Top Mexico Food Retailer Acquires Site in Arleta

Mexico’s largest food retailer has acquired a long-vacant commercial property in Arleta with what the city says are plans to open a major supermarket and retail center.

Under a deal announced Monday, Mexico City-based Grupo Gigante took over 12.6 acres at the former Gemco property at Van Nuys Boulevard and Beachy Avenue in a purchase and lease agreement.

City officials said the company, which operates a total of 218 stores and restaurants, plans to open a 59,000-square foot supermarket in February 1999, and would lease or rent five smaller buildings it would erect on the property, which has been vacant since 1986.

It would be the first foray into the United States for Grupo Gigante, which dominates the Mexican retail market with a nationwide chain of operations that reported $2.1 billion in sales last year.

While more than 50% of the company’s stores in Mexico are so-called “hyperstores” selling everything from produce to apparel to weight-lifting equipment, the planned Los Angeles store would offer only food, city officials said.

Company officials said Monday they had agreed to acquire the property and had ordered architectural drawings of the project, but warned that it is far from “a done deal.”

“We’re just pursuing the possibility,” said Justo Frias, manager of the company’s Baja California. “It’s so darn premature I don’t know what to tell you.”

Frias said he still must seek approval for the project from the company’s board of directors, and suggested they could also decide to re-sell the property for a quick profit.

Taking credit for the deal was Mayor Richard Riordan’s business team, which seeks to attract and keep employers in the city.

Deputy Mayor Rocky Delgadillo said the team brokered negotiations between Grupo Gigante and the disparate property owners involved with the Arleta site, including Dayton Hudson Corp., which turned over its 62-year sublease on 9.6 acres there to the Mexican firm.

Riordan said the store would anchor economic development in the northeast San Fernando Valley and provide jobs for local residents.

“Los Angeles continues to show why it’s the nation’s most diverse and powerful market,” the mayor said.

An analyst with Paribas Capital Markets, however, characterized the deal as “strange.

“You have a management that’s ... not familiar with the local market,” said analyst Sudhir Roc-Sennett. He noted the company’s suppliers, who offer a wide variety of fresh produce not usually available in the U.S., are all in Mexico.

“Unless they’re planning to do an awful lot of truck-driving, they’re not going to be competitive,” he said.

Industry officials, however, said the company could cater to Valley’s first-generation immigrants--a market where they said major U.S. chains have struggled.

“Everyone wants a piece of it. Everyone can’t do it well,” said an official at Certified Grocers of California, who asked not to be identified.

The official warned, however, that Grupo Gigante would likely have to reach some kind of agreement with local food worker unions, which represent employees from clerks to meat-cutters at most major supermarkets.

“The unions will receive pressure from the chain guys” to place Grupo Gigante under the same contracts they have, he said. “They’ll have to exert pressure.”