13 billion on its grocery ambitions over the past decade. They bought Whole Foods, they launched Amazon Fresh, they built out their logistics — and what do they have to show for it? A single-digit market share and a whole lot of closed stores. Luna: Meanwhile, h e b — a grocery chain that's mostly in Texas — just posted its best year ever. Same-store sales up 8 percent. Market share in its core region pushing 60 percent. Lucas: Right. And that gap is the story. Because on paper, Amazon should have crushed h e b. They have infinite capital, world-class logistics, a data advantage that's probably unmatched outside of Google. But groceries are weird. They're hyper-local, low-margin, and emotionally charged. And h e b understood that in a way Amazon never quite did. Luna: Let's talk about the emotional part first, because I think that's where the disconnect really shows. Lucas: Okay. So when the winter storm hit Texas in 2021 — the one that knocked out the power grid — h e b had trucks on the road within hours. They had generators at stores. They were handing out free water and ice. If you were in Texas during that week, you probably saw those h e b trucks rolling in when nothing else was working. Luna: And Amazon Fresh? I don't think they had a single store open for five days. Lucas: Exactly. And that wasn't just a logistics fail — it was a cultural one. h e b's entire supply chain is built around serving Texas first. Their distribution centers are local. Their trucking fleet is local. Their buying teams know the regional produce suppliers by name. Amazon's model is centralized efficiency — ship from the nearest warehouse, use gig drivers, standardize the assortment. But when the system breaks, the centralized model breaks hard. Luna: It's the difference between a general-purpose army and a local militia, I guess. Lucas: That's actually a great way to frame it. And it shows up in the everyday stuff too. h e b's private label — they call it 'Central Market' and 'h e b Brand' — accounts for about 30 percent of their sales. That's double the industry average. And their stuff is genuinely good. They've won taste tests against national brands in salsa, tortillas, guacamole — the things Texans actually care about. Luna: Amazon's private label, from what I've read, hasn't really moved the needle. It's more about price than quality, and it doesn't have the same local relevance. Lucas: Right. And this is the part I find fascinating. h e b has been around since 1905 — 120 years. They've had generations to learn what their customers want. But they've also invested heavily in data. They use AI for inventory management so finely tuned that they can predict which specific pack of tortillas will run out at which store on a Friday afternoon. They've got a loyalty program that doesn't just track purchases — it integrates with their app for personalized coupons, meal planning, even parking spot reservations. Luna: It's like they took the best of Amazon's data playbook and applied it to their own local advantage. Lucas: Exactly. And it's working. h e b's operating margins are around 8 percent — that's double what Kroger does, and way above Whole Foods. So they're not just winning on vibe. They're winning on efficiency too. Luna: You know, this topic reminds me that we try to keep this show ad-free and independent because we think these conversations are worth having without commercial interruption. A couple of dollars a month is genuinely what keeps these going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, it makes a real difference. And we really appreciate it. So back to h e b — what do you think Amazon could have done differently? Luna: I think they should have bought h e b instead of Whole Foods. But that's just me. Lucas: That would have been smart, but h e b is family-owned and they've never had any interest in selling. So Amazon had to compete. And they tried the Whole Foods route — premium organic, mostly for the coastal markets. Then they tried Amazon Fresh — more mainstream, but very automated. Neither really understood the middle America grocery shopper. Luna: There's a recent report from Brick Meets Click that showed online grocery penetration actually declined in 2025. People went back to stores. And the stores that kept them coming back were the ones with produce you can smell, meat counters you can talk to, and staff who know you. Lucas: That's the h e b model. They've invested in their in-store experience, but they also have a great online ordering system. They were early on curbside pickup — they launched that in 2014, way before COVID made it essential. So they've got the omnichannel thing down, but without losing the human element. Luna: And they're expanding. They're moving into Dallas-Fort Worth aggressively. They're building new distribution centers. They're even experimenting with smaller-format stores in urban areas. Lucas: So the takeaway here isn't that legacy players are doomed. It's that if you play to your strengths — local knowledge, cultural intelligence, operational excellence — you can actually beat a tech giant. Because the tech giant has scale, but you have density. And in groceries, density wins. Luna: Density wins, and trust wins. h e b has built trust over a century. Amazon can't buy that. Lucas: And that's the pivot. h e b didn't pivot from grocery to tech. They pivoted from traditional grocery to data-enhanced grocery. They kept their core identity and upgraded the engine. It's a different kind of transformation. Luna: I think a lot of businesses could learn from that. You don't have to become Amazon. You just have to become the best version of yourself, with better tools. Lucas: That's the episode. Thanks for listening.