COVER STORY: The Latin influence

It's an ironic turn of events. During the past decade several supermarket chains had declared the urban Southern California market a dead end and pulled out, leaving behind a fallow field of empty boxes. But to a few eager local entrepreneurs, those abandoned stores looked ripe for cultivation into vibrant, community-oriented food markets, and those business owners set about figuring out how to serve the largely Hispanic populations the big guys hadn't been able to.

Now some of those chains are clamoring to get back inside Los Angeles' ethnically diverse urban neighborhoods. Why the prodigal return? They've observed the success of the independents there, for one thing. And like just about every other marketer and retailer of consumer goods, they have also been taught about the growing purchasing power of the burgeoning Latino population.

It's a tale of more than one city. Other multicultural hotbeds, including New York, Chicago, and Houston, are home to thriving independent retailers that made a commitment to Hispanic merchandising long before it became fashionable.

In a sense, the Hispanic supermarket's time has come -- and, by and large, the authentic specialty operators are in the catbird seat.

"The independents really understand the communities in which they operate. I like to say they're at the nerve of the Hispanic marketing world," notes Steven A. Soto, president and c.e.o. of the Los-Angeles-based Mexican American Grocers Association (MAGA), a national group with 16,000 members -- including large chains such as Kroger and Albertsons, but mostly smaller, locally owned stores -- each serving a Hispanic consumer base of 30 percent or higher at some of their stores.

"Years ago major chains and the big club stores moved out of Hispanic communities. They thought it was going to be a tail-end market, or they didn't know how to provide for customers' needs in those areas. But now everyone is trying to move back in," confirms Soto.

As Hispanic consumers continue to become a more coveted audience for all food retailers, the supermarket landscape now appears on the verge of substantial change, with Hispanic markets likely to be the epicenter of that change, experts contend.

One apparent consequence: Major chains that are disappointed with lackluster sales, and fed up with fighting the competition in the mainstream market, are beginning to eye successful Hispanic-focused independents as targets for acquisition.

Other mainstream operators seeking a winning formula for differentiation are contemplating creating their own formats to cater to Hispanics. And Wal-Mart -- the retailer being watched by just about everybody else -- is also gradually boosting its efforts in Hispanic merchandising and marketing.

"Hispanic purchasing power is said to be growing by $1 billion every six weeks. By 2010 this purchasing power is expected to reach $1 trillion," says Soto. "If you're not a member of MAGA now, you soon will be."

'Dogfight' for dollars

Soto predicts that 10 years from now supermarkets will be scrapping among themselves in a "dogfight" to capture Hispanic shoppers' dollars. "Everyone will be competing for a piece of the Hispanic pie," he foretells.

The strongest supermarket players in Hispanic marketing, at least for now, are the independently owned chains operating in Los Angeles, which is home to around 18 percent of the Hispanic population in the United States, according to Terry Soto, president and c.e.o. of Burbank, Calif.-based About Marketing Solutions (no relation to Soto of MAGA). She says these companies are now being looked at as possible acquisition targets by at least one retailer that has sought her consultation.

Operators such as Superior Super Warehouse, which calls itself the largest independently owned chain of grocery supercenters in Southern California; Vallarta Supermarkets, Inc.; Cardenas Supermarkets; El Tapatio Markets; and Pro & Sons Ranch Markets, Inc. are thriving today by doing what they do best -- learning intimately who their customers are, and then catering to their needs.

The stores these retailers run are supermarkets in every sense of the word -- most of them average around 50,000 square feet, and a few include up to 20 registers. Many of them have been open in Hispanic neighborhoods for at least 10 years.

A number of the retailers have grown from operating units converted from conventional supermarkets, to building their own specialty formats from the ground up, according to Jeff Symon, president of Alternative & Innovative Marketing, LLC (AIM), based in Escondido, Calif.

Some bring in "millions of dollars a week" and "go through truckloads of product," observes Symon. "Some brands are dealing directly with these stores because they're turning so much volume."

He describes a typical scenario: "Cardenas has built a gorgeous store in the Inland Empire [in the San Bernardino/Riverside area]. For the grand opening, they brought in famous Latino artists. They have built up the store with fully bilingual signage and staff. When you walk inside, the music is whatever's hot with the local market."

