Winn-Dixie recently opened five Fresco Y Mas branded stores in South Florida, catering to Hispanic communities by offering authentic ingredients this demographic often can’t find in an average chain grocery store. 

H-Mart has been specializing in Asian grocery items for years, targeting geographic areas around the country where the customer base is looking for these specialty products. 99 Ranch Market is another supermarket chain focused on Asian-American products that has found success.

Bill Bishop, chief architect of Brick Meets Click, said the industry is seeing an emergence on stores focused on certain ethnic groups.

“There’s been a strong and continued appeal to the Hispanic community, in particular the Mexicans," he told Food Dive. Similarly around the country you see your Korean stores, your Chinese stores; the key thing you see is that stores are specializing in certain demographic categories. Everyone is looking for growth, and there is a greater chance for that if you can come up with a really strong offering that appeals to an ethnic community.”

The ideal, he continued, is if other demographics become interested in and follow customers into the stores.

Grocers following ethnic trends

As the number of places to purchase groceries continues to increase and traditional grocery stores face stiffer competition, one of the ways stores can stay relevant is catering their product mix to their customer demographics. According to IRI, 37% of people in the U.S. were classified as non-white in 2012. By 2060, that proportion is likely to increase to 57%.

Ibis World says demand for ethnic products has been driven by the growing Hispanic and Asian populations in the U.S., which has created an environment in which ethnocentric food retailers has thrived.

In 2014, overall ethnic supermarket revenue was $30.4 billion. Ibis World projects that will increase to $35.2 billion by next year. Income is rising among ethnic groups like the Latin and Asian demographics, and their spending power is increasing. Grocers see that as an are opportunity to grow market share and basket size with those shoppers.

“The grocery store’s advantage is its physical location," Greg Wank, leader of the food and beverage practice at accounting firm Anchin, Block & Anchin, told Food Dive in an email. "They need to cater to the demands of the customer base in their immediate area. The ones that can be more nimble in their product buying and sourcing can best address the customer demands and maintain their relevance to the customer.”

A recent LoyaltyOne study reveals there is enormous opportunity for retailers in the area of ethnic marketing. Specifically, the study shows that African-American, Asian and Hispanic shoppers are not finding the products they want and need in their local grocery stores, and many say they would buy more from stores that stock ethnic products.

According to the study, 61% of these consumers are not finding enough ethnic food or ingredients at their main grocery stores, and 59% shop at three or more stores regularly just to find everything they need for recipes.

Additionally, it’s not only ethnic shoppers looking for these items. While 85% of ethnic shoppers revealed that they would cook traditional foods more often if they could find the proper ingredients, 65% of other shoppers said they'd be cook more multicultural foods if their stores had a better variety.

Janice Sellis, managing director at Transwestern, said grocers are always looking for ways to gain market advantage and position themselves to capture additional market share. Enhanced ethnic offerings are one of the ways they try to attract new customers and build better customer loyalty.

“The overall trend toward better food has driven the need for enhanced offerings at grocery stores," she told Food Dive in an email. "As consumers become accustomed to better offerings, they begin to demand the same quality in every chain. A great example is the olive bars seen in most grocery stores today. Ten years ago very few grocery stores had an olive bar, but today it’s a necessity.”

Similarly, 10 to 15 years ago consumers had to go to specialty stores like Whole Foods to find organic products. Now every grocer, including low-end chains, needs to offer organic products. Grocers must keep up with the tastes of consumers or they will lose customers.

Sellis noted that in the Chicago market, the locally owned operators have been able to obtain a significant competitive edge by catering to ethnic groups.

“The national chains cannot cater to varying ethnic tastes the way that local operators can," she said. "The local stores are more in tune with who their customers are in each location and have the flexibility to tailor their offerings to reflect that consumer base. Two examples are Fresh Farms and Pete’s Fresh Market—both are family-owned and operated and do a tremendous job catering to their customers. Often these local grocers will take occupancy in a location formally occupied by a national chain, and the local operator will achieve sales that are two or three times what the national chain was achieving.”

