ETHNIC SOURCING

Christina Veiders

Last summer Don Fisher, director of purchasing for Tresierras Supermarkets, San Fernando, Calif., went on a buying trip to El Salvador.

There, he met with government officials, attended an expo and toured local markets to find out what was selling there that wasn't available through regular distribution channels in the United States.

Fisher, who has spent the last 20 years purchasing ethnic products, demonstrates what it takes for food retailers really committed to selling ethnic foods, whether it be to Hispanic, Asian, Italian, Polish or any large immigrant-based population. He has spent the last four years buying for Tresierras Bros., which operates five Hispanic stores in the San Fernando Valley.

Ethnic food sales are expected to increase by about 50% by 2010, growing from $50 billion to over $75 billion, according to statistics published by Tree of Life, a natural and specialty food marketer, St. Augustine, Fla.

An increase in immigration, particularly among Italian, Hispanic and Asian groups, is one reason for the growing demand for ethnic foods that are now being merchandised through mainstream food retailers. Population projections indicate that by 2020, 16% of the U.S. population will be Hispanic, and that by 2010, the Asian population will reach 17.1 million, an estimated 52.6% increase over 2000, according to Tree of Life.

While the demand for authentic foods exists among various ethnic segments, these foods also are tantalizing the tastes and spurring curiosity among non-ethnic food shoppers who are well traveled and interested in international cuisines.

Ethnic food sales offer supermarkets an opportunity to capture market share and grow new sales. The question for the big chains is how best to develop these niches and weigh the demand against the product offering and the costs of procurement.

Retailers like H.E. Butt Grocery Co., Minyard's Carnival Stores, Fiesta Mart, Gigante and Albertsons' Super Saver stores have targeted the Hispanic segment, which is the fastest growing minority, representing 13% of the population and close to $600 billion in annual purchasing power.

Those retailers who are successful in cultivating the Hispanic market discover broad diversity within the Latin population. Within this diversity exist distinct taste differences, cultural affiliations and brand-name recognition.

Retailers must really know what their customers want before they can be effective in sourcing, merchandising and selling ethnic products, especially to Latin-oriented neighborhoods, said retailers.

However, this is a challenge not easily overcome given the diversity within the population and sourcing the right products that have name recognition, are fresh, and can be sold at the right price.

"We all think Latin Americans eat hot sauce, tortillas, rice and beans," said Fisher. "That is not the case."

On his Latin American sourcing trips, Fisher found that Salvadorans don't eat tortillas. Brazilians don't eat what U.S. citizens consider to be Mexican foods. Mexican brands are more regional than national. And rice and beans are different in various South American countries.

One way that Tresierras is growing is by fine-tuning its product mix and increasing its variety of authentic products. It is working with Mexican manufacturers to place line extensions of brands recognizable to Hispanics that can be sold at the right price, said Fisher, who serves on the Hispanic committee of Unified Western Grocers, Commerce, Calif. The committee was formed to help retailers better source ethnic products.

Since it was formed, "we've been able to get a lot better pricing and variety in the marketplace," said Fisher. Retailers hand Unified a list of products they'd like to obtain at a price that will make it viable at retail.

Not only does diversity rule among the general Latin population, but it is a factor from one area of the United States to another. "Latinos in Texas eat different than those in Southern California," Fisher noted.

Hispanics in Chicago

At the end of this month, Minneapolis-based Nash Finch will debut its Avanza Hispanic format in Cook County (South Chicago), and a second Chicago Avanza will open in the same area later in the fall. The stores will range in size from 35,000 to 40,000 square feet.

Defining the customer is very important, said Christopher Brown, Nash Finch's executive vice president of merchandising. There are currently three Avanza stores in Denver and one unit in Pueblo, Colo.

"You can't assume what the first- and second-generation Hispanic customers want in Denver is exactly what they will want in Chicago. It might be the difference between the No. 1 and No. 3 brand," said Brown.

Avanza's customers are first- and second-generation Mexican Americans. While this group is strongly dominant in these Chicago neighborhoods, there are different levels of acculturation and more of a mix of African Americans, said Brown. In sourcing Hispanic products, Nash Finch takes into consideration the cultural differences and demand for various brands in the local market.

