Mr. Butts' Shoppers. Wal-Mart may have its 1,600 "grocery-enhanced supercenters" and its low, low prices, but Charles E. Butt of HEB Grocery, www.heb.com, has a culture of "restless dissatisfaction" and a relentless focus on thinking like his shoppers that makes him and his 304 stores and $11 billion in annual sales a force to be reckoned with in the Lone Star State, reports Susan Warren in The Wall Street Journal. Just to give you an idea of how Mr. Butts' culture thinks about its shoppers, "his president of food and drugs, Suzanne Wade," once "handed $20 to several employees and told them to feed a family of four for a week." She comments: "We found out why beans and rice and tortillas sell so well." In another example, managers in the Rio Grande Valley, noticing "an annual spike in rubbing alcohol," discovered it was because "customers who couldn't afford air conditioning" were using the alcohol to cool their skin.

Problem was, regular alcohol dries the skin, so "HEB worked with manufacturers to develop its own brand of rubbing alcohol with moisturizers, which now makes up a quarter of its rubbing alcohol sales." Sometimes such insight simply takes the form of novelty, such as the Texas-shaped torilla chips. Other times it determines product assortment, such as stocking barbecue-grill "discos" favored by Mexican-Americans in southern-border stores, and traditional gas grills used by Anglos elsewhere around Texas. Why, Mr. Butt even installed "live tanks of fish and shellfish" in a southwest Houston store that caters to Asians. He imported a "spiny Asian fruit called Durian" after one of his executives "noticed a long line forming for the peculiar fruite at a food market in Thailand." Perhaps most interesting of all, Mr. Butt's fixation on understanding how his shoppers think ultimately takes square aim at Wal-Mart's claim to fame -- low prices.

Specifically, at his downtown Houston store, produce is priced "by the piece, instead of by the pound," because that results in "better sales from buyers who come in with just $20 in their hands." Now, such careful thinking does not necessarily produce greater profits -- "analysts estimate that the company generates a 1 percent to 2 percent profit margin on sales." But Mr. Butt is down with that, his goal being "to keep prices low enough so that HEB can keep gaining market share." Against Wal-Mart. So far, so good. For example, having begun a major push into the Houston market three years ago, HEB now has 26 stores there, and claims a 14 percent share of the market. Of course, Wal-Mart has 24 percent and Kroger's has 27 percent, according to TradeDimensions, www.tradedimensions.com. Undaunted by Wal-Mart's heat, HEB says its goal is a 25 percent share in Houston over the next five years. The thing about Wal-Mart, says HEB Houston's Scott McClelland, is that "it forces you to be better."

Tim Manners, editor