Dive Brief:

• Last week, San Antonio, Texas-based H-E-B opened its newest Joe V’s Smart Shop in Pasadena, Texas, making it its ninth location in the Houston metropolitan area, according to a company release. 
• The Joe V's banner launched in 2010 and offers discounted prices on produce, seafood, deli meats, baked goods made from scratch, groceries and organic products. The store sells national brand products as well as H-E-B and Central Market’s private label products.
• Joe V’s store offers fewer products than a typical grocery store with less than 10,000 SKUs, but it has more than double the SKU count of discount stores like Aldi, Lidl or Supervalu’s Save-A-Lot. The bakery, meat and seafood departments are self-serve with payment machines. The last new Joe V’s — th the north part of Houston — opened in early May.

Dive Insight:

H-E-B opened its first two Joe V’s locations in Houston in 2010 and has been slowly growing its footprint since. This year's discount store boom seems to have spurred H-E-B’s latest push, opening two stores in one year for the first time since 2010.

Discount retailers were once seen as unkempt with poor product offerings. But Aldi has lead the charge to improve that image as it remodels stores across the country. German grocer Lidl entered the U.S. market with experience-focused stores, though it has struggled to penetrate East Coast markets. 

Houston has been expecting Lidl’s arrival since the retailer confirmed plans in 2016 to enter Texas — even though the retailer terminated a property contract in Houston in late 2017. Ed Wulfe, CEO of Houston-based commercial real estate service firm Wulfe and Co., told the Houston Chronicle in February he believes Lidl will open about five stores in the Houston metro area — though that prospect remains unclear as Lidl's struggles have intensified. The company, which has declined to detail its expansion plans, named a new CEO back in May.

Discount grocery sales are expected to increase from $74.8 billion in 2016 to $101.2 billion in 2021, according to Supermarket News citing PlanetRetail. Retailers like Joe V’s, Aldi and Lidl are targeting the influx of consumers looking for convenience and discounted fresh foods. Discount stores with clean formats and quality products appeal to a large range of shoppers, but private label offerings keep them coming back.

H-E-B is well-known for its premium product offerings, so it’s no surprise its private label products are high quality as well. Offering these popular premium private label products at its Joe V’s store gives it some leverage over its competitors.

H-E-B’s investment in Joe V’s this year shows that the discount grocery store boom isn’t temporary. Since the company is known for its strategic growth moves, H-E-B wouldn’t pour money into something that isn’t worthwhile. Getting into the discount market ahead of Lidl’s potential entrance is a good move. Other traditional grocers with discount formats across the country, like Kroger’s Ruler Foods, may want to take note.