Who’s shopping?

New Nielsen research reveals that multicultural groups spend as much as 4% more in fresh grocery store departments than white non-Hispanics. In total, African-Americans, Asian-Americans and Hispanics spent approximately $40 billion on fresh products last year, which represents 21% of their annual food spend in perimeter categories.

A report from Mintel revealed nine in 10 adults in the 25-to-34 age group said they prepared ethnic food in their homes in the past month, compared to a 68% of those aged 65 and older.

In order to cater to the specialty market, food suppliers are expanding their offerings and support structures. Unified Grocers, a wholesale supplier to independent retailers, has an entire division devoted to supplying Latino and other ethnic foods to meet the increasing demand.

Keith Daniels, a partner at Carl Marks Advisors, said the trend is growing — both in specialty store formats that cater to specific ethnic groups, as well as within traditional grocery store chains.

“Grocery stores are expanding their ethnic offerings — such as tahini, specialty rice, falafel or sriracha sauce — and are expanding offerings in the spice aisle to cater to the expanding tastes,” he told Food Dive. “The food business is a very competitive, low margin business. In order to compete and generate sales and profit, it makes good business sense to go where the market shows the most growth potential. Stores are also expanding prepared offerings to cater to the demand.”

Ethnic populations are growing significantly. Approximately 18% of the U.S. population in 2015 was of Hispanic descent. This is expected to grow to 24% by 2040.  

“Not only is the growth in this customer base appealing to grocers, Hispanics tend have larger families, cook more frequently at home, spend more on routine shopping trips and visit supermarkets more often,” Daniels said. “Further, not only are demographics of the customer base changing, but non-ethnic shoppers are starting to get more ambitious with different foods, spices and flavors as consumers are introduced to more cooking styles and seasonings from outlets like Food Network.”

Ethnic flavors are becoming more prevalent on McCormick's Flavor Forecast, a list compiled by chefs, culinary professionals, trend trackers and the seasoning company's food technologists.

David Livingston, owner and grocery analyst at DJL Research, has been impressed with how HEB Supermercado, H-Mart, and 99 Ranch Market have embraced ethnic diversity with new store offerings.

“It’s a specialized area, so larger chains find it's not worth their while trying to compete with smaller companies that have a better understanding of the cultures,” he told Food Dive. “More and more, we are seeing Hispanic stores in smaller rural farm communities because migrants are more inclined to stay in the U.S.”

Daniels noted that currently, Mexican and Hispanic items account for over half of ethnic food sales, but other cultural cuisines are growing.

According to the Center for Multicultural Science, ethnic food sales now account for about a third of spending at privately owned independent grocers. Groceries account for a larger portion of the total retail spending among ethnic groups. For whites, it's 73%. For Latinos, it's 79% African-Americans, 71% and Asians, 81%.

Location, location, location

There is more growth in areas with more significant ethnic populations. This includes the coasts, with California being a big driver. Also, colleges with diverse student bodies also will be hot spots for ethnic stores.

Sellis said it’s much easier to expand in an area with defined ethnic pockets, which tend to be older cities. Chicago is a market where this has worked well because there are older communities with established ethnic bases.

These kinds of stores are most common in urban and suburban areas with there is more ethnic diversity, Wank said. It is very common to see highly specialized product mixes in grocery stores in the outer boroughs of New York.

Texas, South Florida, Minneapolis and other cities with ethnic pockets have more than enough demand to support stores like this, Bishop said.

However, it's not a foolproof strategy. Livingston cited a retailer that decided to open a Hispanic format store in Chicago because the Hispanic population density was very high. 

“However, they made a crucial mistake. They opened a Mexican store in a Puerto Rican neighborhood,” he said. “This is what happens when large corporations don’t do their homework.”