http://www.azcentral.com/arizonarepublic/business/articles/0425biz-market0425.html

Extras strongest tools in Latino grocer wars Chains expand store services

Jonathan J. Higuera The Arizona Republic Apr. 25, 2006 12:00 AM

The battle among grocery stores to attract Latino consumers is intensifying, with new chains entering the Valley and traditional ones reacting to the competition by ratcheting up what they offer and how they serve their customers.

Ultimately, customers will choose the winners and losers, but for now, the competition gives shoppers greater choice and some downright fun buying experiences in stores seeking to connect culturally with their target customers.

Lucia Viveras Navarro, 28, and Mabel Magaa, 26, said in Spanish that they liked how the competition has helped keep prices down as they strolled out of El Super, a new market at 51st Avenue and Indian School Road.

"We can get 3 pounds of tomatoes for a dollar here," Navarro said. "At Ranch Market or even Wal-Mart you can't get those prices."

But price points are only one advantage to the increasingly competitive grocery market. The new players to the Valley are creating different paradigms and expectations for serving the Latino market. Most new stores now come with full-service restaurants or delis, larger bakeries, meat markets and produce sections. Some also offer services such as travel agents and money transfers.

"They have appealed through an improved quality of store, more merchandise, bilingual orientation and paid attention to the nostalgia market with products made in Mexico," said Earl de Berge, research director at the public opinion and market research firm Behavior Research Center. At the same time, he said they are very aware that this market is experimental and consumers are looking to try products of the new country they are in.

Phoenix Ranch Market opened its first Valley store five years ago at Southern and Central avenues in south Phoenix. Since then, the Ontario, Calif.-based chain has opened four more and is building its fifth store at 33rd Avenue and Indian School Road. The store will be 60,000 square feet and is moving into a shell left by an electronics retailer. The grocer will lease 45,000 to 50,000 square feet to other tenants.

"We try to position ourselves to be in power shopping centers with a lot of potential," said Michael Provenzano Jr., chief financial officer of Pro's Ranch Market, its corporate name.

The chain's large stores have elevated the big-box concept for Latino-themed grocery stores to new levels. And its unapologetic focus on Spanish-speaking customers, bright merchandising and authentic products has made a splash among consumers.

Culturally appealing

The store's loud music, freshly squeezed drinks and restaurant service take it beyond the traditional grocery store, and it's become the norm for most big-box grocery stores catering to the Latino market.

"We're here to stay and protect our market share and continue to grow throughout the Valley," Provenzano said. "We'll grow one store at a time and make it the best possible store."

The chain is also adding a plaza to its 16th Street and Roosevelt location, a 65,000-square-foot store that opened last year in a former Kmart. Provenzano said he hopes it "will become a cultural destination for everyone."

El Super, another California-based chain, recently opened a store at 51st Avenue and Indian School Road and is reportedly scouring the Valley for future locations.

Those entries also are creating a buzz and competition that inject energy and innovation into the Valley's grocery market.

For example, Food City, the pioneer in serving Arizona's Hispanic community, has been busy remodeling and upgrading stores. Bashas' bought the original Food City in 1993 and expanded the number of stores under the banner in the last decade. In 2001 it acquired 22 closed Southwest Supermarkets in a bankruptcy auction for $9 million, and 16 defunct Megafoods stores became part of the Food City brand in 1996.

Food City is putting greater investment in its stores, adding restaurants and delis, improving its meat counters and bakeries, and touting its longtime community service commitments.

Food City gears up

A new Food City being built at Southern and Seventh avenues is the first in metropolitan Phoenix to be built from the ground up. Most of Food City's expansion has come from acquisitions and conversions. The new 55,000-square-foot store will have all the features becoming standard in many Food City stores: full-service restaurants, delis, bakeries, tortilla-making operations and a mix of authentic Mexican products and newer U.S. labels.

"We were the first regional chain to try and take this niche on," said Robert Ortiz, vice president of sales for Food City, one of three banners under the Chandler-based Bashas' chain. "We just want to get better at what we do. Better bakery, better deli, better meat department."

But it is increasingly doing so with an eye on the children of immigrants, who are quickly becoming a bigger segment of its customers.

The changing demographics will require the chain to pay close attention to the wants and desires of the children if it expects to hold on to its market share, Ortiz says.

"If you look at a Food City in five years, it will be different than what it is today," he said. Already small signs are cropping up, such as an increase in the sale of 2 percent milk.

"The younger generation is more health conscious," Ortiz said.

Population spurs growth

The competition for the Hispanic grocery dollar is being driven by the group's rapid population growth, he says.

"When you look at the Valley's population growth and projections for the next five to 10 years, you understand why they (competitors) are coming here," Ortiz said.

"I like our chances," he added. "We have great infrastructure, and I can see the improvements we're making going forward."

The Valley's burgeoning Latino market has caught the attention of other out-of-state chains, mostly coming from the hypercompetitive Southern California market.

El Super, based in Los Angeles and partly Mexican-owned, opened a store six weeks ago at 51st Avenue and Indian School Road. The company declined an interview request. Several real estate and economic development officials said the chain is looking for more Valley sites.

One issue the chains face, says Judi Butterworth, a senior vice president at De Rito Partners who specializes in re-leasing vacant big boxes, is the lack of vacant big boxes and land in areas that are predominantly Hispanic.

"These retailers are faced with going into these areas with a 28 to 35 percent Hispanic concentration and hoping competitors don't come in as well," she said. "If they do, they run the risk of not having enough grocery dollars to go around."

The competition has not gone unnoticed by chains serving the broader market, such as Kroger Co., which owns Fry's Food Stores, and Wal-Mart. Both have done more merchandising of products aimed at Hispanic consumers. Fry's at 43rd Avenue and McDowell Road, for instance, has experimented with more products aimed at its predominantly Latino customers.

With Hispanics part of the overall mix, metropolitan Phoenix had one of the fastest growing grocery markets in the nation last year along with other Sun Belt cities such as Orlando, Las Vegas, and Austin.

According to Metro Market Studies, a Tucson research firm, Kroger Co., which operates Fry's Food Stores has the Valley's largest market share at 28 percent, followed by Bashas', 16 percent; Safeway, 15 percent; Albertsons, 12 percent; and Wal-Mart, 9 percent.