As an employee of HEB, I can tell you that while you and others may see it as different target markets, HEB doesn't see that one bit. If you're a grocer and you open in an HEB market, big small, niche or big box, you're the compe ion. For example, here are some chains and franchises that HEB views as compe ion: Walmart, Best Buy, Babies R Us, Wing Stop, etc.
If HEB sells something that your store sells, you're compe ion. I've actually known a store director that got fired because he owned a franchise wing place, and since HEB sells wings, it was a conflict of interest. The guy was a , so I wasn't crying a river for him, but yeah.
I recently transferred to the Boerne Plus (before the grand opening) and I can tell you that while I may not be the happiest with the direction the company is taking, I can attest that HEB learns from every new store opening on what they do right and what they do wrong. And lately, they're doing more right than wrong. This store is great. It has so much variety from national brand to niche in every product a grocer can carry, and while I have questioned certain decisions on products that we carry, in a few months when there is some hard financial data, HQ will make adjustments to our inventory and introduce products that are being asked for. Customers tell us what we want, we tell our managers, and it makes its way up the chain.
Trader Joe's also will have one HUGE hurdle that every other grocer (big or small) has in the HEB market, the community. HEB does very well to integrate itself into the surrounding community, even letting the residents help with the design (see the Deco district HEB in SA or the Montrose Market in Houston). One thing that is very effective is that when the customers refer to a store, they say, "The store near my house..." But when customers talk about HEB, they say, "My HEB..."
That in itself is a major advantage for HEB.
I know I sound like a major HEB fanboy, but that's far from the truth. I nearly got myself fired because I just hated my job so much and what the company was becoming. I transfered to a store 30 miles away from my old store, in a community I have never lived in just to start over. But I do know this, in 9 years of employment, HEB has grown massively both in store and retail knowledge. Our Texas company was National Retailer of the Year last year. That's a formidable opponent.