Like most of America, Southern California is seeing some modest economic improvement. However, the state still has a long way to go before real change is felt. The state’s unemployment rate of 8.3 percent remains well above the national 6.7 percent average, and economists at California State University, Fullerton, call the economic recovery “sluggish” when compared to previous U.S. economic recoveries.
“To be sure, our outlook does not call for a return to the ‘old normal’—a post-recession, above-trend growth of 4-5 percent,” according to a report released by the economists late last year. “Rather, the gradual but continued improvements should deliver growth that is a little less ‘abnormal’ than what we have seen up to now.”
Signs of the lingering recession across the lower portion of The Golden State is perhaps nowhere more evident than in the retail sector, where consumers’ demand for low prices has resulted in an uptick in growth and expansion plans for dollar stores and discount retailers like City of Commerce-based 99 Cents Only Stores, as well as Aldi.
Aldi, for example, has begun its push into the West. The Illinois-based grocer, which currently has nearly 1,300 stores in 32 states primarily from Kansas to the East Coast, late last year announced an accelerated growth strategy to operate nearly 2,000 U.S. stores by 2018. The strategy includes entry into California, with plans to build its regional headquarters and distribution center in Moreno Valley.
That’s in San Bernardino-based Stater Bros. Markets’ backyard. Competition is nothing new to the 167-store chain, though. Stater Bros. President and COO Pete Van Helden stresses that SoCal has always provided a competitive environment.
“…We continue to see a shift in new competition more toward low price, big box, dollar stores, kind of that assortment, so it’s a change in this market,” he tells The Shelby Report. “We continually have to assess—how do we make sure we keep our customers happy so that when those options become available to them, they choose to stay with us? That’s how we think about it. We put a lot of effort into making sure that we’re exceeding the expectations of our customers really on the important levels of pricing, store cleanliness, service; all of those things are important to us because that’s what’s important to our customers.
“…We understand the impacts (the economic climate has) on our customer, whether it’s because of unemployment or just the increasing costs of living here,” Van Helden adds. “I can tell you that between taxes and utilities and all those things, we continue to see increases for us and also for our customers. We know that their disposable income is stressed, so we know that we have to do all that we can to keep our prices sharp to earn their business.”
Stater Bros. opened a replacement store in Redlands in late September and opened a new store in Moreno Valley in November. The company also has a store under construction in Riverside. It’s expected to open later this year.
“It’s another store where we replace a smaller store with a more conventional size store,” Van Helden says. “That’ll be a really nice opportunity for us, so we’ve got some new activity going on.”
Latino market continues to grow, Millennial cohort dominates shopper space
Hispanic grocers and those stores that cater to the Latino population have long been a powerful force in Southern California. Their market share is likely to continue to increase as the Latino shopper shapes the retail landscape.
Latino Millennials, specifically, is the cohort to watch, according to Subriana Pierce, managing partner of Navigator Sales and Marketing, a niche consulting and brokering organization that provides client solutions for navigating the food industry. She tells The Shelby Report that Millennials, and in particular Latino Millennials, will change the way brands and retailers across the board go to market.
Pierce points out that Millennials are the most ethnically and racially diverse group of youth in the nation’s history.
“We have to be prepared to market to this important cohort,” she says. “You can’t plan a multicultural program without thinking of the importance of the Millennial. U.S.-born Millennial Latinos are driving the Hispanic growth trends in the U.S. as they will represent 80 percent of the 18- to 29-year-old U.S. population growth by 2015.”
Additionally, the majority of the U.S. Latino population remains young, with more than 60 percent of the population under age 35 and 75 percent under age 45.
In California, 51 percent of children under 18 are Latino, says Pierce, citing the 2010 U.S. Census.
She reveals that Millennials have a different focus than their Baby Boomer parents.
“They want to stand out and be noticed,” she says. “They want to do good in the world. They want to get ahead while embracing a working-class moral compass. They are becoming more educated and affluent. Latino college enrollment grew 20 percent in 2011. Latinos are the most influential segment since the Baby Boomers and will drive shifts in category consumption and brand relationships.
