H-E-B occupies a unique role as a retailer. It’s a regional chain that only serves a relatively small area within Texas, which makes it one of the largest grocers in the country. The privately-owned company has an annual revenue topping $25 billion a year, and it’s widely beloved for the role it plays in South and Central Texan cultural life. But despite bailing people out during Harvey, expanding its Central Market brand into North Texas, and selling groceries to people in about a third of the state, H-E-B tends to stay away from splashy business moves.
That changed Thursday, when they made the sort of acquisition we’re used to seeing from companies like Google and Amazon. As reported in the Austin American-Statesman, H-E-B acquired Favor, the delivery startup that has dominated the Texas market since launching in 2013. Instead of competing with Silicon Valley-based on-demand services available nationwide, Favor kept their focus on Texas. It was an H-E-B-like move, and a savvy one: Favor has managed to turn a profit, bringing in $100 million in revenue in 2017, while other companies relied on VC funding. This week, in addition to being acquired by H-E-B, Favor launched service in its fiftieth city—not San Francisco or New York, but Waco.
The deal makes sense from both ends. According to H-E-B COO Martin Otto, the company has worked with Favor for several months as part of its recently-launched curbside pickup and grocery delivery service. During that time, the two companies got to know one another, and Otto says that the “culture fit” between the two made this a unique situation for H-E-B.
“I’ve been with H-E-B for 26 years, but to my knowledge, we’ve not ever acquired a company like this,” Otto told Texas Monthly. “It’s been a heck of an education. But very importantly, we’ve not joined forces in the past because we haven’t seen the need to do that.” So what changed for H-E-B this time around?
Without going into specifics, Otto noted that the trend for grocers and other retailers has been toward convenience. (In 2016, the Austin Business Journal cited that push as a reason that the retailer slipped from #10 to #12 in a national ranking of supermarkets.) Going forward, customers will increasingly rely on grocery delivery, and Otto notes that H-E-B had already created an H-E-B-To-You team exploring the best way for the company to add those services. “As we look to the present and future, we have to become more and more convenient,” he says. “Favor has been one of the companies we work with on that, and it’s clear to us that they’re the best in the game, so it made a lot of sense for H-E-B.”
One thing that both Otto and Favor CEO Jag Bath stressed in discussing the acquisition is that they don’t expect dramatic changes to the way either company operates. Bath will stay on as CEO of Favor, and Otto says that he expects that both companies will keep 100% of their workforce intact as they go through the merger process—including the 50,000 delivery drivers that Favor currently utilizes.
Other specifics were short. The deal had been in the works for four to five months, Otto says, but “it’s premature” to say how this’ll impact either business. He was clear about one thing: the acquisition isn’t about trying to keep up with Amazon and Whole Foods, as the retail behemoth begins testing its Amazon Prime Now service for groceries in two Texas markets, Austin and Dallas.
“Our focus is on our customers, and what our customers are telling us,” Otto says. “Through their shopping, what they’re showing us is that Curbside and delivery were something our customers really responded to.”
Even following the acquisition by H-E-B, Favor will still deliver from other stores. “Yes, you’ll still be able to order from Whole Foods,” Bath says. “One of the reasons customers love Favor is that we delivery anything from anywhere, and that has to remain. We have always from day one made available the broadest selection possible, and that won’t change.”