H-E-B vs. Hurricane Harvey: A Case Study in Crisis Response

How do you inspire an outpouring of love from the state of Texas? For H-E-B, a Texas-based grocery chain, the answer lay in keeping Texans’ pantries stocked with canned tuna and Doritos when no one else could.

How do you inspire an outpouring of love from the state of Texas? For H-E-B, a Texas-based grocery chain, the answer lay in keeping Texans’ pantries stocked with canned tuna and Doritos when no one else could.


Climate change and its impact on supply chain operations

Climate change is increasingly causing significant operational supply chain disruptions, as rising sea levels (see figure 2) and a warmer atmosphere cause more destructive weather events (e.g. hurricanes, floods droughts).[1] Between the 1980s and the 2000s global flooding increased by 230%.[2]

With 300+ stores scattered across Texas, H-E-B is particularly vulnerable to extreme weather shocks. Moody’s estimated that the cost of lost output from Texas workplace closures in the wake of Hurricane Harvey this year was US$6-$8B,[3] and H-E-B had nearly 100 stores in its path.

In addition to avoiding lost productivity, private businesses play a critical role in improving communities’ climate resiliency by providing critical goods in the wake of a disaster.[4] By accomplishing these things H-E-B can grow customer loyalty, generate earned media, and protect their sales.

 

H-E-B and disaster response: Turning operations nightmares into golden opportunities

H-E-B’s emergency supply chain protocols have allowed them to adapt to climate disasters and remain open and well-stocked while their competitors experience multi-day closures.[5]

As an example of these protocols in action, four days before hurricane Harvey arrived, H-E-B began halting deliveries of less storm-friendly items (e.g. frozen food, flowers) to make more space for essentials (e.g. bread, canned meat).[6]

Next, H-E-B reduced the variety of their offerings to increase output and speed-up distribution. Their in-house bakery manufactured 3 types of bread instead of 50, reducing downtime for product changeovers, and buyers ordered Frito-Lay to manufacture only four of their best sellers (e.g. Fritos, Doritos) and send everything they could produce.[7]

As the storm hit, H-E-B transformed their delivery network to do whatever it took to distribute product, including:[8]

  • Using a car fleet to scout passable truck routes between distribution centers and stores
  • Using helicopters to airlift extra truck drivers from San Antonio into Houston
  • Partnering with army carriers to transport water flats to flooded communities
  • Ordering suppliers to skip distribution centers and deliver full truckloads of product directly to stores

H-E-B also mobilized a fleet of mobile disaster trailers with on-board kitchens, pharmacies, and ATMs, inspired by one employee’s prior experience as a military line cook.[9]

The plan has been highly successful, and 5 days after Harvey 79 out of 83 affected stores were re-opened with management projecting positive yoy sales growth for the week of the storm.[10]

To build a sustainable competitive advantage in long-term disaster relief H.E.B. consolidates new learnings from every major storm into their “H-E-B Emergency Playbook.”[11] They’ve also established a “command center” in San Antonio to house a multi-functional SWAT team during crises.

 

Future operations: how H-E-B can expand adaption measures and implement mitigation measures to further combat climate change

In the short-term H-E-B should continue to implement and refine their emergency playbook, and should share learnings with other stakeholders in disaster-prone areas.

In the medium-term, H-E-B should help suppliers further up the supply chain adapt to climate change. Increasingly, food and beverage companies are facing unpredictable availability, quality, and price of agricultural and livestock products due to extreme climate events, such as the 2012 US drought.[12] One option H-E-B could pursue is partnering with suppliers to experiment with more climate-resilient food varieties, creating a more reliable supply of goods less prone to price shocks.[13]

In addition, H-E-B should mitigate climate change by reducing the carbon footprint of their distribution and delivery operations. They could protect profitability by cutting costs and/or passing some costs on to consumers. As one proxy, Walmart claims that over the last decade, “its stores reduced energy use by 20% for a total savings of US$1B” through sustainable energy technologies.[14] Recent surveys of US consumers also show that “45% are willing to pay more for a product from a company known for being environmentally friendly.’”[15]

 

Open questions for readers

  •  What role should private companies play in disaster response efforts and what roles should be left to the government?
  • Are H.E.B.’s disaster response efforts primarily motivated by profits or morals? Does it matter?

