U.S. supermarket operators don't usually look to our northern neighbor for lessons about food retailing. But a recent development in Canada is worth watching.
Canadian supermarket giant Loblaw Cos. last month agreed to acquire that country's most respected Asian supermarket chain, T&T Supermarkets , for some $207 million in U.S. dollars. T&T operates some 17 Asian specialty grocery stores across much of Canada, including in British Columbia, Alberta and Ontario, in addition to distribution centers in Vancouver and Toronto. This far-flung presence gives Loblaw a ready-made base for further growing the franchise in Canada at a time when Wal-Mart is also making gains in that country.
Loblaw's acquisition is interesting because American mainstream supermarket chains seeking to enter the fast-growing U.S. ethnic business — and there are many of them — tend to build from scratch rather than buy in. Could Loblaw's move help set off a new direction in the U.S.?
There are challenges to this type of model. First, most U.S. ethnic retailers don't have the scale — in terms of number of locations or geographic diversity — to truly benefit a big-chain acquirer.
Consider a small, single-market Hispanic independent. If it tried to expand to an adjacent community, it may encounter a very different Hispanic population, possibly one that traces its heritage to different countries with somewhat different expectations around food. How much more challenging would it be for that independent to be purchased by a mainstream chain with the expectation it would be a springboard for rapid expansion?
“Loblaw was fortunate there was such an established player in the market as T&T,” said Neil Stern, senior partner with retail consulting firm McMillan Doolittle, Chicago.
“Right now U.S. Asian and Hispanic chains are small and fairly local, although in a decade many will be significant-sized chains.”
So what size independent would interest a major food retailer? Most likely one with more than a handful of stores.
“Somewhere between one and 18-to-25 stores is the tipping point,” said Bill Bishop, chairman of Willard Bishop, Barrington, Ill.
“The larger the retailer, the more likely it has already demonstrated some success operating with a chain-like structure,” he added.
Two other things to consider. First, a mainstream retailer should only make such an acquisition if it's prepared to be a hands-off owner, or otherwise risk ruining the unique culture of the ethnic operation. Second, don't count on such U.S. transactions anytime soon, or at least not until the economy and capital markets open up, Bishop forecasts.
In the meantime, a few conventional chains will manage to build and grow highly respectable ethnic operations on their own. For those that can pull it off, the do-it-yourself option is the best choice of all. It favors retailers willing to make the considerable commitment involved and generally those with highly flexible organizations and cultures.
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