Fresh from The Border

By Romesh Ratnesar/Los Angeles

Tucked in among Home Depot, Starbucks and Target and ringed by acres of asphalt, the Gigante grocery store in Santa Fe Springs, Calif., about half an hour's drive east of Los Angeles, looks like any suburban supermarket. But step inside. Colorful pinatas hang from the ceiling. Bilingual signs promise shoppers el mejor precio. Produce gets lots of territory close by the entrance, where display islands overflow with crunchy jicamas, ripe papayas and dozens of varieties of chili peppers, from fiery serranos to sweet chipotles. The aroma of freshly made tortillas wafts from the bakery. Butchers serve up not only standard cuts of beef, poultry and fish but also Mexican specialties like the spicy pork sausage chorizo and carnitas, shreds of pork that are browned to make the ultimate tacos.

But this is no mere bodega. Grupo Gigante, Mexico's third largest supermarket chain, with 270 stores and $3 billion in annual sales, is staking its claim north of the border. It operates four stores in the L.A. area and will open four more this year. Gigante (pronounced hee-gan-tay) aims to become the most popular supermarket among California's 11 million Latinos, most of whom hail from Mexico and think of the stores as old friends. The chain's ultimate goal is even more audacious: "To be the leading supermarket in Latino areas across the United States," says Justo Frias, Gigante's head of U.S. operations. "And we have the resources and the name recognition to do it."

There are good reasons for Gigante to think big. Having recently surpassed African Americans (12.7% of Americans) as the biggest minority group in the U.S., Latinos (13%) boast a collective disposable income of $450 billion a year, with much of that money going toward food. Latinos visit grocery stores an average of 4.4 times a week--twice as often as non-Latinos--and Latino households spend one-third more on groceries.

Yet they often don't find what they're looking for. "Food tastes are the last things to change when people move to a new country," Frias says. That goes for California's big Asian population as well. But supermarkets have been slow to adjust to changing demographics. Traditional chains such as Albertsons, Ralphs and Vons have closed many outlets in low-income neighborhoods while trying to retain Latino and Asian shoppers with token selections of "ethnic" products in their remaining stores. In response, first-and second-generation Asian Americans have flocked to newer chains like 99 Ranch Market, which runs 25 Asian-targeted stores from Orange County, Calif., to Seattle. And many Latinos have turned to family-owned neighborhood markets for the foods they can't find at their local Ralphs.

Gigante's strategy is to provide the same goods as the best bodegas but in spacious, sparkling showrooms that rival high-end Anglo supermarkets such as Trader Joe's or Whole Foods. "The big chains gave Gigante the opportunity to come in here," says Steven Soto, head of the L.A.-based Mexican-American Grocers Association, a trade group that represents some 18,000 Latino store managers and owners. "The chains didn't understand how to market to our community. But Gigante has done a lot to open their eyes."

Doing so hasn't always been easy. As a relative small fry in the U.S. market, Gigante doesn't have the advantages that size confers on some competitors. The company employs three full-time product buyers who scour farmers' markets and Mexican grocery stores for the optimum mix of U.S. and Mexican brands. Yet like most small grocery chains, Gigante initially stocked the shelves of its U.S. stores with goods supplied by a wholesaling company that dealt with food manufacturers. Since then, growth has allowed for bigger orders at lower prices negotiated directly with manufacturers. (One hiccup along the way: Frias says when Gigante negotiated with Frito-Lay, uninformed local staff members at the giant snackmaker initially asked him for a personal guarantee that he would cover any outstanding payments--something typically asked only of the proprietors of family-owned shops.)

Gigante won't provide specific figures, but Frias says, measured in sales per square foot, Latino grocery stores outperform traditional supermarkets by 25% in L.A. neighborhoods where the two go head to head. Indeed, some of the U.S.-based chains are offering Gigante the sincerest flattery by trying to copy its business model. Last year Albertsons, based in Boise, Idaho, the country's second largest supermarket chain, after Kroger, launched an effort to attract Latinos by revamping three slumping Southern California stores in predominantly Latino areas. The company hung Spanish-English signs over the aisles, expanded produce sections 30%, quadrupled the size of meat counters, piped in Mexican pop music and renamed the stores Super Savers. Business has doubled in the eight months since the Super Savers opened, and now Larry Johnston, Albertsons CEO, says the company plans to open such stores "all over the country."

