Independent Stores Bag Neglected Ethnic Niche

By MELINDA FULMER

Aug. 18, 1999 12 AM PT

TIMES STAFF WRITER

Supermarket consolidation is feeding the growth of independent grocery chains in Southern California.

The wave of mergers and consolidations that is transforming the supermarket business also has created an opportunity for these small chains to increase their store count and their reach into the ethnic and specialty-food niches. The large supermarket chains are filling their shelves with high-volume, mass-market items, analysts say, all but ceding niche markets to more nimble operators.

By stocking nontraditional items, inexpensive produce and special cuts of meat that appeal to Los Angeles’ fast-growing immigrant population, small chains such as Superior Super Warehouse Foods, Top Valu (owned by K.V. Mart Co.) and Jons Markets have managed to increase their sales and market share from the same period last year, according to the Shelby Report, an industry publication.

And as they’ve expanded into different neighborhoods by acquiring stores cast off in the consolidations, the independents are attracting new shoppers looking for hard-to-find ingredients from around the globe.

Top-tier chains such as Bristol Farms also are flourishing as their well-heeled customers have been stymied trying to find their favorite specialty products among the top-sellers on most supermarket shelves.

None of these smaller, nonunion operators is likely to pose a threat to the grocery troika of Kroger Co., Safeway Inc. and Albertsons Inc., which have grown through acquisitions in the last two years and now control 63% of the Los Angeles market. None of the smaller operators commands more than a 3% share.

But their growth is coming at the expense of the national chains.

Of the 145 stores that federal regulators recently required Albertsons to shed after its purchase this year of Lucky’s parent, American Stores Co., 32 went to independent chains or their supplier, Certified Grocers of California.

The fastest-growing operator, Carson-based K.V. Mart, agreed to purchase 11 of these locations, increasing its Southland store count to 29 and its sales almost 40% this year with the addition of four more stores currently under development.

Jons Markets also will add two stores to its 13 from these divestitures.

Because Jons stocks soujouk sausage, fresh dill and an assortment of fancy Belgian chocolates and liquor that are popular among Russian and Armenian immigrants as dinner gifts, Yana Polshina is willing to drive past a Lucky near her house in east Hollywood.

“I like the meat and seafood better at Lucky or Vons; it’s more presentable.” But, Polshina says, “I can get everything here, and I don’t have to make a double trip.”

While Jons and others are focusing on satisfying customers such as Polshina, analysts say the country’s largest supermarket chains have narrowed their buying, to focus more on mass-market items.

Chains such as Vons, now owned by Pleasanton-based Safeway Inc., and Ralphs, purchased this year by Cincinnati-based Kroger Inc., have all but abandoned neighborhood marketing, bringing more profitable private label products into their stores and lining up a greater quantity of the country’s top-selling brands rather than a wide variety of labels.

That strategy, while providing a boost to retailers’ bottom line, has resulted in a “plain vanilla-izing” of America’s supermarkets, says Gary Giblen, a New York-based supermarket analyst with Bank of America securities.

Some grocery executives think the selection and service offered by the three major chains have become so mainstream as to become virtually indistinguishable.

“If you were to blindfold a customer and put him in any major supermarket in Southern California, unless they saw a logo or private label brand, they wouldn’t know where they were,” says Kevin Davis, a former marketing chief for Ralphs who now heads El Segundo-based Bristol Farms supermarkets.

Vons and Food 4 Less have in the past attempted to cater to Latino shoppers by opening up separate concepts such as Tianguis, and Viva Markets. However, these chains were abandoned years ago, store officials say, because they were more expensive to operate and advertise and ultimately less profitable than their core chains.

A spokesman for Vons, while declining to discuss the chains’ selection of products, says his company still caters to the communities in which the store is located, not through special formats but by providing services and departments its customers need.

However, the boom in ethnic markets suggests there’s a far bigger demand for products that remind immigrants of home.

