COVER STORY: Culture clash

As Ash Wednesday ushers in the Christian season of Lent this month, supermarkets across the country will be stocking more seafood and arranging special displays to capture sales and cater to local customers -- as retailers have done for decades. For some retailers that operate in Hispanic-populated areas, however, Lent has taken on a whole new significance.

"Lent is our second-largest campaign of the year," says Robert Ortiz, v.p. of merchandising at Food City, a division of Chandler, Ariz.-based Bashas' that operates 59 stores catering primarily to Mexicans in southern Arizona. "A high majority of Hispanics are Catholic," he explains. "Every year we run a 40-day campaign with an entire merchandising program to execute. We sell umpteen truckloads of nopalitos, tons of cheese, and religious candles, among other items. We cut our meat cases way back."

For Food City and other supermarkets that do business in the current hotbeds of ethnic marketing -- places like New York City, Miami, Los Angeles, Chicago, and Houston -- programs like this aren't mere novelties; they're absolutely essential for any operator hoping to stay on par with a battery of competitors that now not only includes small specialty markets and ethnic-oriented chains, but also drug stores, dollar stores, and mass merchandisers, all grabbing for a piece of the multicultural pie.

Making the commitment

Whether it's Mexican immigrants in Phoenix, Ariz. or African-Americans in the New York neighborhood of Harlem, the goal for retailers is the same: to earn the loyalty of a burgeoning multicultural population, whose three major groups -- Hispanic, African-American, and Asian -- now make up almost a third of the U.S. population and are predicted to account for half of the population by 2040.

But getting serious about ethnic retailing means making greater commitments than ever before -- creating segment-specific advertising and marketing, stocking smarter assortments of authentic products as well as conventional staples, and, ultimately, truly designing and running stores differently from the norm, which includes everything from resizing departments to rethinking the fundamentals of business relationships with vendors.

Supermarkets have recently become much more involved in ethnic marketing than they were in the past, observers agree. For now, they're primarily focusing on Hispanic groups, which make up the largest minority group.

"I've seen major changes in Hispanic marketing among supermarkets over the last year and a half," observes Linda Lane Gonzalez, c.e.o. of ViVA Partnership, a consultancy based in Miami. "There had been so much talk about the independents and bodegas, but now large supermarket chains have had to think about how to get into the business.

"Before, we had a few snickers and sneers among the retailers we were talking to," she acknowledges. But ViVA has more recently been working with its retail clients to develop ethnic planograms that are completely different from previous strategies.

Chain challenges

Yet as the makeup of communities continues to change, the job will become even more challenging for browbeaten grocers, requiring investments in labor, marketing, and advertising, as well as commitments of shelf space, and plenty of out-of-the-box thinking.

Those areas may be where the biggest chains can find themselves at the biggest disadvantage.

"Many supermarket chains have cut back their research and marketing departments, or largely gutted them," notes Burt Flickinger, managing director of Strategic Resource Group in New York. "Too many of the executives spend very little time in their own stores, and even less time in competitive stores -- especially international, specialty operators that appeal to the multicultural consumers. Because of pressures of time and Wall Street, many of the public companies are out of touch with what are being recognized as the fastest-growing population bases in the country."

Some of the most engaging ethnic marketing programs, on the other hand, are coming from privately held regional retailers, where executives spend more time with their ears to the ground. Among them, according to Flickinger, are Bashas', Larry's Markets in Seattle, and H-E-B in Texas.

Lakeland, Fla.-based Publix is addressing the many Latino shoppers who frequent its aisles in Miami and other ethnically diverse areas. The retailer is launching an entire line of store-brand Hispanic products that includes such items as frozen plantains, ready-to-eat black beans, and a mojo marinade. The chain has also made it clear in press reports that it wants to introduce Hispanic products to non-Hispanic customers.

Publix is also given high marks for its fresh departments, such as produce and seafood, which attract the many Hispanic and Asian-American shoppers who like to cook from scratch.

