GROCERS SUPPLY TO ACQUIRE FIESTA MART; EXPANSION SEEN

JON SPRINGER

HOUSTON -- Grocers Supply here last week said it would purchase its largest retail customer, Fiesta Mart, in a move observers said would retain business for the distributor while positioning Fiesta Mart for further expansion throughout Texas.

Terms of the acquisition, which requires approval from Fiesta shareholders, were not disclosed. Grocers Supply is the nation's 13th largest grocery wholesaler with 2003 sales estimated at $1.5 billion, according to SN's Top 75. Houston-based Fiesta Mart, which operates 50 stores in Houston, Dallas and Waco, had 2003 sales estimated at $1.1 billion. Both companies are privately held; Fiesta is owned in part by its employees.

"Fiesta management will remain in place, and there will be no change in the present operation and business philosophy," Grocers Supply said in a statement.

Larry Lueckemeyer, Houston market manager for food brokerage Crossmark, told SN he felt the move was "very positive" for both entities in that it secures a major customer of the distributor while providing financial backing and market expertise that could allow Fiesta to expand.

"It shows Grocers' commitment to the market and to the customers they supply," he said. "Grocers is literally all over Texas, and if you look at South Texas and El Paso, those are markets where the Fiesta format would work very well. Fiesta has a strong company backing them now, so I think expansion could be on the map."

David Hoffman, senior vice president of sales and marketing for Grocers Supply, told SN last week there were "no immediate plans" for Fiesta to expand.

Fiesta Mart has not opened any new stores this year. It began expansion into the Dallas-Fort Worth area in the mid-1990s and has expanded there through the acquisition of four former Winn-Dixie stores in 2002 and through new-store construction.

"There are still areas of Houston where they could use their format successfully, and I'm sure there are many in Dallas too," said Lueckemeyer.

Fiesta Mart was founded in 1972 as a single store serving neighborhood Hispanics. Though it is still best known for expansive assortments of Latin American perishables and Hispanic marketing, certain stores also feature displays appealing to Asians, Pakistanis or African Americans, depending on the local trade area. Fiesta calls itself "The International Store."

A poll conducted last year by International Demographics, Houston, showed Fiesta Mart was by far Houston's most popular store among Hispanic adults, despite being fifth in market share overall.

Fiesta Mart has also been under siege from H.E. Butt Grocery Co., the San Antonio-based supermarket that also has strong appeal to Hispanics, as well as Bentonville, Ark.-based Wal-Mart Stores, which operates Supercenters and Neighborhood Markets and has grown into the area's No. 2 grocer, observers said.

"The challenge for Fiesta is two large competitors that are a lot more aggressive in Houston than they were four years ago," Lueckemeyer said. "During that time, Fiesta's lost market share here. Randalls' business is off also."

Though analysts have speculated in the past that Fiesta may have been an attractive acquisition target for another food retailer, it was unclear whether Fiesta was actively seeking a buyer or Grocers Supply acted to protect its customer from another wholesaler.

Grocers Supply was founded in 1923 in Houston by Joe Levit, a former grocer. His son, Max Levit, is chief executive officer of the company and ran it along with his brother, Milton, who died in June.

The wholesaler supplies more than 700 supermarkets and 1,200 convenience stores in Texas and Louisiana. It picked up about 100 new accounts during the breakup of Fleming Cos., Dallas, last year.