Cardenas has a huge produce section with Mexican staples such as tamarind, nopalitos, and bulk beans in a big vat. These are the items preferred by local shoppers, many of whom call Mexico their original home. "The quality is very keen, too," notes Symon.

Adjacent to produce is a huge section of authentic spices, followed by an area of "home remedies" used by some Mexican shoppers, which includes food items like nopalitos (used for digestion) and diet teas.

Fresh meats include menudo (tripe), pigs' feet, and other cuts traditionally eaten in Mexico. On a busy Saturday or Sunday, it's not uncommon to see 10 butchers ready to serve customers, according to Symon.

The bakery at Cardenas really stands out, too, he notes. "They offer a lot of pan dulce-- or sweet breads -- as well as assorted Mexican cakes and other baked goods. The bakeries really set them apart."

Cardenas and other stores are also getting heavily into tortillerias that "make and sell fresh tortillas all day," adds Symon.

Some stores are also adding full-service delis featuring ready-to-eat foods. One banner, El Tigre, which is owned by Asians but targets Latinos, offers a full-service deli section with sit-down dining.

"It's almost like a fast-food restaurant in the store," says Symon. Customers can buy fresh salsas, tortillas, pork tacos, and aguas frescas, which translates to "fresh waters," but includes a sweetener and some sort of fruit.

Going the extra mile

Check cashing, wire transfer services, and in-store travel agency representatives are just a few of the added services many of these stores offer. Some of the retailers go so far as to dispatch a van to collect customers who live within a two- to four-mile radius but don't own cars.

Many of the West Coast independents depend on Unified Western Grocers as their wholesaler. One such retailer is Ontario, Calif.-based Pro & Sons Ranch Markets, Inc., which operates seven stores in California and Arizona under the Ranch Markets banner. The company is doing so well that it plans to open two new stores next month.

"The sky's the limit for us," says Mike Provenzano, president and c.e.o. "We want to be one of the top three Hispanic operators in the country."

The company is apparently moving in the right direction: Ranch Markets was just selected as the grocer of the year by the Arizona Grocers Association.

Provenzano admits that it took a long time to develop a strategic marketing plan, however. For starters, Provenzano is Italian-American, not Hispanic. So after committing to serve the growing Hispanic consumer base in areas where he was already operating more conventional stores, he did a lot of homework, all the while using the knowledge of Hispanic employees.

Today Provenzano's stores are considered fun and authentic by their primarily Latino customers. "We took the idea of a conventional supermarket and added a fresh theme," notes Jeff Provenzano, one of Mike's sons and the company's c.i.o. The stores combine dry grocery aisles with a fresh panaderia for the bakery department, la cocina for the hot foods department, and a salsa/juice bar that features aguas frescas, he says. They also include a tortilleria, cermaria with many cheese varieties, and a full-service fish department.

"We've created a really festive environment," adds the younger Provenzano. "It's not only the in-store departments, but also the atmosphere in our stores. A lot of our customers are first-generation Hispanics, and they feel at home in our stores."

Unfortunately, achieving an authentic shopping experience, like Ranch Markets has done, doesn't happen overnight, notes About Marketing Solutions' Soto. "Bringing together a team from the ground up requires a lot of investment. So do acquisitions, but at least then you know the potential return on investment," she points out.

Generally speaking, independents may always have a leg up when it comes to executing ethnic marketing, since they're typically able to make decisions more quickly. "The independents can change and adapt to different programs and projects at the drop of a dime. They're involved in grass-roots marketing where they're serving the entire neighborhood on a daily basis," notes MAGA's Soto.

Chain reaction

Still, a few of the larger conventional chains have launched successful Hispanic-focused formats. Albertsons, for instance, developed its Super Saver banner in Los Angeles two years ago to serve areas populated primarily by Hispanic consumers who are still in the early stages of acculturation into mainstream American society.

"With the less-acculturated population, there's a greater need for a store that makes them feel comfortable. Nearly all the employees in our stores are bilingual, so they can interact with the customers," explains Andrew Kramer, Albertsons' director of ethnic marketing and specialty foods.

