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Retailers across America are pondering how best to serve Hispanic shoppers. By now they are well versed on the purchasing power of this burgeoning ethnic group, and many are convinced of the importance of winning its loyalty sooner rather than later. But the challenge is determining what strategy is right for them.
The status quo has been to offer "ethnic" aisles stocked with tortillas, beans, and plenty of rice in the stores where Hispanics might be shopping. Operators upping the ante are taking a full-store approach by including more authentic Hispanic offerings in the perimeter, moving more ethnic items to category sets, and perhaps testing bilingual signage. Finally, a much smaller subset of retailers are going all out, by opening full-blown Hispanic formats such as Publix Sabor, which is profiled in the following pages as Progressive Grocer's Store of the Month.
Each of these tactics has met with some degree of success, but also various degrees of failure. What's a conscientious retailer to do? There's no one right answer. Those strategists most fully committed to Hispanic retailing agree that what's right for one market might not be right for another. One key, they say, is to find the right balance between the ever-rising amount of overall intelligence on the ethnic market at large and a much narrower and more intimate knowledge of the characteristics of each Latino community they serve.
That's not an easy task, even for those that have so far been successful, because Hispanics are hardly a one-size-fits-all group, the experts emphasize. Still, a set of best practices is emerging from the mosaic of the many Hispanic subgroups, along with retailers' strategies for serving them. Those retailers that can translate these best practices into a formula that works, both for their stores and their Latino shoppers, will earn the right to be called el super.
"We're adapting to the neighborhoods we live in and operate in," notes Poul Heilmann, s.v.p. of strategy and marketing at Minyard Food Stores, Inc. The Coppell, Texas-based chain is well on its way to making Hispanic merchandising its primary focus: By the time it executes a plan to convert 11 Minyard and Sack 'n Save stores to Latino-oriented Carnival stores, Minyard will have made Carnival its main banner.
"We did a very in-depth geo-demographic and customer survey data study," explains Heilmann. "What netted out was the realization that a great majority of our stores are in heavily Hispanic areas." Indeed, many of Minyard's markets already serve customer bases that are 30 percent to 70 percent Hispanic.
Miguel Alarcon, director of operations for Carson, Calif.-based K-V Mart, can recite off the top of his head the demographic makeup of each of the neighborhoods his chain's 23 stores serve. Because of the increasing presence of Hispanics in many of these areas, the retailer is tailoring its assortment in existing departments, as well as adding new Latino-focused perimeter departments to several stores.
Meanwhile ethnic merchandising veteran H.E. Butt Grocery Co., hailing from San Antonio, Texas and operating stores inside Mexico, is drilling ever deeper into its pool of market research to learn more about the many acculturation levels of Latino shoppers, and adjusting company strategies accordingly.
At the same time supermarket operators are probing for ways to capture more of the Hispanic grocery dollar, suppliers and specialty distributors, including Tree of Life, Inc., are beefing up their product lines, as well as their services to help supermarkets learn more about how to respond to the segment.
Among the common themes is a committed approach, from headquarters to the trenches. Beyond seeing immediate dollar signs, these operators recognize the longer-term value in building relationships with Hispanics, and are making larger investments in labor, research, and real estate.
Additionally, they know that while low prices are attractive to budget-conscious Hispanic families, these shoppers also typically appreciate a squeaky-clean store, a festive and comfortable shopping environment, and a stellar fresh selection.
In the pages that follow, Progressive Grocer aggregates the best practices of some of the leaders in Hispanic retailing. These strategies can help any retailer that wants to take Latino -- or, indeed, all ethnic consumers -- more seriously.
1) Know your shoppers. It's a retail rule heard so often that it's commonly taken for granted. Yet nowhere does it apply more than in ethnic marketing, say the experts. It requires going beyond hunch and intuition.
"We spent the better part of six months learning who our customers are," says Minyard's Heilmann, who joined the regional chain in March. "We felt like we basically knew, but we wanted to make sure the data behind it came up the same as what our feelings were. After our studies, we know for a fact." In addition to employing an outside company to conduct demographic research and survey work, Minyard's management traveled to Phoenix, Los Angeles, Houston, and Guadalajara, Mexico to review how other Hispanic-oriented chains were approaching product assortment, layout, and marketing.
