Supermarkets Shouldn’t Overlook Native-Born Latino Consumers
The supermarket industry is no stranger to the growth of U.S. Latinos and the value of their food dollars, although an occasional refresher on recent trends can be useful in understanding the evolving demographic landscape.
According to recent population projections released by the U.S. Census Bureau, Latinos numbered 57 million in 2017 and were projected to grow to 111 million by the year 2060.
With an aggregate household income of $879 billion and annual food-at-home expenditures of $60 billion, it’s not hard to understand why U.S. Latinos have captured the attention of domestic and international food marketers. According to a white paper scheduled for publication in September 2018, “A Perfect Storm is Facing U.S. Supermarkets,” this rosy picture is destined to take a major detour that should concern all stakeholders in the supermarket and food industry.
The “perfect storm” has been steadily evolving from a shift in the composition of the U.S. Latino population – a shift that's steadily diminishing the sales and profitability of U.S. supermarkets. The Pew Research Center first brought this issue to national attention in its 2014 analysis of U.S. Census data from 1990 to 2012 by pointing to a declining immigrant population and faster rate of growth of native-born Latinos. A second warning sign, reinforcing Pew’s earlier analysis, was evident in our analysis of more recent U.S. Census data for the period 2010 to 2016, as illustrated by the chart below. Of the 7.5 million Latinos that were added to the U.S. population during this period, native-born Latinos comprised 87 percent of this growth, while foreign-born Latinos comprised only 13 percent.
Perhaps the most compelling warning sign was issued recently by the U.S. Census Bureau’s population projections for 2016 to 2017. The conclusion: Of the 53 million Latinos who are projected to be added to the U.S. population by 2060, 46 million will be native-born Latinos, while only 7.6 million will be foreign-born Latinos.
Why should this demographic shift concern supermarket and food stakeholders? Following is some food for thought:
- In past years, marketers have invested heavily in Spanish-language media to capture the Latino consumer – a practice that was fueled by biased, misleading research that concluded that Spanish was the most effective way to communicate with Latino consumers. Substantial research has since debunked these biased studies, which minimized the economic value of the larger native-born Latino segment.
- In recent years, Spanish-language media – including television, print and radio – has been losing Latino audiences, while the audiences for English-language media have been growing.
- Ethnic-formatted stores that primarily target Latino immigrants are showing signs of economic instability, as evidenced by recent acquisitions and losses in market shares. Interestingly, the sales of ethnic-formatted stores are often diminished due to a tendency to concentrate these stores in large urban markets where competition is distinctly greater.
- Past research also confirms that both native-born and foreign-born Latinos consume and purchase ethnic foods, and shop at ethnic- and non-ethnic-formatted stores to meet their needs.
Recognizing these trends and the potential threat represented by the perfect storm, we surmised that the supermarket industry was in need of some guidance to identify communities in the United States that would be a better fit between store design and key Latino characteristics that can affect sales and profitability. To this end, we conducted a GIS (geographical information systems) site location analysis using recent U.S. Census data for all U.S. counties that included population, nativity (native versus foreign-born), limited English-speaking ability, and annual food-at-home expenditures based on the Consumer Expenditure Survey by the Bureau of Labor Statistics.
The chart below describes the four clusters of counties and the number of counties that resulted from the multivariate cluster analysis using ArcGIS Pro. This spatial analysis essentially “sorts” the counties into groups that are as similar as possible, while also ensuring that the four cluster groups are as different as possible from each other.
Although not the traditional site location analysis, the multivariate cluster analysis provides a macro-level view that can reduce some of the uncertainty of aligning the needs of distinct Latino consumer segments with store location and design considerations. Using this information, site location decision-makers can focus on counties where an ethnic- or non-ethnic-formatted store might make a better fit for a specific community in terms of the presence of native versus foreign-born Latinos, their English-language proficiency, population growth, and annual expenditures for food at home.
The chart below displays the geographic distribution of these four cluster groups across the United States. Interestingly, some of the counties that show excellent potential for a supermarket are often overlooked. For example, Texas has 254 counties with a high Latino presence throughout the state; however, most of the Latino-themed supermarkets are concentrated in just two of the most populated markets – Dallas and Harris counties – a location strategy that diminishes market share for all competitors and overlooks the economic potential in many underserved Latino communities.
Thus, while the perfect storm is likely to continue on the same path that it has followed over the past years, supermarket industry stakeholders should realign their marketing and site location strategies to ensure that they don’t miss out on the substantial opportunities represented by the growing segment of native-born Latinos in the United States.