H-E-B makes digital bet, buys Austin-based delivery service Favor

Updated Feb 15, 2018

Already the grocer with the largest footprint in Texas, H-E-B is making a big bet on digital as it looks to ensure continued growth.

The San Antonio-based chain said Thursday that it has acquired Austin-based Favor Delivery, an app-based delivery service with a network of more than 50,000 runners statewide delivering restaurant meals, groceries and a lot more, almost around the clock.

Financial terms of the transaction, which has already closed, were not released.

Favor will become a wholly owned H-E-B subsidiary. It will still be based in Austin, with current Favor CEO and President Jag Bath continuing in that role.

“We’re super proud to be joining forces with H-E-B,” Bath said. “We are two Texas-born and -based companies. Everybody in Texas knows H-E-B. H-E-B is a fantastic brand.”

H-E-B Chief Operating Officer Martin Otto told the American-Statesman the retailer’s executives were “super impressed” with Bath and his team and that all of Favor’s employees will be retained. More workers will likely be added in the coming months.

“We hope customers are as excited about this as we are,” Otto said.

It’s a rare acquisition for H-E-B, which boasts $25 billion in annual sales and is the largest private employer in Texas with 106,000 employees.

“Grocery shopping has changed,” said Eric Diaz, a Round Rock resident who has worked in the grocery industry for more than two decades, including stints with Whole Foods Market and Albertsons. “Online is becoming more and more popular, especially with millennials. Consumers want the option to either shop brick-and-mortar or have it delivered.”

No immediate changes are planned to the Favor service, Bath and Otto said. Customers will still be able to order Favor delivery from other businesses.

“Favor is great at home delivery. We think they’re the best at what they do,” Otto said. “Their values sync up with ours. That matters. We both believe people come first and that each and every person counts.”

In Texas, H-E-B has for years been a major player in several key markets, including Austin, Houston and San Antonio — all cities where Favor has robust networks of runners in place and ready to make deliveries.

The Shelby Report, a national publication that tracks the grocery industry, reports that H-E-B has a 61.2 percent share of the market in the South Texas region, an area in which it includes Austin, Brownsville, Corpus Christi, Laredo, McAllen and San Antonio. Its closest competitor in the region, Walmart, came in at 26.7 percent.

Consumers won’t – at least initially – see H-E-B pushing Favor’s services in its 400 stores. Over time, though, that’s likely change.

“It is our intent to continue to grow Favor just as it is our intent to grow H-E-B,” Otto said. “We’re very excited about this because of the opportunities it will afford both companies to better serve our customers.”

H-E-B has been adding services in recent years aimed at helping busy shoppers save some time. About a quarter of its stores now have curbside pickup, while some even offer H-E-B to You home delivery using a mix of runners from Favor and competing services, as well as its own delivery drivers in some cases. The chain sells groceries and other merchandise on its heb.com website, as well.

“It’s clear to us digital matters a lot and delivery matters a lot,” Otto said.

Other grocers are making similar moves. In Austin and a few other select markets, Amazon-owned Whole Foods Market last week rolled out delivery for Prime members. Randalls, a subsidiary of Albertsons, has its own fleet of delivery trucks zipping across the city, while Sprouts uses Instacart to get groceries to customers’ homes.

Discount chains are taking notice of the changing retail landscape. The same day H-E-B made its announcement, Target said it would start offering same-day delivery via Shipt – a service it acquired last year – in Austin and several other cities in Texas, Arizona and Oklahoma. And Walmart has been pushing its curbside pickup service available at many of its locations.

Founded in 2013, Favor says it serves about 50 cities statewide. The company at one time operated in several cities in other states – such as Denver, Philadelphia and Phoenix – but pulled out to focus on its sweet spot, Texas. Joining forces with H-E-B will help take the service to the next level, Bath said.

Ultimately, the H-E-B and Favor deal was too good for either side to walk away from and will benefit both entities, said Casey Gannon, vice president of marketing for Shopgate, a company that creates mobile apps for retailers.

“Convenience matters to consumers, and retailers have to keep up,” she said. “So it’s no surprise to me that H-E-B made a play to acquire an already successful technology company built around convenience to compete with the likes of Instacart.”