Courting Ethnic Customers

Hispanic beverages at Texas’ Carnival stores used to be stocked alongside foods popular among Hispanics. But recognizing the changing demographics of many of its stores, merchandisers relocated them to the beverage section.

“Beverages meant so much that we pulled them out of the ethnic-Mexican aisle and put them with regular soft drinks in 24-foot to 36- foot sections,” says Bob Highsmith, Senior Vice President of Merchandising at Minyard Food Stores/Carnival Supermarkets. “Sales have mushroomed,” leading the retailer to expand the strategy.

Such success stories are mounting as retailers respond to the increasing diversity of the US population. By 2040, half the US population will be Hispanic, Asian-American or African-American; some markets are already there. Stocking the right assortment of beverage brands, flavors and sizes is key to both attracting ethnic shopper and satisfying the broadening palates of the mainstream consumers they influence.

Many retailers are thriving by creating environments that make ethnic customers feel comfortable by catering to their tastes and lifestyles and offering authentic products and assortments. Beverages are critical to that formula.

Among Hispanics, for example, beverages “are a category the Latino consumer buys every time they come into the store,” says Mario Chavez, VP of Latino Merchandising at Minyard Food Stores/Carnival Super Market, Coppell, Texas, which serves the chain’s largely Mexican consumers. “There is a group of items any store must have” he says, to satisfy the Hispanic consumer the chain targets, including juices, nectars, mineral water and authentic soft drinks.

Generally speaking, mainstream retailers tend to be lower on the learning curve in figuring out how to win ethnic customers. Those failing to fully embrace these groups, however, risk losing sales to those who those who do.

Diversity Wake-Up Call

Manufacturers devote significant resources to learning about customers, using syndicated data to shape ethnic marketing programs with point-of-purchase materials, promotion and ad dollars, and events sponsorship to create excitement around their products.

Many retailers have been less comprehensive. According to the Coca-Cola Research Council’s 2002 report, Grow with America, Best Practices in Ethnic Marketing and Merchandising, retailers’ ethnic marketing is driven at the local level rather than by the entire organization, and programs lack continuity and are based on short-term promotions and events. Their investment in ethnic marketing tends to be limited and typically focuses on advertising and promotions, rather than on understanding cultures. Yet it’s only from a true understanding of the customer that retailers’ courting of ethnic customers comes off as truly authentic.

That’s starting to change, however, as retailers realize the potential upside of courting ethnic consumers more comprehensively. According to the Coca-Cola report, market baskets of ethnic customers are 20 percent larger than those of non-ethnic consumers, and they shop more often—two to three times per week.

“Manufacturers used to come in with programs that were Hispanic-oriented and retailers would look and listen,” says Paul Castillo, executive vice president of ViVA Partnership, a Miami consultancy. “Now retailers go to manufacturers and say, ‘here is what I want in my Hispanic plan, how do you fit in?’”

Walgreens, for example, customizes stores to match the demographics of the neighborhood, creating a program that has won widespread admiration. It includes bilingual associates and the stocking of stores with products that index highly to African-American or Hispanic consumers, focusing on the value of those products in its ads.

Data is fueling such efforts. “We’re getting more and more requests from retailers to subscribe or buy data,” says Thomas Neal, Nielsen product manager for ACNielsen’s Target Track. “It’s always been a financial issue, but now they see a cost/benefit.”

Target Track decomposes sales transactions into non-ethnic and ethnic sales. A sister service, Spectra Marketing Systems’ HispanIQ, breaks down this data by brand. Syndicated data, for example, detected the successful entry of Grupo Industrial Lala SA’s LaLa milk products from Mexico into U.S. regions with large Mexican populations, likely displacing domestic brand purchases in favor of a long-familiar name from south of the border.

A Rising Tide

Ethnic customers aren’t the only ones at stake. Mainstream Americans are drawn to new flavors, natural and healthy ingredients and energy drinks – all of which can be sated by crossmarketing ethnic beverages.

Japanese green tea maker Ito En, for example, entered the U.S. market in 2001 the way many non-U.S. beverages do, in ethnic groceries, but with an eye to the mainstream. “We felt with changing lifestyles, there was more interest in wellness, health, and Pacific cuisine,” says Rona Tison, Ito En’s Vice President of Corporate Relations. Ito En next penetrated natural foods chains, and today its unsweetened Teas’ Tea is sold everywhere from supermarkets to Target. The takeaway: just because a beverage is ethnic doesn’t mean that’s the only quality to emphasize in promotions.

Similarly, with retailers’ help, Americans are discovering coconut water as a natural sports drink and aloe vera water as a digestive health aide, says Richard Ross, vice president of marketing at Tampico Beverages.

Another US trend is the desire to “trade up” to high-end brands. Chinese brewer Tsingtao is tapping this to extend beyond Chinese buyers, aiming at the 35-and-over crowd with new packaging and a line extension. Retail-level strategies include promotions pairing the beer with highend authentic Chinese foods.

