Latino-Oriented Grocers Spread Across L.A.

REFUGIO Reynoso, the chief financial officer of El Gallo Giro Corp., has been especially busy lately.

While the Huntington Park-based Mexican-food grocery chain is adding more L.A.-area stores, what has really kept Reynoso on the move is overseeing the installation of El Gallo Giro's computer system. Once installed, it will enhance the company's inventory control.

A few years ago, such a system would be unheard of for a Latino food chain. But as the area's Latino population has grown, so too have the businesses serving the community.

Formerly comprised of mom-and-pop mercados, L.A.'s Latino-grocery sector has broadened and become more segmented -- with warehouse stores, conventional supermarkets and even gourmet specialty stores.

"They're bringing a more polished type of execution and different services, like banking services," said Randy Delgado, sales manager for corporate brands at United Western Grocers, a buying cooperative for independent grocers.

The expansion of sizable Latino-oriented grocery chains in recent months has been rapid. El Gallo Giro, an independent five-store chain, is set to open its largest unit yet in Panorama City in January. Gigante U.S.A., the domestic subsidiary of Mexican grocery chain Grupo Gigante, opened its second L.A.-area location in Arleta at the end of November, after having opened its first L.A.-area store in Pico Rivera a few months ago. (It plans to open its third location in Covina within the next six months.) And El Super, a warehouse-style chain owned by Mexican grocery giant Grupo Comercial Chedraui, opened its second L.A.-area store in Panorama City earlier this year. (Its South Gate store opened about two years ago.)

In addition, independents like Vallarta Supermarkets are expanding, with the addition of two Canoga Park stores last spring. A number of other markets, such as El Cubano in North Hollywood and La Tapachulteca in Van Nuys, are opening to cater to specific sub-groups, such as Cubans and Salvadorans, respectively.

"It used to be we spoke of the Latino market as the minority market, but now the general market in California, and particularly L.A., is Latino," said Dr. David

Hayes-Bautista, director of the UCLA Center for the Study of Latino Health, who tracks demographic trends. "So the tastes, the desires, the collective unconscious of Latinos begins to drive industry responses."

But the real growth areas for Latino-oriented grocers are not the older Latino neighborhoods, like those in East Los Angeles. Consumers in those areas tend to be second- and third-generation Angelenos who are more assimilated into mainstream America. As such, they are more likely to shop in U.S. chains like Top Valu and Food4Less.

"We're finding our East L.A. store is not performing as well, because (East L.A. residents) tend not to be first-generation anymore," said Reynoso of El Gallo Giro, which caters primarily to first-generation immigrants.

So the chain is expanding elsewhere.

El Gallo Giro, which in Spanish refers to the black-and-yellow rooster best known for its ferociousness in the cockfights popular in Mexico, expects its upcoming 10,000-square-foot Panorama City store and another, yet-to-be-announced store location to add 40 percent to its sales next year.

Many of the fastest-growing communities of new immigrants are in the San Fernando Valley, where about 38 percent of the county's 4 million Latinos reside. Indeed, Latinos now comprise more than 50 percent of the population in areas like Pacoima, Panorama City and North Hollywood.

El Gallo Giro caters to these first-generation immigrants with specialties such as tacos made with pork cheeks, tripe, tongue and brain. Most locations also have a tortilleria where fresh tortillas are made, carniceria where shoppers can purchase cuts of beef popular in Mexico, and a Mexican bakery offering sweet bread and other delicacies.

Gigante is targeting an even wider group, including Latinos who now shop at mainstream American supermarkets. The company's 60,000-square-foot stores with 16 checkout registers follow a traditional American supermarket format, but the stores include traditional Mexican specialty departments, including a tortilleria and bakery. There also is a carniceria and a huge produce area that encompasses about 15 percent of the store's total square footage.

"We're looking at a middle- to upper-middle-end Latino community," said Justo Frias, president of Gigante U.S.A. "I believe the conventional chains are not serving the needs of the Latino community in certain areas, and their price structures are not as competitive as the Latino consumer would like."

As a rule, Latino shoppers, even those relatively assimilated into the United States, tend to place greater emphasis on fresh ingredients and produce than do mainstream U.S. shoppers. But price is also a high priority.

The average U.S. Latino household spends $109 per week on groceries, according to the Food Marketing Institute, somewhat less than the $124 spent by non-Latino households. A survey by the institute reported that 44 percent of Latino shoppers said price is the primary reason they selected a store, vs. 22 percent who cited product mix.

Price sensitivity has contributed to the popularity of stores like warehouse grocery chain El Super. Now, retailers like Gigante are attempting to bring another component to that mix, a conventional supermarket with the same price advantages.

"We look at the Latino price-impact stores, and that's what we price ourselves against," Frias said.

Along with segmentation, Latino grocery chains are increasingly employing professional managers and systems. As it has expanded, El Gallo Giro has sought financing from outside sources, and Reynoso reports that many of the store's potential backers are surprised when they actually visit the operation.

"I've paraded a lot of financing folks through here," he said. "They come in thinking we're some corner taco stand with buckets of lard all over the place, and they come out with a true appreciation of just how organized Hispanic businesses can be."

Officials at many of these markets are now recruited from mainstream U.S. supermarkets and restaurant chains and have traditional marketing backgrounds. At El Gallo Giro, the director of operations was recruited from Coco's restaurants. Reynoso spent five years with Mission Foods.

With more-sophisticated systems, these companies are better able to control portions, cash flow and recipes, achieving greater consistency in their prepared foods. "When you have good control over portioning and inventory, that eliminates a lot of waste and gives us more funds for future growth," said Reynoso.

This year, the chain is seeing a "substantial" earnings increase despite its slowdown in same-store sales. Reynoso declined to specify the increase, and the privately held company is not required to publicly disclose financial information.

The rapidly expanding Latino-oriented grocers are also offering other services, such as customer-loyalty programs that reward regular shoppers with more discounts, and store credit cards.

As more professional retailers spread across the landscape, the mom-and-pop mercados may find themselves increasingly ill-equipped to compete.