Albertsons has also successfully connected with its Latino customers at health fairs called Su Sulud, Spanish for "your health." "Su Sulud is a virtual clinic set up in front of our Sav-On stores, which provides general health evaluations that can then be followed up with a doctor's visit," says Kramer.

Not surprisingly, the product mix at Super Saver varies from Albertsons' typical offering, he notes. "There are certain items we don't carry that a typical Albertsons would carry. The Super Saver banner frees us from that demand."

While Albertsons seems to be on the right track with its Hispanic concept, not all chains have been as successful.

One of the most recent examples of a mainstream operator faltering in the Latino market is Minneapolis-based retailer and distributor Nash Finch, which earlier this year decided to exit its Hispanic concept, Avanza. Nash Finch had developed Avanza in 2002, and the concept was initially successful in Denver. However, observers suggest the company's decision a year later to move the banner into the Chicago market may have precipitated the format's downfall.

"Nash Finch did a great job with Avanza, but their mistake was in underestimating the Chicago market. There was just too much competition there when they moved in," says About Marketing Solutions' Soto.

Moving into the mainstream

Nevertheless, even retailers that choose not to launch their own formats or buy an authentic Hispanic operator need to be doing some sort of specialized marketing and merchandising if their consumer base includes Hispanic shoppers, experts advise.

"Retailers should have at least an aisle of authentic Hispanic products, because Hispanic shoppers are cross-channel shoppers," notes About Marketing Solutions' Soto. "They know that in many instances, chains are much better priced on center store, mainstream brands than the independents."

However, she also advises retailers to be patient when building up their Hispanic product mix, and to keep in mind a few pointers. "When you go into this type of assortment, you need to create a mass presence of merchandise for the customer to take notice. Also make sure you're pricing against the independent competition in your marketing area. If you don't, the products won't move."

Food 4 Less, a Kroger banner on the West Coast, has put a dedicated buyer in place for its Los Angeles stores for that very purpose, notes Soto.

"Food 4 Less has done a great job in ethnic marketing," says AIM's Symon. "They sell some of the authentic meats, such as the Dolores brand of pigs' feet. I think they and other chains are paying more attention to what they can offer."

Albertsons has been varying its Hispanic product selection at conventional stores, based on each store's demographics, according to Kramer. "We provide a great selection of Latino products in our stores -- everything from produce to meats to refrigerated deli and shelf-stable grocery items," he says.

One dividend is that these authentic Latino offerings often attract non-Hispanic consumers who are developing more adventurous palates. "We see these authentic products becoming more appealing, everything from jalapeno to authentic salsas and spices," notes Kramer, adding, "I see Latino cuisine where Italian cuisine was 30 years ago: A family might eat it once a week as something different. But now Italian food is a staple for many American families."

Suppliers are also getting more involved in ethnic merchandising, says Kramer. "We work with both Latino vendors and American companies that are manufacturing products toward Latino consumers. Also the Krafts, Procter & Gambles, and Unilevers of the world are involved in specific marketing programs geared toward Hispanics."

Perhaps the most telling indication of the rising Latino influence on consumer marketing is Wal-Mart's dabbling in more aggressive Hispanic merchandising, say retail observers. "A Wal-Mart supercenter I've been to in Phoenix has a marvelous augmentation to its in-store bakery," reports Bill Bishop, president of Barrington, Ill.-based Willard Bishop Consulting. "Wal-Mart sells what sells. When their pump is primed, they really blow it out."

MAGA's Soto identifies Wal-Mart's interest as among the biggest challenges facing his group's members. Still, he says, he advises them to forge ahead with a focus on their market niche, rather than try to change to match Wal-Mart's strengths.

"I tell our members to remember what made them successful: They provide economic empowerment and stability to the neighborhoods they do business in," says Soto. "I tell them to continue knowing who their customers are, and remember that their customers' purchasing power is growing every day."

Those independents also shouldn't harbor any doubts that their mainstream chain counterparts are remembering -- and coveting -- that power, too.
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