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The Big Supermarket Squeeze

CONSUMERS

Specialty stores and discounters pressure the chains, which have lost touch with shoppers.

March 07, 2004|Joel Kotkin | Joel Kotkin, a contributing editor to Opinion, is a senior fellow at the Davenport Institute for Public Policy at Pepperdine University. He is finishing a history of cities for Modern Library.

The supermarket strike was widely portrayed in local media and among politicians and analysts as a battle between corporate greed and workers' needs, with the giant market chains cast in the role of economic villain. But in reality, market-chain power was far weaker than ballyhooed and probably will not grow after the strike. The best evidence of this was the remarkable ease with which most Southern Californians managed the strike. Unwilling to shop at the picketed big three supermarkets, shoppers turned to specialty stores, natural-food outlets, ethnic markets, high-end emporiums, even farmers' markets. All these venues were rapidly expanding throughout the Southland long before the strike, and there's little reason to believe they will stop growing even with the big chains back in full operation.

One distinguishing element of the new supermarket reality is its demographic mix. Latinos now represent about one in three households in the region and in Los Angeles County. Foreign-born, including many Asian and Near Eastern immigrants, make up close to 40% of the population. They and their children account for more than 90% of net population growth statewide during the 1990s.

As did earlier immigrants, these newcomers don't eat the same foods or buy in the same ways as later generations of Americans. The range of products available to consumers has correspondingly expanded. We consume more fresh pita and tortillas than Wonder Bread, and locally made salsas rival ketchup as a favorite condiment.

The large markets have failed to capture much of this burgeoning and diversifying demand, says marketing consultant Jose de Jesus Legaspi, because they have been reluctant to change their mass-marketing formulas. The giant chains, he says, have focused on price competition rather than on satisfying new consumer tastes.

"They are trying to compete with Wal-Mart on price, which is playing their game," Legaspi says. "The real advantage is to offer something unique and special. If you know how to differentiate yourself, you can survive."

The chains' desire to battle the likes of Wal-Mart led them to consolidate, which has served to weaken them. In buying each other out, the mainstream markets frequently sold their stores, particularly in inner-city areas, to vendors catering to Latinos. Areas of East Los Angeles, Commerce and the Northeast San Fernando Valley were handed over to competitors better suited to appeal to new customers. Where a Vons, Lucky or Albertsons once stood, there are now Vallarta, Superior Super Warehouse and El Super stores.

These grocers, including a large number of local specialty food-processing companies, have been among the big winners over the last few years. Some ethnic markets, including Vallarta Supermarkets and Gigante, a Mexico-based giant with eight stores in California and plans to add more than 40, have thrived by appealing to Latinos. 99 Ranch Markets, the largest of the roughly 1,000 Asian-owned grocers in California, cater mostly to Asians. Still others concentrate on the large Iranian, Israeli and other ethnic populations. These markets have sprung up not only in inner-city L.A. but also in the San Fernando and San Gabriel valleys and Orange, San Diego, Riverside and San Bernardino counties.

One critical difference in consumer tastes, according to recent studies by New American Dimensions, an L.A.-based market-research firm, is immigrant shopping patterns. Since they cook more at home, Latino immigrants tend to shop more than twice as often as Anglos and spend more on each market trip. They usually prefer fresher, riper produce and meats -- and buy fewer frozen and prepackaged foods. Marketing consultant Legaspi says these stores also provide consumers with extras like fresh-baked goods, delis and meats often unavailable in mainstream markets.

It's not just immigrants who are changing. The shopping behavior of the mainstream population in Southern California is changing too. More and more Anglos know how to cook Chinese, Mexican and other ethnic cuisines. Orange County-based 99 Ranch Market, founded in 1984 and now 23 stores strong, increasingly competes in highly diverse communities such as suburban San Diego and the San Fernando Valley, where upward of 30% of its customers are non-Asian. Vallarta Supermarkets, adds Legaspi, are enjoying similar success with non-Latinos.

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