“….We have to make sure as brands and retailers that we are listening and responding to the needs of this cohort,” she adds.
Activity up among Latino grocers in SoCal
Few would argue that the Latino grocery segment in Southern California is bustling with activity.
Cardenas Markets and Northgate Gonzales Markets have come together to purchase Pro’s Ranch Markets, the 11-store, Latino-focused chain headquartered in Ontario with stores in Arizona, Texas and Mexico. Pro’s Ranch filed Chapter 11 bankruptcy in mid-2013. Pro’s Ranch executives asked a bankruptcy judge late last year to approve a $53.6 million offer from the Cardenas Northgate Group.
Cardenas, also based in Ontario, operates more than two dozen stores; Anaheim-based Northgate has more than 30 stores. Northgate bought two Long Beach stores from K.V. Mart Co.—which operates under the Amar Ranch, Buy Low Market, Top Valu Market and Valu Mart banners—late last year.
Vallarta Supermarkets, with more than 40 stores and corporate offices in Sylmar, also has expansion plans. It is scheduled to open a new store at 17390 Main St. in Hesperia in April.
There may be more movement in the SoCal Latino marketplace in 2014.
San Jose-based Mi Pueblo Foods, which filed Chapter 11 in July, reportedly asked for court permission earlier this year to hire investment banks as it seeks a financial lifeline or possible sale of the company.
Mi Pueblo operates 21 Hispanic-oriented stores in the region. Locally, according to reports, San Jose-based Chavez Supermarkets is Mi Pueblo’s biggest competitor. The family-owned supermarket chain has nine stores in the Bay Area.
Both Pro’s Ranch and Mi Pueblo have reportedly blamed, at least partially, their financial troubles on immigration reforms and audits.
In other industry news…
• Walmart opened two Neighborhood Market stores in North San Diego County on Jan. 29. The Ocean store is located at 1046 Mission Ave. in the Mission Square shopping center. The Escondido store is at 1266 E. Valley Pkwy. near the Ash Street intersection. Combined, the stores employ about 130.
• California could become the first state in the nation to institute a ban on single-use plastic grocery bags under a compromise with business leaders. While numerous cities in the state already have made it illegal for grocery stores to pack consumer purchases in plastic, a proposal—if passed by the legislature and signed by the governor—would make California the first to enact a statewide ban. A proposal for a statewide ban narrowly failed last year, largely because of opposition by lawmakers with plastic bag manufacturers in their districts. Now, instead of simply banning the bags, the state would provide about $2 million in grants to manufacturers who want to retool, either to make paper sacks or reusable plastic ones that customers can buy. The California Grocers Association (CGA) has signed on to the current bill, believing that a single statewide standard would be easier to comply with than a patchwork of rules enacted from city to city. “California’s grocers stand ready to do our part to make California a global leader in the shift away from single-use plastic grocery bags,” CGA President and CEO Ron Fong says. “There is no reason whatsoever now that California cannot finally make this measure a reality.”
• California’s moratorium on issuing new WIC licenses remains in place. The moratorium was issued in 2011. According to CGA SVP Keri Askew-Bailey, the moratorium is having a direct impact on grocery retailers, including one company that has indicated it will not explore expansion opportunities in California because it caters to lower-income households. Another grocery retailer will likely close its doors because it failed to meet the WIC exemption criteria—it moved into a former grocery store location that had been closed for more than six months, according to Askew-Bailey. She says that while it’s generally understood that the problems associated with overcharging were limited to a small minority of vendors and not in traditional grocery stores, the moratorium is imposed on all vendor types. She explains that some grocery stores in low-income areas depend on WIC shoppers to remain viable. “It isn’t necessarily the WIC coupons that are needed, but all the other goods customers purchase when they shop,” she says. “But if they can’t use their WIC vouchers, they won’t shop at a store and develop that customer loyalty. So store viability is impacted.”
Editor’s note: This market profile written by The Shelby Report staff writer Kristen Cloud originally appeared in the March 2014 print edition of The Shelby Report of the West.