 

(word count: 800)

Sources

[1] Henderson, Rebecca, Sophus Reinert, Polina Dekhtyar, and Amram Migdal. “Climate Change in 2017: Implications for Business.” Harvard Business School, June 27, 2017.

[2] Grossman, David, Jeff Erikson, and Neeyati Patel. “GEO-5 For Business: Impacts of a Changing Environment on the Corporate Sector.” UNEP, Green Light Group, and SustainAbility, 2013.

[3] Zumbrun, Josh. “Hurricane Harvey Will Cost Tens of Billions of Dollars.” The Wall Street Journal, August 29, 2017.

[4] Castillo, Carlos, Lauren Cook, and Oz Ozturk. “A New Framework for Disaster Reduction.” Resiliance: A Journal of Strategy and Risk. PwC and UNISDR (UN Office for Disaster Risk Reduction), 2013.

[5] Morago, Greg. “H-E-B’s Lessons Learned from Hurricane Harvey.” Houston Chronicle, September 7, 2017.

[6] McClelland, Scott. The inside story of what it took to keep a Texas grocery chain running in the chaos of Hurricane Harvey. Interview by Chip Cutter, September 2, 2017.

[7] McClelland.

[8] McClelland.

[9] Knapp, Gwendolyn. “High Efficiency: How H-E-B Delivered Relief After Harvey.” Houston Press, October 11, 2017

[10] McClelland, Scott. The inside story of what it took to keep a Texas grocery chain running in the chaos of Hurricane Harvey. Interview by Chip Cutter, September 2, 2017.

[11] Morago, Greg. “H-E-B’s Lessons Learned from Hurricane Harvey.” Houston Chronicle, September 7, 2017.

[12]Grossman, David, Jeff Erikson, and Neeyati Patel. “GEO-5 For Business: Impacts of a Changing Environment on the Corporate Sector.” UNEP, Green Light Group, and SustainAbility, 2013.

[13] Grossman, Erikson, and Patel.

[14]Henderson, Rebecca, Sophus Reinert, Polina Dekhtyar, and Amram Migdal. “Climate Change in 2017: Implications for Business.” Harvard Business School, June 27, 2017.

[15] Henderson, Reinert, Dekhtyar, and Migdal.

 

 

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7 thoughts on “H-E-B vs. Hurricane Harvey: A Case Study in Crisis Response

  1. This was a very interesting article that highlighted the need for both private and government disaster response efforts. In such a tragic situation, I believe private companies and government entities should work together to provide relief as quickly as possible. H-E-B has a mission of providing people food they need to survive. Their supply chain efforts helped achieve that mission, and as a result helped the company and the community overall. I think that in these situations, companies/government should stick to their core competency. H-E-B is very good at supplying food quickly and effectively. The government is better at deploying help for clean-up and disaster relief.

    I believe H-E-B’s disaster relief efforts were due to morals, although I don’t think it would matter if it is for profit. H-E-B understands their standing in the community and the importance to the brand of being highly visible and involved in the community. Not gauging food prices and providing the aid necessary proves that H-E-B has a moral standing.

  2. Graham – this is a really unique perspective on the role of climate change on supply chains and the opportunity it presents for private actors to “do well by doing good” in the wake of climate-induced events.

    Reading about H-E-B’s emergency supply chain planning and response got me thinking about what other types of organizations – private and non-private – could learn from them. For example, how can a non-profit hospital make rapid adjustments to their inventory deliveries to stock the supplies and medications in preparation for a major climate event, and could the resulting ability to treat patients more effectively result in cost-savings? It also begs the question of what other players could be doing to leverage their existing assets to support disaster response – could Enterprise or Avis for example lend out a fleet of rental SUVs to support the transport of people and supplies in and out of a partially flooded city?

    I love your proposal that H-E-B could take its efforts a step further by partnering with suppliers to enhance the supply of climate-resilient foods. It recognizes that H-E-B’s powerful emergency response framework does not only benefit H-E-B financially, but it could also serve as a source of competitive advantage for its suppliers and other supply chain partners who can follow suit.

  3. Graham, nice article! It is really interesting to get such an in-depth look at detailed operational changes that H-E-B made before, during, and after Harvey hit. Your second question about whether this is motivated by morals or by profit is one that I found myself reflecting on quite a bit while I was reading. I do believe that their efforts had to have been at least in part motivated by the company’s own morals. Many of the logistical challenges you mentioned required significant organization and effort, which would ostensibly require employees to go above and beyond their normal responsibilities to deliver. Furthermore there is no evidence here of price gouging or other opportunistic practices. Although the longer-term brand image and customer loyalty benefits could have been the main motivator here, it still seems to me that the balance of evidence supports a more genuine approach to the fallout from Harvey.