The chain didn't stop there, however. While most of Minyard's shoppers are of Mexican origin, there are also Central Americans and South Americans in its territory, as well as African-Americans, Anglos, and Eastern Europeans, among others, to consider. "Each store is unique in terms of population," notes Heilmann.
Even within a given Hispanic subgroup, there are points of differentiation, notes Andy Vigil, Minyard's v.p. of Hispanic merchandising and marketing. "Southern Mexico has spicier cuisine, for example," he offers.
Neil Stern, a partner with Chicago-based McMillan/Doolittle, says that adopting such an open and flexible approach is essential. "One size doesn't fit all," Stern says. "There are dozens of nationalities and product differences to reflect that. Getting the right product mix requires listening to customers at store level." The job is especially tough for chains that are geared toward centralized buying, which is why some earlier attempts at ethnic merchandising have fallen short, he observes.
Tree of Life employs smart assortment services and a data-driven approach to delivering optimum neighborhood marketing solutions in its work with retailers, notes Praful Mehta, national multicultural category director for the St. Augustine, Fla.-based distributor. "We use internal sales data, store format, and demographics, including acculturation level. Then we suggest varied sections or assortments within the Hispanic category."
The shopper base is a moving target, too, as HEB has learned by serving Hispanic shoppers for a century, by virtue of its proximity to the southern border. "It has been a plus for us in terms of Hispanic marketing," acknowledges Kate Rogers, the chain's director of public affairs.
HEB today operates more than 300 stores, including some in Mexico. Yet despite its years of on-the-job learning, the company recently hired a new Hispanic marketing firm, Dieste Harmel & Partners, based in Dallas, to help it extensively research its shoppers' current acculturation levels.
"You really have to understand, almost neighborhood by neighborhood, where people come from and how they like to shop," says Rogers. "We don't have a cookie-cutter model in terms of new store development. Each store is built in a custom way that responds to the individual needs of the neighborhood -- everything from paint colors to what's stocked on shelves. If you launch a particular line of products or design one format for Hispanics, it oversimplifies what's a much more complex opportunity."
Likewise, Minyard is acutely aware of the importance of acculturation and its impact on product mix. "Something that doesn't change is that they still want traditional items," says Heilmann. "But once people get more acculturated, they might be more apt to try something new, like rib eye meats."
McMillan/Doolittle's Stern has seen firsthand the moving needle of acculturation catch one supermarket operator off guard. He was involved in Arcadia, Calif.-based Vons' experiment in Hispanic retailing in the '80's, Tianguis, which ultimately failed.
"It was one of the first Hispanic supermarkets operated by a mainstream chain," he recalls. "We were targeting the first-generation Hispanic in southern California. But we faced the acculturation issue. The classic example I like to give is that when you got to the meat department, there were cows' heads in the meat case. When we were doing research in Mexico City, we saw these in marketplaces. But we got Anglo shoppers in the store who were turned off. And we found that the third-generation Hispanics wanted pizza shops, tacos, more 'Anglicized' food."
In other words, retailers not only have to determine which consumer segments they want to target, but also which they might be excluding. Says Stern, "Some of the best examples [of Hispanic retailing] out there are from companies that are able to integrate Hispanic merchandising and signage into their stores without, in turn, alienating traditional customers." He cites HEB and Fiesta Mart, Inc. of Houston, both of which thrive as multiethnic retailers because of their knowledge of, and rapport with, their customer bases.
2) Speak the language, through bilingual signage, bilingual associates, and more. "One of our greatest strengths is our employees, because they tend to reflect the population surrounding our stores," says HEB's Rogers. "There's a comfort for shoppers in seeing associates who look like them and can communicate with them."
K-V Mart's Alarcon notes that his chain's diverse store management, which is about 60 percent Hispanic, helps the retailer relate to customers' needs.
Bilingual associates are especially in demand at the meat and pharmacy counters, says Tree of Life's Mehta, who formerly managed ethnic and specialty at Stop & Shop/Giant of Landover, and ethnic/supplier diversity at Giant Food Stores of Carlisle, Pa., all divisions of Ahold.
