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Thursday, Sep 29, 2022

Demographic Trends Drive Specialty Retail and Leasing Activity

Specialty grocers serving the Hispanic community — such as Northgate Gonzalez Markets, Vallarta Supermarkets Inc. and El Super — have played a big role in filling some empty and underutilized retail spaces in San Diego County.

Experts at a recent forum in Carmel Valley, presented by the International Council of Shopping Centers, said demographic trends ensure that those and other growing specialty players will be significant drivers of retail development and leasing activity for the foreseeable future.

“It’s a very competitive marketplace,” said Carl Middleton, vice president of real estate with Anaheim-based Northgate Gonzalez. The grocer recently opened its eighth San Diego County store at Mercado Del Barrio, the newly built mixed-used development in San Diego’s Barrio Logan, master-developed by Shea Properties.

Middleton said the 36,000-square-foot Mercado store has attracted a steady following of shoppers from Barrio Logan and other downtown neighborhoods, as well as nearby Coronado. While many are immigrant families looking for hand-baked tortillas, specially prepared meats and other foods from their native homeland that can’t be found in big-chain supermarkets, there’s also a large contingent of non-Hispanic “foodies” seeking fresh alternatives to restaurant fare.

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According to U.S. census data, San Diego County’s Hispanic population grew 32 percent between 2000 and 2010, to more than 991,000. The growth percentage rate surpassed the county’s overall population increase of 10 percent, and also topped California’s 27.8 percent rise in its Hispanic population.

Growing Consumer Force

Despite a national downward trend in immigration during the past decade, Latino shoppers have continued to grow significantly as a consumer force. The market research firm Packaged Facts projects that Hispanic buying power in the U.S. will reach $1.3 trillion in 2015, a cumulative increase of 25 percent from 2010.

Among other factors, researchers cite rising incomes for Hispanic households, which are more multigenerational and larger in family size than the U.S. average. However, there is wide variance within the demographic, based on age, job status, country of origin and degree of assimilation with the American culture.

In San Diego County and other Southern California regions, the specialty markets have thrived in lower income neighborhoods where there are few locations of national grocery chains, but experts at the retail center forum said the stores’ real estate footprint is gradually widening beyond that environment.

John Marquis, vice president of real estate and finance at Sylmar-based Vallarta Supermarkets, said about 20 percent of the company’s shoppers are non-Hispanic. That has spurred Vallarta to consider locations that are not directly located in Latino neighborhoods, though still within reasonable driving distance, as it looks to open three or four new stores per year.

It has also broadened its offerings to feature foods from other countries beyond Mexico, such as El Salvador, Argentina and others in Central and South America. In some rural locations, Vallarta even offers shuttle van service to help shoppers take home their groceries.

Encroaching Competition

While it is not Hispanic-focused, Smart & Final Stores Corp. has found success among budget-minded Hispanic households and business operators who prefer to buy items in bulk, said Anthony Bernardini, group vice president of the Commerce-based company.

Smart & Final has 13 stores in San Diego County, and Bernardini said there are now 13 others in Baja California, where the company has been growing its presence since 1993.

Challenges for the specialty grocers include moves by the big supermarket chains to add ethnic specialty items, and encroachment of dollar stores adding grocery items to their locations in some Latino neighborhoods. Those factors often prompt the Hispanic grocers to compete on price for certain staple items, further eroding already slim profit margins.

While some staples have become loss leaders for the grocers, they have made up the difference in part by focusing on higher-end, fresh-food offerings, such as specialty produce, hand-made tortillas, cut-to-order meats and baked goods.

“We need to respond by offering a deft product mix, and finding ways besides pricing to give people a reason for shopping in our stores,” Middleton said.

Northgate Gonzalez and Vallarta also offer free or low-cost check cashing and wire-transfer services, geared in part to local residents still supporting family members in their native countries.

The executives said their chains generally like to keep their debt and rents low, and usually prefer buying or leasing existing spaces rather than building from scratch. Middleton said it is not unusual for Northgate Gonzalez to invest $6 million to $7 million in improvements to an existing building.

In San Diego County, the special stores have recently been able to find high-traffic locations vacated by big-chain retailers during the recession. Vallarta Supermarkets debuted a store in a former Ralphs in National City; and El Super, part of Paramount-based Bodega Latina Corp., opened its first local store in a former Mervyn’s location, also in National City.


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