Well north of Publix's territory, Pathmark Stores, Inc., based in Carteret, N.J., has for years been planting seeds for an ethnic marketing strategy. The chain has progressed from featuring Spanish circulars in its stores and direct mail, to highlighting those weekly specials online -- via its Spanish-language Web site, The site isn't a straightforward Spanish translation of its English site; instead it more intimately addresses Hispanic consumers with authentic recipes from several Hispanic countries, information about native holidays, and more.

Retail for a renaissance

Pathmark has also furthered its commitment to African-American shoppers. Last month the chain unveiled a second supermarket in Harlem, a high-density urban neighborhood that has been neglected by other supermarket operators. The 42,000-square-foot store, located in central Harlem at the intersection of 145th Street and Bradhurst Avenue, is on the ground floor of a mixed-use development being touted as part of the "new Harlem Renaissance" and that also includes a huge new condominium complex.

The marketing area is about 50 percent African-American and 45 percent Hispanic, according to Pathmark spokesman Rich Savner. The store clearly addresses those groups with plenty of fresh produce, including exotic varieties; a service fish counter; prepared foods that include chicken wings and home-cooked veggies; an extended aisle dedicated to Hispanic products; and a section with popular African-American brands of canned products, such as Sylvia's and Glory Foods. In addition, the store offers a number of community services and features a bilingual pharmacist.

After the first week following its soft opening, Pathmark was "very pleased" with the store's performance, notes Savner. That was without an advertising campaign or any fanfare, although he says a marketing plan will follow.

Reaching out to communities

Pathmark has also become heavily involved in community outreach in the New York metropolitan area. During Hispanic Heritage Month last September, the retailer sponsored its second annual Pathmark Celebracion de la Herencia Hispana, a free event that featured entertainment like the Spanish Harlem Orchestra. This month, which is Black History Month, Pathmark is backing its fifth annual Gospel Choir Competition, having lined up participating manufacturer sponsors that include Kraft, Dole, Sara Lee, Perdue, PepsiCo, Colgate-Palmolive, and Land O' Lakes.

The supermarket operators that are deeply committed to ethnic retailing make sure they're intimately familiar with their neighborhoods. In a large company, that may mean treating those particular stores like a different animal.

"At Food City we try not to think conventionally," explains Ortiz. "It can be hard to do. We have Bashas' as our mother company, but they let us do what we need to do. We have to reflect our shoppers' needs in the way we set up the stores."

For instance, at Food City, produce is almost double that of the general market, says Ortiz, so he won't hesitate to knock out an aisle and double the section if necessary.

He's also keenly aware of who his primary competition is -- and isn't. "I try to keep an eye on conventional markets here, but then I try to put a block up and say, 'I'm not going to follow them.'" Ortiz spends much more time checking out the local carnicerias, or meat markets.

At least part of Food City's authenticity was inherited. Many of its current managers were part of the original one-store operation of the same name, which Bashas' purchased in 1993 and expanded. The move to purchase the independent was prescient.

"Food City has been a great defensive measure," notes Ortiz. "The format really gives us an edge in neighborhoods where we already had conventional Bashas' stores, but where the ethnic makeup was changing."

The specialists

As grocers move further into the ethnic arena, they're increasingly going head to head with ethnic-owned chains that cater to specific clienteles. Just a few prime examples of Hispanic retailers: Sedano's, a 28-store supermarket chain in Miami that focuses on Cubans, and Gigante USA, a subsidiary of Mexico's Grupo Gigante that has followed immigrants north, and now operates several stores in Southern California.

99 Ranch Market, a banner operated by Buena Park, Calif.-based Tawa Supermarket, Inc., is perhaps the best-known name among Asian specialists. The typically 30,000-square-foot stores emphasize fresh departments, especially seafood. 99 Ranch has more than 20 locations, primarily in California, but also in Atlanta, Las Vegas, Phoenix, and Hawaii.

Elmhurst, N.Y.-based Korean food retailer HanAhReum has expanded a relatively new format, Super H Mart, in New York as well as Maryland, Pennsylvania, Virginia, and Georgia. Its newest store, located north of Atlanta in the increasingly diverse immigrant population of Gwinnett County, measures 67,000 square feet and features not only Korean, but also Vietnamese, Thai, and other Asian products.