In addition to bilingual employees, signage in Spanish is a must. "You have to have bilingual signage," confirms Minyard's Vigil. "A lot of our customers can't speak English. If you don't offer their language, it will create a big problem." Minyard has committed to having bilingual signage in all of its Carnival stores within the next six months. Another reason to do it, adds Heilmann, is that "in our focus groups, we learned that some Hispanics use the bilingual signage to help themselves learn English."
HEB's Rogers emphasizes what might seem obvious, but in practice is often overlooked: "In terms of signage, you must make sure you have accuracy in translation. You really want to communicate with your customers in a way that's relevant to them."
Mehta notes that translation extends to measurements typically used in the supermarket. "[In the United States] we measure everything by pounds. The rest of the world buys produce by dozen, or by individual item," he explains. "There are a lot of situations where the shopper may be confused, and if the retailer has no expertise, he won't know how to explain it. I'm not saying we shouldn't measure food in pounds, but retailers should be sensitive to this."
In-store product sampling and cooking demos are an effective way to communicate with Hispanic shoppers, he adds. "They might not understand the packaging, since most of it is in English. But once they see a product demoed, they may try it and realize they can use it. The same goes for demonstrating Spanish products for Anglo shoppers who are interested in cooking Hispanic foods."
3) Make a total commitment, at the store and also in the corporate suite. Now that the density of Hispanic shoppers in Minyard's trading area has reached critical mass, the retailer has decided to integrate Hispanic items into all sets in all departments at Carnival.
"We won't have a Hispanic aisle—it will be a Hispanic store," explains Vigil.
Other retailers are also better tailoring their storewide assortments, according to McMillan/Doolittle's Stern. "We're seeing major product differences in not only the grocery aisles, but also the produce department, bakery, meat and seafood, and HBC products. The idea of an ethnic section suggests that the product doesn't exist elsewhere."
HEB has long been providing storewide ethnic assortments in many stores, according to Rogers, and its buying is structured accordingly. "We have a number of buyers across the company. We work with Mexican suppliers on both fresh and packaged to provide everything from tropical fruits and root vegetables to fully cooked lines, such as tamales and fajitas."
Beyond the commitment to storewide merchandising, however, retailers must first be committed at corporate level, emphasizes Heilmann. "Having total organizational commitment is definitely important -- from the top all the way down. These focus efforts fall apart often because you don't have that total commitment," he notes.
4) Do fresh very well. "Another of our strengths is the quality of our product," says HEB's Rogers. "If you shop supermarkets in Mexico, you'll see that fresh produce is so plentiful and fresh. This is an area that HEB excels at."
HEB has had success with tortillarias, or tortilla shops, scratch bakeries, and aguas frescas, or fresh juice stations, in certain locations. "We also try to feature more traditional types of Hispanic pastries and other specialty items," notes Rogers. "From deli to bakery, we look at every department."
Other retailers are following HEB's example by making their perimeter departments more ethnically authentic -- almost akin to the local mom-and-pop specialty shops, including carnicerias (butcher shops) and bakeries, with which they compete.
K-V Mart, which is a member of Unified Western Grocers and operates two banners—the conventional Top Valu and a discount warehouse operation called Valu Plus Food Warehouse—is currently planning seven store remodels, some of which will include new service meat and service deli sections, as well as several tortillarias. The retailer also features many staple grocery items in both Hispanic sets and regular product sets.
As Minyard gears up to open more of its Carnival stores, the retailer plans to beef up its perishables expertise, according to Heilmann, by adding a larger number of authentic meat, seafood, and produce selections. "A lot of retailers see these as specialty items, but for [Carnival] they're commodities," he adds.
Notes Vigil: "We'll have products directly out of Mexico. For example, for bakery items, we'll use frozen dough manufactured in Mexico, and then bake the items in our store."
5) Operate a spotlessly clean shop. "A lot of retailers don't think it's important, but Hispanics want a clean store," says Vigil.
"Hispanics are very much foodies," concurs Heilmann. "They do a lot more cooking. So the quality and cleanliness have to be there."
