By Diana Leza Sheehan / founder and principal consultant, PDG Insights
The American grocery landscape is a fascinating ecosystem of national giants and regional independents, learning and competing against each other. The Southwest region of the United States has evolved in unexpected ways, driven by strong independents that innovate effectively while continuing to successfully compete against home-grown international titans and former regional players acquired by national chains.
In this report, part of Shelby Publishing’s Successfully Selling Regional Grocers series this month, we delve into the unique character of Southwest grocery landscape, exploring the factors that set it apart.
Smaller region, significant impact – exploring nuance of demographics
Made up of Arkansas, Colorado, New Mexico, Oklahoma and Texas, the Southwest region defined by The Shelby Report is demographically the smallest region in the country with about 47 million residents. Yet the unique makeup of the population, driven by age and ethnicity, creates an ecosystem of the growing minority majority in the U.S. and the opportunities to test new retail grocery concepts and products that is compelling to both retailers and manufacturers.
According to recent U.S. Census data, we find that Hispanic populations are growing across the region. Oklahoma and New Mexico’s Native American population remains significant, and Arkansas has a growing African American community. New Mexico and Texas are unique in that they are two of few minority-majority states in the country. More than 60 percent of Texas and 64 percent of New Mexico’s population identifies as non-white, most of whom identify as Latino. This shift toward a more diverse population has implications for everything from language and cultural celebrations to political representation and social services.
More importantly, the region is the fastest growing in the country, with population growth in 2023 of 1.3 percent versus 2022. Growth across these states varies.
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Texas accounts for 67 percent of the Southwest’s population, with 30.5 million residents. With nearly 500,000 new residents in 2023, it also accounts for more than 80 percent of the region’s population growth.
The job market, strong economy and low cost of living attract residents from other states. Apart from New Mexico, all four other states saw population growth that outpaced average U.S. growth, indicating future opportunities for retail.
Big box and more: National players but a lot of local flair
Like other regions in the U.S., national grocers have a large presence in the Southwest. Kroger is in Arkansas, Colorado, New Mexico and Texas. King Soopers is a force in Colorado. The national retailer operates under its Kroger banner in Texas and Arkansas, with about 200 stores alone in Texas. The City Market banner serves as its primary path to compete in New Mexico.
Albertsons, in four of five states in the region, uses various banners to reach different markets. In Oklahoma and Texas, the retailer competes with multiple banners in addition to its namesake, Albertsons, including Randalls, Tom Thumb and United Supermarkets. The stores tend to cater to the specific tastes and demographics of each market. The United Amigos banner targets the Latino population in and around Texas.
Walmart calls this region home. While the retailer’s roots are entrenched in Arkansas, Texas has been the state where Walmart has attempted to exert dominance. With more than 600 stores (10 percent of all Walmarts in the U.S.), it has been competing with key local favorites such as H-E-B.
The five states in the Southwest account for 20 percent of all Walmart stores in the U.S., so it is imperative that store performance in the region is on track to ensure the larger strength of the retailer nationally and internationally.
Of the independent regional players, H-E-B clearly is the defining player in Texas. The retailer has outperformed all national players, including Walmart, in the Lone Star State and continues to innovate and adapt to its consumers’ needs.
H-E-B’s success in Texas stems from a combination of factors. It cultivates a strong customer connection by prioritizing service and offering high-quality products, including its own private label brands.
This focus on quality extends to Texas-sourced items, giving them a strong local identity. H-E-B goes beyond groceries too, providing a wider selection of general merchandise and prepared foods than typical supermarkets.
Smaller regionals such as Harp’s, Lowe’s, Brookshire Brothers and Reed’s compete effectively state by state. Major natural and organic specialists have also found room to carve out market share. They include Sprouts Farmers Market, Whole Foods and Natural Grocers.
Focusing on the Hispanic Market, Houston-based Fiesta Mart runs about 60 stores in the state, and California-based El Super has a strong presence in Texas and New Mexico.
Lastly, we see growth in the same channels as elsewhere in the country. Costco and Sam’s Club continue to grow their footprints in the region as do discounters and dollar stores such as Aldi, Winco and Dollar General.
What shoppers want: Exploring consumer themes
Consumer trends in the grocery space tend to be consistent throughout the country. Shoppers continue to lean into natural and organic brands and products. Value is a function of convenience and price, and it’s the X-factor that is tied specifically to a grocer’s ancillary offerings and customer support.
Private label demand is strong across categories and states. The role of digital engagement drives loyalty for shoppers regardless of where they shop.
However, regardless of region, there are some variations on how themes translate to retailer and brand preferences and consumer preferences. Age, income, race and ethnicity – and even the access to specialty retailers versus national players – across channels will impact what matters most to consumers. When looking explicitly at the Southwest, consumers prioritize similar things to the average U.S. consumer.
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According to a 2023 survey by PDG Insights, consumers living in the Southwest are slightly more likely to favor retailers that promote eco-friendly or sustainably sourced practices or locally sourced products.
Six of 10 shoppers in the region say they prefer grocery stores that emphasize sustainable and environmentally friendly practices, even if it means higher prices. More than half say they would like to see initiatives such as reduced or eco-friendly packaging, water-saving technologies and food waste reduction implemented.
Additional research by PDG Insights explored the role of local sourcing to consumers. In the region, 86 percent of consumers intentionally bought local products in at least one category or department. This was most important in perimeter categories, including produce, dairy and meats and seafoods.
Consumers say they prioritize local brands to help build up the local economy and lessen the environmental impact. This is consistent with what we see among consumers in other regions in the U.S. Six of 10 consumers in the Southwest say they will intentionally pick their grocery retailer based on the quality and quantity of local brands.
Private label is a critical piece of U.S. consumers’ product portfolio, and shoppers in the Southwest provide similar preferences. Nine of 10 shoppers say they purchase private label products at least occasionally. However, 37 percent of shoppers in the Southwest say they always buy them – the highest among all regions.
The majority of shoppers in the region believe they are buying more private label products this year versus last year, and more than half will choose one grocery store over another based on private label assortment. Consumers in this region are more likely to look for eco-friendly or socially responsible private label products.
Bringing it together
While broader trends in grocery are similar from region to region, the buying power of the Hispanic population in the Southwest region creates opportunities and challenges for brands.
While the Southwest accounts for just 14 percent of the total U.S. population, it accounts for an estimated 24 percent of the U.S. Latino population. Products and merchandising strategies focused on these consumers provide opportunities on independent and regional grocers’ shelves.
In addition, key sustainable, eco-friendly and natural and organic products continue to provide meaningful opportunities for retailers, driven by consumer demand. Private label growth will continue to evolve and could provide a path for emerging brands to build relationships with retailers while driving scalable growth.
Diana Leza Sheehan, CEO of Evanston, Illinois-based PDG Insights, empowers emerging brands and retailers to make more effective strategic decisions. By leveraging data, she unlocks cost-effective consumer insights to craft retail sales narratives and brand strategies. Her 25-plus year career in the industry across sales, insight and strategy provides a unique perspective for clients.