Sampling events are a key strategy to introduce mainstream customers to ethnic beverages. Asian grocer H-Mart, a 22-unit chain operated by the Hanahreum Group in Lyndhurst, NJ, uses samplings heavily to promote Asian juices and bottled teas, boosting purchases by Asian and non-Asian shoppers alike, says Jimmy Kim, manager.

Pairing beverages with complementary foods not only drives sales, but enhances the retailer’s reputation as a source of new tastes. At a Whole Foods in Las Vegas, for example, chilled Teas’ Teas were paired with equally subtle Belgian wafer cookies for a tasting. Integrating ethnic goods with mainstream – such as bottled ethnic drinks in the regular beverage aisle – supports the cross-over effort.

Ethnic Marketing Best Practices

Retailers seeking to truly capitalize on the potential sales boost of ethnic beverages can tap these best practices honed by ethnic and mainstream retailers alike:

1. Know and use demographics. Step one to any ethnic marketing program is understanding customers. Beyond gut feel, data can clarify who is shopping in a trading area and how a neighborhood is trending. Detail is essential; knowing there are a high percentage of Asian customers, for example, isn’t enough. Are they primarily from China? Korea? Another key is acculturation; first-generation immigrants may have very different purchase patterns than second or third.

For example, least acculturated Hispanics prefer Modelo Especial, Carta Blanca and Corona beer, according to ACNielsen, while more acculturated prefer Sam Adams, Budweiser and micro-brews.

Anheuser-Busch is addressing acculturation by marketing to more Latinos in English in 2007, says Henry Dominguez, vice president of Latino marketing, as well as creating advertising aimed at the diverse countries of origin in East coast urban areas. “Relevance is critical as you get into different cultures and countries,” Dominguez notes. “You need to be respectful,” and make an emotional and cultural connection.

Ongoing analysis is key to picking up on trends. For example, “many areas in which African Americans live tend to be transitional,” with growing Hispanic and Asian populations, says Sam Chisholm, veteran marketer and president of Chisholm Consulting. Tastes change, too; whereas once African Americans preferred sweeter, grape and red beverages, “we’re tending to become closer in style to our mainstream counterparts,” Chisholm says.

Syndicated data may not be enough, however; many ethnic markets don’t participate, so results are skewed toward ethnic purchases in mainstream stores. Another strategy is buying data about beverages in customers’ countries of origin.

2. Observe. Ethnic market executives have their reasons for not sharing this data; they thrive by understanding their customer and creating an authentic experience, from the advertising to the in-store design to the music to the assortments. Retailers need to shop ethnic markets and urban, multicultural stores and note the beverage brands, presentation, signage and in-store feel.

“There is a significant variety of canned and bottled juices made from fruits one never sees in this country imported from Latin America or manufactured in the U.S.,” says Soto. “You could fill up a 23-foot aisle,” and ethnic markets often do. “Go to independent supermarkets, look at the space that is dedicated to ethnic beverages, and you’ll quickly have a sense of the potential volume movement these products have that you’ll never see in the syndicated scanner data.”

Store visits can teach other lessons. For example, “often the shopper is not who they expect,” says Chisholm. In African American communities, for example, “It’s not necessarily the mother – it could be the daughter or someone else doing the shopping,” whose brand and taste preferences may be quite different.

Equally key is listening to customers and accommodating their expressed needs, adds Poul Heilmann, Senior Vice President of Marketing and Strategic Planning for Minyard Food Stores/Carnival Super Market.

3. Collaborate. The best ethnic marketing combines the efforts of manufacturers and retailers for better-funded, more impactful campaigns.

“We have a good pulse on what our customers find exciting and interesting, and manufacturers are interested in understanding and working with us,” says Carnival’s Heilmann. “We work with them under their objectives and our objectives, and tailor programs to fit.” A campaign with DelValle, for example, boosted the juice’s sales among Latino and non-Latino consumers.

When retailers are more invested, “there’s still an event, but you’ve also got the four weeks leading up to it in the store, with TPRs [temporary price reductions], displays. There is an authenticity when it’s retailer driven,” says ViVA’s Castillo. He urges retailers to create a playbook for the year, creating in-store programs and sponsorships around pertinent ethnic events.

Ethnic events successfully used by Tampico include a mobile bus tour that visits retailer lots, playing music and offering samples, giveaways, and in-store displays and promotions. Hispanic- or African-American “ambassadors” and bilingual signage helped convey the message, boosting Tampico sales. Multipacks with bilingual coloring books and sales contests have also worked, Ross adds.

Wholesalers and distributors can also recommend shelf sets and facilitate events. UK Imports, in Orlando, Fla., helps retailers shape ethnic sections according to local demographics. For example, the company has incorporated mainstay Scottish soda Irn-Bru into ethnic sets where there are ex-pats and high British tourism. A recent tweaking moved Irn-Bru, famous for its unique orange color, to the top shelf. “It gets a little more attention for the product; the light hits the bottle and it brings the item out so customers notice it,” says Mike Darbyshire, president.

