by Diana Leza Sheehan
The grocery retail landscape in the American Southwest is a dynamic and evolving ecosystem. This region – defined by The Shelby Report as Arkansas, Colorado, New Mexico, Oklahoma and Texas – is characterized by a blend of national grocers and innovative regional independents.
These players are not only competing but learning from each other, creating a vibrant market that reflects the diverse demographics and rapid growth of the area.
Exploring nuances of region’s consumers
Comprising just five states, the Southwest region is demographically The Shelby Report’s smallest region, estimated at nearly 50 million residents by the end of 2024. Yet, the makeup of the population, driven by age and ethnicity, creates a fascinating ecosystem of the growing minority majority in the U.S. and opportunities to test new retail grocery concepts and products that are compelling to 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 populations remain significant, and Arkansas has a growing Black community. New Mexico and Texas are unique in that they are two of the country’s few minority majority states. More than 60 percent of Texas and 64 percent of New Mexico residents identify as non-white, with most of those percentages Latino.
Texas boasts the second largest Latino population by state, with more than 11.7 million residents. 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 over 2022. Texas accounts for 67 percent of the region’s total population, with 30.5 million residents. With nearly 500,000 new residents in 2023, it also accounts for more than 80 percent of the Southwest’s population growth.
The state’s job market, strong economy and lower cost of living attract people from across the U.S. Cities such as Austin, Brownsville and Killeen all have seen significant population gains.
In fact, all states in the region are adding residents. Population growth in Oklahoma and Colorado is outpacing the national average, with Oklahoma City and Denver among the top 25 fastest-growing regional metropolitan areas.
Regional vs. national
As with other regions in the U.S., national grocers have a large presence in the Southwest. Kroger’s banners are strong in Arkansas, Colorado, New Mexico and Texas. King Soopers is a dominant force in Colorado. The Kroger banner can be found across Texas and Arkansas, with about 200 stores in the Lone Star State. The company’s Smith’s and City Market banners compete in New Mexico.
Albertsons – in four of the region’s five states– also uses different banners. In addition to its namesake, banners in Oklahoma and Texas include Randalls, Tom Thumb and United Supermarkets. The stores cater to specific tastes and demographics. The United Amigos banner, for instance, targets the Latino population in and around Texas.
Walmart also calls this region home. Despite its Arkansas roots, Texas has been the state where the retail giant has attempted to exert dominance. It is a fierce competitor, with more than 600 stores – some 10 percent of its U.S. total – in Texas.
Moreover, the five states in the Southwest account for 20 percent of the nation’s Walmart stores.
Among the region’s independents, H-E-B is the defining player. It has outperformed all national players in Texas and continues to innovate and adapt to consumer 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. The focus on quality extends to Texas-sourced items. H-E-B goes beyond groceries, providing a wider selection of general merchandise and prepared foods than typical supermarkets.
Smaller regional independents, such as Brookshire Brothers, Brookshire Grocery Co., Harp’s and Lowe’s, are competing state by state.
Major natural and organic specialists – including Natural Grocers, Sprouts Farmers Market and Whole Foods – have also found room to carve out market share.
Focusing on the Hispanic market, Houston-based Fiesta Mart operates about 60 stores in Texas. California-based El Super also has a strong presence there, as well as in New Mexico. Lastly, Costco and Sam’s Club continue to grow their footprint in the region, as do discounters and dollar stores such as Aldi, Dollar General and WinCo, among others.
What shoppers want: Critical consumer themes
Consumer trends in the grocery space tend to be similar throughout the country.
Shoppers continue to lean into natural and organic brands and products. Value is a function of convenience, price and the “X” factor, which is tied specifically to a retailer’s ancillary offers 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 go. And technology – both shopper-facing and behind the scenes to improve operational efficiency – continues to differentiate independent and national retailers.
However, some variations exist from region to region as we look at emerging themes that translate to retailer and brand preferences and consumer preferences. Age, income, race and ethnicity – and access to specialty retailers versus national players across channels – will impact what matters most to consumers.
When looking at the Southwest, consumers prioritize similar things to the average U.S. consumer.
According to a 2024 survey fielded by PDG Insights, four in 10 consumers in the Southwest go out of their way to shop locally for groceries. They do so for many reasons, but 65 percent say it keeps money in the local economy and 62 percent want to support the community.
For 73 percent, shopping local means at merchants within the city limits of where they live. For similar reasons, consumers also care about shopping local brands. Of interest to retailers, 48 percent will choose to shop at a retailer because they feature local brands. This creates opportunities to differentiate based on assortment.
In the same study, Southwest consumers indicated that they define value in slightly contradictory terms. More than half (51 percent) say they will spend more to shop at a retailer that provides the best shopping experience. At the same time, 59 percent say they are more likely to buy products that might not be the highest quality – provided they work. Most (58 percent) also are willing to spend more on products that reflect their values.
How do these perceptions translate to purchase behavior? Southwest shoppers are significantly more likely to say they buy private label often, which translates to 77 percent reporting they do so at least several times a month. Six of 10 shoppers believe private label provides good value, while 56 percent say they will choose a grocery store because of the quality of its private label offerings.
Diana Leza Sheehan, CEO of Evanston, Illinois-based PDG Insights, helps emerging brands and retailers make more effective strategic decisions. By leveraging data, she shares cost-effective consumer insights to plan 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.
[RELATED: Simmering Southwest: Region Boasts Unique Brew Of Grocery Retailing]
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