Of the 3,200 authentic Hispanic food items sold by Avanza stores, roughly half go through Nash Finch's distribution centers or are sourced through a cross-dock arrangement with Gourmet Award Foods, a division of Tree of Life.

The other half of the products are procured through a DSD network. Nash Finch's Cedar Rapids DC in Iowa has been set up to service some of the items going to the Chicago stores.

Brown expects more items will eventually go through Nash Finch DCs once volume grows through the Avanza units, other corporate stores and its network of independent retailers. Nash Finch's strategy to capitalize on the Hispanic opportunity is not only through its Avanza stores but it is also driving volume through its Avanza private label. Brown said he believes it's the only authentic private-label line created for the Hispanic market.

There are 150 items in the line. With distribution to Nash Finch corporate stores and independents like Piggly Wiggly in North Carolina, the line will grow quickly, said Brown. He expects Avanza to soon become a line of 200 or more items.

Besides the Avanza label, the Hispanic stores also merchandise Nash Finch's Our Family and Value Choice private-label lines. Of total purchases in the Avanza stores, private label is running between 7% to 9% greater than at conventional stores, said Brown. "This indicates consumers are looking for value and quality purchases," he noted.

When compared to national brands, the benefits of the Avanza line are even greater, he added, "because now you are comparing it to what is traditionally specialty foods, which in turn can give you a tremendous cost advantage and gross profit opportunity."

Over the last year, Nash Finch has launched a program for its independents to educate them on the Avanza label and help them identify Hispanic consumers within their geographic regions. Whatever products are available in Avanza stores are also available to the independents.

Fisher and Brown agreed that there are a lot of very good Hispanic products available through smaller Hispanic vendors, but communication and pricing can be obstacles to procurement.

"They really don't understand the U.S. market and how it works," said Fisher about his negotiations with South American suppliers. "They want to get what they want out of it and not what the going price is. For example, for a $10 case [of canned nectars from South America], I can buy similar product here for $7 to $9 a case, delivered to my door."

Brown noted the smaller Hispanic vendors lack the communications, technology and cost logistics in distributing products through a streamlined process.

From a pricing prospective, Brown said, "Traditionally, they have great products produced in Mexico. It goes to the logistics arm in getting products over the border, and it costs them 8% to 10%, and then they have to get it through the DSD network -- and that could cost them between 15% to 30%. We want to go down and buy in bulk -- pick it up and ship it in. We are talking about picking it up at their dock to eliminate two stages."

The goal in product procurement is to win the loyalty of Hispanic shoppers with products they recognize from their homelands and to sell it at the right price. "If you aren't sourcing properly through these channels with product integrity [freshness and quality] and maintaining an in-store presence to the consumers, then you risk creating a ton of shrink for your operation," Brown said. "More importantly, you're going to turn off the consumer."

GOING DIRECT

Sourcing foods directly from South American countries is not for the faint of heart.

Both Nash Finch, Minneapolis, Minn., and Tresierras Supermarkets, San Fernando, Calif. -- two very different-sized companies -- have looked into sourcing products directly from Latin America, and have participated in trading missions.

"The distribution [of products popular in Mexico] is very inefficient," Ron Marshall, chief executive officer, Nash Finch, told SN. "We have a laundry list of products we'd love to have. Unfortunately, whenever we find those products, they don't have distribution and are expensive to get."

Don Fisher, director of purchasing, Tresierras Supermarkets, said it's important to have brands that Hispanics are familiar with. However, some of these specialty products are only available in South America.

Fisher said the company looked seriously at importing high-quality nectars, but the purchase price was 30% per case more than similar product available in the United States. That was even before all the costs of importing and shipping were tacked on.

Among the challenges are negotiating the right price, understanding the importing and shipping process, making sure the products meet FDA standards and are properly labeled and have UPC codes.

Fisher has opted to go through an importer or regular distribution channels to procure specialty items.

Nash Finch is closely looking at opportunities in direct sourcing, and has been in talks with packaged goods manufacturers, food processors and government agencies in Mexico, said Marshall.