6) Keep the prices sharply competitive. "Price is absolutely important," maintains Minyard's Heilmann. "That's why we're trying to buy directly from manufacturers whenever we can. But it's price and quality at the same time," he emphasizes.
Minyard offers everyday low pricing, which Vigil says best serves Hispanic shoppers. "The resounding message is that they don't like loyalty card programs," he adds.
Like Minyard, HEB is an EDLP retailer. "Commitment to low prices is a big part of HEB. Consumers know when they shop here, they're getting a big value for their family," says Rogers.
Value is a prime focus for K-V Mart, as well. "We're operating in a very competitive market," notes Alarcon. "We're going to go to market with pricing, as well as service departments."
McMillan/Doolittle's Stern points to Kroger's Food 4 Less, which is using price to strategically target Hispanics. "The main message there is price, but the secondary message is merchandising assortments and tailoring by neighborhood," he observes.
Retailers say private label lines are another great formula for reaching budget-conscious Latinos. Both HEB and Publix have added Hispanic products to their private label offerings, but have chosen to go with the store brand, as opposed to a distinct Hispanic label.
"One of our greatest strengths is that our Hispanic customers know us," explains HEB's Rogers. "We don't have to use a different name. We just came out with several new produce items that are often used in Hispanic-style cooking, including avocado and roots vegetables. They're packaged under the HEB label."
The bonus is that while many of these items are geared toward Hispanics, they're also finding popularity among Anglos.
7) Make the shopping fun. "HEB stores tend to be very festive places," notes Rogers. "We create a family atmosphere and have a lot of activity going on. It's a comfortable atmosphere for Hispanics to shop in." That ambiance begins before customers even enter the building, as HEB often sets up events outdoors. Inside the store, decor, music, and merchandising reflect the surrounding communities.
K-V Mart features Hispanic music in some of its stores, too, says Alarcon. "In a handful of stores, we play full-blown Hispanic music. I'd say 90 percent of the time we receive compliments."
8) Show community commitment. Hispanics, in common with other ethnic groups, tend to respect and appreciate businesses that given back to the communities in which they operate, say marketing experts.
"HEB has always had a big commitment to the community," says Rogers. "We give back 5 percent of our before-tax gross earnings to the community. A lot of those contributions are made to things that customers care about, including things many Hispanics care about."
9) Provide the right services. In the summer of 2004, Minyard began testing a "bazaar" concept, leasing out a vacant store to various vendors who created, in essence, a mini mall offering everything from shoes, belts, cosmetics, and clothing to hair salons and video game emporiums.
Now the retailer is adapting the concept to many Carnival locations -- both inside and outside -- to enhance its services for Hispanics. "In some of our stores, we have many different vendors selling everything from CDs to furniture," says Heilmann. Some are very specific to the market: For example, FAMSA, a large furniture retailer based in Mexico, has kiosks in some Carnivals.
Money transfers are another important service to Hispanic shoppers who have family back home, adds Heilmann.
K-V Mart has also become heavily involved in offering money transfers to Mexico, says Alarcon.
10) Celebrate holidays. Cinco de Mayo is traditionally used to promote Tex-Mex foods in the United States, but Tree of Life's Mehta thinks grocers can go much further to address the Hispanic heritage of their shoppers. Hispanic Heritage Month, which runs from Sept. 15 through Oct. 15, is a great place to start, he notes: "Use the month to differentiate between every week."
The moving ethnic tide
As ethnic sections give way to storewide merchandising, and more consumers become interested in ethnic foods, the industry will have to take its vision to the next level. "The next decade will bring some challenging times for vendors, distributors, and retailers," predicts Mehta.
For retailers, a big part of that vision will entail balancing who their stores will -- and won't -- serve. While immigration rates will likely remain high, ensuring a steady taste for native cuisines, second- and third-generation consumers from Hispanic and other ethnic origins will have bigger disposable incomes and less time for cooking, thus driving current Anglo food trends.
With ethnic retailing, as is often the case in the supermarket industry, the majority of retailers will choose to follow rather than lead. But those who get a jump now on learning about Hispanic shoppers -- and, more important, the Hispanic shoppers in the neighborhoods where the retailers operate -- will already be a step ahead.