In many cases the ethnic supermarkets also carry American brands, in addition to staple items such as toilet paper and paper towels, allowing shoppers to conceivably forfeit their local conventional supermarkets altogether.

Recent trends in the Asian retail segment illustrate how the ethnic specialists are becoming more sophisticated merchants. "Traditionally you'd find mom-and-pop markets that centered on carrying authentic Asian goods, like cooking oils, rice, and specialized produce," notes Saul Gitlin, e.v.p. of strategic services/new business at Kang and Lee Advertising in New York. "As the Asian-American population has grown, a lot of entrepreneurs have recognized there's a great opportunity to provide the specialty items along with basic items, like cleaning supplies, or cereal for their children."

Observers agree that so far, one important rule of thumb for any operator trying to carve out some space in an ethnic market is to be on target regarding price.

"People go to specialty stores for specialty items," says Food City's Ortiz. "As long as we have those specialty items in our stores and they're priced competitively, we get the customers in our store."

Another key strategic imperative seems to be advertising, which many operators are apparently realizing. In the case of the Asian market, however, few, if any, supermarkets have been willing to invest much in the effort, according to observers.

It might be that retailers are waiting for vendors to pave the way, says Gitlin. "When the big manufacturers get into Asian, it will be more of an incentive for stores." (But if supermarkets need a more pressing incentive, Gitlin mentions that Wal-Mart signed on with an Asian advertising agency last year.)

A beautiful partnership

In some cases suppliers have begun to collaborate with retailers on powerful programs that can attract more ethnic shoppers. Unilever, for one, recently forged a partnership with H-E-B, the Texas food retailer known for its appeal to ethnic shoppers, to attract more Hispanic women into the health and beauty aisle. The manufacturer had noted H-E-B's Beauty Advisor program, in which store "advisors" greet shoppers and help them make selections, and saw a natural fit for its Secretos de Belleza (Beauty Secrets) campaign.

"One area where Hispanic women like to shop is home and personal care," says Annette Fonte, senior multicultural marketing manager at Unilever HPC. "Personal appearance is very important to them. It's not just about making their houses smell good or their food taste good -- it's also important to look great."

Unilever worked with H-E-B to train 300 beauty advisors last summer. Then, during two-day in-store events held from August to October, the advisors provided free personal consultations and beauty demonstrations to Latina shoppers, educating them on beauty and skin care, using the Secretos de Belleza brands and products, including Dove, Pond's, Vaseline Intensive Care, Suave, Caress, and Finesse.

Fonte says Unilever was "extraordinarily happy" with the H-E-B partnership, adding that it will continue and perhaps expand in 2005. "Any time you build a program with a retailer that reaches the consumer, it's a win. At Unilever we're about working together with retailers to connect with Hispanic consumers -- to be uniquely engaging based on what sets the retailer apart."

According to retail consultant Flickinger, however, many supermarkets have not been in such successful programs with suppliers. In many cases, he observes, manufacturers are devoting their best and brightest marketers and programs to bigger-name retailers such as Wal-Mart, Costco, and Target.

A new model needed

Ironically, many of the entrepreneurial ethnic brands clamoring for relationships with supermarket chains are being cut out by the middlemen -- the wholesalers, adds Flickinger, noting that many of these brands could potentially be big sellers on the shelves.

"A few of the big wholesalers are gouging the entrepreneurial manufacturers on slotting and pay-to-stay fees. They're moving from aggressive to abusive practices. If you look at H-E-B, Wal-Mart, and Whole Foods, they aren't charging these suppliers with fees."

Alex Romanovich, e.v.p. of development at Global Advertising Strategies, a multicultural consultancy in New York, cites similar frustrations among his food manufacturer clients. "Supermarkets need to be more flexible with distributors. One company told me that a retailer expressed interest in its products, but then expected the manufacturer to understand their way of doing business. Pricing models and profit margins may not be as flexible with these companies."

Supermarkets can make a major impression with ethnic consumers by carrying authentic brands from the customers' home countries, observes Romanovich. "Ethnic shoppers will travel to get their favorite foods," he says, noting that supermarkets can compete with the specialty stores by providing the staple items these groups are looking for.
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