Chains such as Mexico’s Gigante stores and Sylmar-based Vallarta have been opening new stores to cater to the fast-growing Latino population. Others such as Jons and K.V. Mart Co.’s Top Valu are carving out a profitable niche by appealing to a mix of ethnicities.

Jons, for instance, stocks products that its Middle Eastern, Armenian and Latino customers can’t find elsewhere, and it slashes prices on produce.

In a recent circular, Ralphs was advertising Roma tomatoes for 99 cents per pound, while Jons was selling these small salad tomatoes at four pounds for 99 cents. Similarly, kiwi fruit at Jons was seven for 99 cents, compared with four for $1 at Ralphs. To get a better understanding of what his customers want, 76-year-old Daniel Berberian, John Berberian’s father, visits the stores every Saturday, talking to managers, employees and customers.

“Our philosophy is you can’t change the neighborhood, so you have to change yourself and your products,” John Berberian says.

Shoppers like Polshina and friend Julia Riabkova say prices for milk, eggs and some other packaged goods can be higher at Jons, but they say they’re not high enough to turn them away. “The prices and quality are pretty good,” Riabkova says. “And there’s a big variety of produce.”

A supermarket chain castoff was what helped John Berberian start his grocery business in 1977. When the former catering truck owner learned that Vons was selling one of its smaller stores at 3rd Street and Kenmore Avenue in Los Angeles, he stepped in with family funds, bought the store and simply replaced the Vons “V” with a “J” for his own name.

More than 20 years later, Jons is still around, and it still uses the same red-lettered signs as Vons.

Boutique chains such as Bristol Farms also have gained an advantage by providing specialty products and produce that the larger chains can’t.

Bristol Farms sells more than 10,000 gourmet specialty products, exotic produce and prepared foods such as stuffed pork chops, chicken kebabs and homemade bread pudding. And it has an on-site sushi chef.

“Chains are doing the same thing everywhere,” Bristol Farms’ Davis says. “Niche operators have probably the best opportunity that they have had in the last 20 years ahead of them in the next five.”

Because Bristol can provide things the big chains can’t, Davis says, it doesn’t have to compete on price. Two-thirds of its business is done in high-ticket perishable items, compared with one-third for the average grocery chain, according to Bristol Farms. As a result, its sales of $878 per square foot are more than twice that of the average supermarket, according to information collected by Progressive Grocer magazine. And its gross margins at 43% are almost twice as high as the average supermarket in that same survey.

After almost 17 years in the supermarket business, Bristol Farms is raising the capital necessary for a major expansion. In the next week, Davis hopes to line up the $25 million in backing needed to expand the chain from eight stores to 30 across Southern California.

Already, Bristol has struck deals to open two more stores in the L.A. area--one in Brentwood and another in the landmark Chasen’s restaurant building in Beverly Hills.

Its success, and that of others like it, is beginning to spawn imitators. K.V. Mart Co. says it plans a new line of stores called Napa Valley Farms. Its first upscale supermarket will open in Palos Verdes next year.

“The big are getting bigger and more powerful, and the ones in the niches are getting ‘nichier’ or more clever about marketing,” says Gene Grabowski, a spokesman for the Grocery Manufacturers of America. “You’re going to see a lot of innovation in supermarkets over the next few years.”

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Catering to the Community

Independent supermarket chains are flourishing in immigrant neighborhoods as the country’s largest retailers limit their selection and service to cut costs. Here’s a look at the sales and market share of Los Angeles County’s fastest-growing ethnic chains.

Superior Super

Number of Stores: 8

2nd-quarter sales, In millions (1999): $227.7

2nd-quarter sales, In millions (1998): $204.1

Market share: 2.00%

K.V. Mart (Top Valu, Valu Plus)

Number of Stores: 16

2nd-quarter sales, In millions (1999): $178.4

2nd-quarter sales, In millions (1998): $193.1

Market share: 1.70%

Jons Markets

Number of Stores: 12