  4. Do the profit and moral motivations have to be mutually exclusive? HEB leveraged partnerships and innovation to bring their customers badly needed services during the worst of times. Marketers and brand managers constantly seek for ways to breed loyal customers. By coming to the rescue of neighborhoods impacted by Hurricane Harvey, HEB has develop trust and loyalty in their customers base that should translate into increased YOY sales not for the days and weeks during the crisis, but for the months and years to come. If a regional grocery chain can muster the resources to respond to this disaster, how can national (e.g. Home Depot, Lowe’s) and global (e.g. Amazon) companies configure their supply chains to be equally or more responsive? As climate change impacts more cities, neighborhoods, and homes throughout the world, companies should prepare for these emergency scenarios. The goal shouldn’t be to yield short-term profits from a crisis, but to help those in need and build a bond with their consumer that will impact lifetime value of those customers.

  5. Whether H.E.B.’s disaster response efforts were primarily motivated by profits or morals, the reality is that there is a clear need in the market that H.E.B. is able to fulfill effectively. Despite the fact that we would expect the government to drive first response efforts during natural disasters, many governments lack infrastructure and institutional knowledge to do so effectively. As a result, often, governments’ relief efforts are less effective when compared to the efforts of for-profit organization. [1] H.E.B.’s response during Hurricane Harvey is a good example of how a private firm can effectively fulfill a need not served by the government. The most effective way of solving a social crisis is by showing that it can be done profitably – H.E.B. was able to both create social capital and shareholder return by effectively responding to Hurricane Harvey.

    [1] “HEB vs Harvey: Texans Helping Texans,” Texian Partisan, August 2017, https://texianpartisan.com/heb-vs-harvey-texans-helping-texans, accessed December 2017

  6. This was a really interesting perspective on how companies can temporarily change their entire operations, function, and standard practices to dynamically response to unexpected changes – thank you for highlighting it! To answer your first question, I agree with Diana and Whitney’s points that it would not matter if the company pursued this strategy with morality or profit-seeking as drivers. The outcome of maintaining operations for the community in a tragic event is a net benefit, even if the company’s actions were motivated by the bottom line.

    However, I would also argue that it is not clear this strategy was profitable for the company, despite preserving top-line growth. While the company projected positive sales growth for the week of the hurricane, I would estimate that H-E-B likely faced heightened costs in transforming its delivery network, such as using additional helicopters or car fleets to maintain production, as well as changing orders to the suppliers with little advance notice. Alternately, if H-E-B did keep costs down while adding in these incremental steps, I would be really interested to see how the company achieved this.

    I also particularly liked your recommendation that H-E-B should work even more with its suppliers up the supply chain to handle unpredictability, as I had the same thought while initially reading through your case study. Given our experience with the Beer Exercise as well as the Barilla case, and the effect that disconnects from end demand can have on the supply chain, it seems to me that H-E-B may be creating a bullwhip effect with its emergency protocols, to the extent that these decisions are not currently clear to their suppliers. To maintain supply chain efficiencies while addressing these important issues, H-E-B should also work with its suppliers to establish protocol for adjusting orders in the event of a severe weather event, particularly as they become more common with climate change.

  7. Graham, this article was fascinating! How a grocery store had such a huge impact during a natural disaster is impressive.
    When reading the body of the essay, I was primarily thinking in the questions you ended up raising at the end.
    The role H-E-B played in the days after the hurricane should be an alarm for government entities in charge of emergency relief. There is no argument against the fact that the company took the missing role of the government during those days. This is not to say that H-E-B did wrong, but instead to think what happens in cities in which there is not such a socially responsible and prepared company. The government nevertheless could leverage on these cases and companies, and partner with them – by providing resources or even incentives – to be able to react faster when disasters happen.
    On the final question on what the motivation behind H-E-B efforts is, unfortunately we do not have enough information to assess if it is profits or not, but one could fairly assume it was not in the case of this hurricane, given that (1) the company did not play with prices during those days – if not the memes in Figure 1 would be much different -, and (2) several initiatives such as using helicopters to airlift drivers would not stand a P&L evaluation.

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