Gigante Plans 6 Grocery Stores in East Los Angeles

Grupo Gigante, Mexico’s third-largest supermarket chain, plans to enter the U.S. market this spring with two stores in heavily Latino East Los Angeles.

The Mexico City-based chain, which has been losing a battle to a unit of Wal-Mart Stores on its home turf, sees opportunity in East Los Angeles.

“East Los Angeles has a very large Mexican [immigrant] population, and we believe we will have a good niche in that market,” said Ignacio Toussaint, head of corporate finance at Gigante. “Our marketing research shows there is demand for a Mexican store if that store is competitive on price--and we plan to be very competitive.”

Gigante said it plans to open a total of six stores in East Los Angeles--two in May, two more later this year and two next January. It will face intense competition. The region’s leading supermarket chains have stores in East Los Angeles, as do several independent chains that cater to Latinos, such as Top Valu and Superior stores.

“Gigante doesn’t know the American market, and it will discover that the U.S. industry is too competitive,” said Marcela Martinez, an industry analyst at Afin/Banorte, a brokerage house in Mexico City. “They will be stretching their resources when they should be concentrating on their Mexican operations.”

Gigante has been eyeing the Los Angeles market for some time. It had been expected to open a store in the San Fernando Valley community of Arleta, where it acquired 12.6 acres last year.

But Gigante said this week that East Los Angeles is a more attractive location. A City Hall source said the firm may have decided to drop the Arleta site to avoid a battle with the Los Angeles Unified School District, which had expressed interest in it. Gigante’s decision to sell the land is an embarrassment to Mayor Richard Riordan’s business team, a specialized unit that seeks to attract and keep employers in the city.

In June, Riordan’s staff was quick to take credit in announcing it had brokered a deal to have Gigante take over the long-vacant commercial property and open a major supermarket retail center there. While Riordan and business team members touted the store as an anchor for economic development in the area, Gigante officials warned at the time that the announcement of the land deal was “premature.”

Gigante is not the first Mexican food retailer to take aim at the U.S. market. Grupo Comercial Chedraui, Mexico’s fourth-largest retailer, has a controlling interest in Southgate-based Bodega Latina, a company that operates the 2-year-old El Super store in that community. The company plans to open another supermarket in a San Fernando Valley community soon, said Mark Schwartz, chief financial officer of Bodega Latina.

“Our investors have competed against Gigante for many years, and we know them very well,” Schwartz said. “They have the resources to open a lot of stores, but they will have to adapt to [Southern California’s] extremely competitive marketplace.”

Gigante has been consistently profitable, but it has been losing market share to Wal-Mart subsidiary Cisra, the No. 1 Mexican chain. Cisra has made gains by offering lower prices, industry analysts said.

Gigante operates 182 “hyperstores” in Mexico, selling everything from produce and meat to apparel and auto parts. However, its East Los Angeles stores will be supermarkets and will not sell general merchandise.

Toussaint said Gigante will offer popular U.S. food brands and some brands not available in major Southland chains--Mexican-made salsas, spices and tortillas among them.

The stores will be 25,000 square feet--about one-third the size of Gigante’s Mexican sites and about half the size of most U.S. supermarkets.

“I think Gigante will be very successful, and it’s just a question of who they take business from,” said Steve Soto, president of the Mexican American Grocers Assn. “This is great news for consumers because there will be more competition.”

“We’re not panicking,” said Ty Hitt, chief financial officer of K.V. Mart, the Carson-based operator of the Top Valu chain. “We’ll do what we have to do to maintain our share of the business.”

The company will have some advantages when it enters the Southland, marketing executives say.

“Gigante will find some loyal customers among those born and raised in Mexico, and it will come into this area with expertise on how to market to them,” said Carlos Garcia, president of Garcia Research Associates, a Burbank-based marketing research firm.

However, Garcia said major chains have recently expanded their inventories to appeal to Latino consumers--stocking, for example, stronger oregano brands, more fruit nectars and specialty foods such as menudo.

“Gigante knows the Mexican consumer, but I don’t know if they know the American market,” Garcia said. “It’s more competitive here. But if Gigante chooses its locations wisely, it can gain a significant foothold.”

Times staff writer Jeff Leeds contributed to this report.