Wal-Mart, which is now the biggest retailer in Mexico and one reason Gigante's same-store sales there slipped 5.5% during the first nine months of last year, also plans to join the supermarket battle in California. It will build 40 Supercenters --discount variety stores combined with supermarkets--and aims to use experience gained in Mexico to aggressively target U.S. Latinos. "The chains are coming back and moving in," says Soto. "It's going to be a dogfight."

Frias claims not to be too concerned. "To reach the Latino market, you have to have an entire infrastructure designed to understand the customer's specific needs," he says. "And we're way ahead on that." Frias has the gregarious demeanor of a born salesman and is a proven manager as well, with deep experience in the grocery business. And he's used to marketing to disparate clienteles. Born in Spain, he moved to Washington as a teenager. He got his first job as a bagger at Safeway in 1967 and eventually rose to the position of country-operations manager, a job that sent him to the Middle East in 1984 to open and manage Safeway's stores in Jordan and Saudi Arabia. Eight years later, he returned to the U.S. to open his own supermarket franchises in Oregon and Washington State. He was recruited by Gigante in 1994 to run the company's operations on the Mexican Baja California peninsula, which include licensed RadioShack and Office Depot stores. "The name recognition of Gigante was just awesome," Frias says. "But many of the middle-and low-income Mexicans who shopped at our stores were crossing the border into the U.S. and staying there." In 1998 Gigante asked Frias to devise a U.S. strategy.

Gigante's presence in Mexico gives it instant credibility with Latinos. Frias says when the company first surveyed potential customers in California, 70% recognized the Gigante name. Besides a wider and more authentic selection of Mexican products, Gigante also boasts prices that are on average 15% lower than those at traditional supermarkets. Gigante can afford to charge less, thanks in part to lower labor costs. Under its union contract signed last year, check-out clerks make $10.29 an hour, compared with $17.90 at major California chains; Gigante's meatcutters make $7 an hour less than their counterparts at other union markets. These concessions from the United Food and Commercial Workers--with 165,000 members, the largest private union in California--were intended to help Gigante gain a foothold but are sure to be temporary, the union says.

Some of Gigante's behind-the-scenes workers (in the stockroom, on the loading dock) have only very basic skills in English, meaning they would be unemployable at the big chains. And working at Gigante affords them union protection and health benefits not available at most California Latino markets.

Gigante's ethnic flavor isn't welcomed by all. Last year the Anaheim planning commission tried to block a store proposed for the site of an abandoned shopping mall, in part because it would cater, as the head of the agency put it, "primarily to the Hispanic market." And what, you might wonder, is wrong with that? Non-Hispanic whites make up just 36% of the city's population, down from 56% in 1990, while the Latino share of residents has risen from 31% in 1990 to 47% today. But many of the Latinos can't or don't vote, and the city government is still made up almost entirely of Anglos. And, as Frias explains, "a lot of people still have a perception of Gigante as a little, dirty mom-and-pop Mexican market." After a fierce dispute between Gigante and Anaheim officials, the city council reversed the planning commission's ruling, and the Anaheim store is set to open in May.

Gigante's move into Anaheim was no fluke. While the company continues to open stores in heavily Latino areas, it believes that as Latinos move out of the barrio, the biggest growth potential will be in fifty-fifty suburbs--middle-class areas divided almost equally between Latinos and others. (Think of the rapidly growing Riverside and San Bernardino counties farther east of L.A.) Thirty percent of the customers at the Santa Fe Springs Gigante are non-Latino, and the hope is that diverse offerings and clean, wide-aisle comfort will bring that number up. Gigante also plans moves into Northern California, Nevada and Arizona, first in Latino areas and then elsewhere.

Meanwhile, Gigante's U.S. stores will keep giving plenty of shelf space to popular Mexican brands like Gamesa cookies and will stack them right alongside American standbys like Oreos. As Frias, striding down a Gigante beverage aisle, puts it, "Our clientele drinks Jarritos soda but also buys Frappuccinos. We're about giving people a little bit of both."