4. Define and commit. There is no clear formula matching level of penetration of a particular ethnic group to the amount of play a store should devote to ethnic beverages. But what is clear is that whatever level is determined appropriate requires 100 percent commitment from management on down.

Carnival’s relocation of ethnic beverages is one successful example of commitment throughout the chain. Resetting a store to integrate ethnic and mainstream products is a hallmark of a more complete commitment to embrace ethnic clientele. The move also addresses acculturation by accommodating the range of beverage tastes in one place.

In the chain’s Minyard and Sackn’ Save banners, particularly those in primarily African-American neighborhoods, Latino brands remain in an ethnic aisle and assortments of Dr. Pepper, Coca-Cola and Pepsi are larger.

In three Carnival stores the retailer offers Fruterias mixing custom blends of fresh fruits – an approach that complements, rather than cannibalizes, bottled sales. “We would put them in every Carnival if we could,” says Chavez.

Unfortunately, commitment has been a problem for many mainstream grocers. “Ethnic budgets are still the first to get cut on an annual basis,” says Kylee Hall, Nielsen product manager for Spectra’s HispanIQ.

It’s not uncommon for retailers to hire ethnic specialists without giving them the power to implement changes or to integrate ethnic products into category management. For example, “Bashas went in the direction of creating their own division, Food City Stores, in order to bypass the potential bureaucracy which might have limited their ability to implement a true Hispanic strategy. That requires customization at a time when the industry’s direction was achieving greater efficiencies through centralization and deploying strategies on a mass level,” says Terry Soto, president of About Marketing Solutions, a Burbank, Cal.-based Hispanic strategy consultancy. For instance, smaller, minority vendors have limited capabilities and it can be difficult for buyers and category managers to incorporate them into day-to-day business processes. “For example, ethnic buyers and merchandisers and large retailers don’t often see eye to eye on volume measurement systems so it is difficult for these vendors to make the case for product authorizations,” Soto adds. Successful ethnic marketing means finding a way to overcome these barriers.

5. Source authentically. While major U.S. manufacturers have deeper pockets and more sophisticated information technology, it’s important to source authentic brands from customers’ countries of origin as well. Specialty and ethnic distributors can offer expertise here.

“In the past, retailers have welcomed with open arms the big brands, and still do,” says ViVA’s Castillo. “But now they’re talking also to little brands to make a big impact.”

While it’s tempting to dabble in ethnic beverages at first, that’s not always the best approach, warns Ross. “We’ve faced a lot of retailers who were skeptical at first, and wanted one or two flavors, not ten. But as they add flavors, we’ve never seen a decrease in the rest of the brand. Flavors tend to be incremental,” tapping into their target customers’ desire for variety.

In addition to ethnic brands, ethnic consumers often prefer the flavor of international formulations of some global brands. Carnival, for example, has long stocked Mexican Coke, a sweeter formulation.

6. Price correctly. Some retailers make the mistake of pricing ethnic goods as specialty products, failing to understand the role some play as a staple of the diet. According to the Coca-Cola study, for example, Hispanics typically have larger families and often drink signifi cant amounts of juice in a day, so selling a wide variety of tropical flavors in gallon sizes and pricing them for purchase in large quantities is essential to winning that customer’s loyalty.

“Chains need to understand that when it comes to the perimeter of the store, the Hispanic opportunity is in volume, not margin – that’s one thing independents understand well,” says Soto.

Stepping Up

Knowing best practices is one thing; reaching them can be quite another. Retailers must overcome their reticence to extend ethnic marketing past ethnic aisles and the occasional holiday and commit at the level dictated by their customer base.

“If your supermarket is in a trading area where the ethnic population is at least twenty percent higher than in the total market,” then it’s probably time to step up efforts, says About’s Soto.

Retailers often start with ethnic sections and specific events, but as the program grows and ethnic traffic picks up, these strategies help take them to the next level:

• integrating products with mainstream categories

• bilingual signage

• hiring ethnic workers

• extended programs/events/tie-ins

• ethnic advertising, promotions

• resetting the store to emphasize qualities the dominant ethnic group favors

• sponsoring community events and supporting local ethnic organizations

Changing the feel of the store can be a hurdle for many retailers. “This is where they shy off because they don’t want to offend” mainstream customers, notes Linda Gonzalez, CEO and president at ViVA Partnership.

Retailers who “get it” and make broad changes, such as HEB, Carnival and Food City, are winning business from those who do not.

Embracing Ethnic Opportunity

The need for ethnic marketing can no longer be ignored. The good news is, many of the changes retailers make to accommodate the preferences of ethnic consumers will please the gamut of customers, from broader assortments to fresh juice bars to increased customer service. Some beverages can help span the range; when Bookoo Beverages created Jugo with 99 percent juice, for example, they knew energy drinks were trending well across most ethnic groups, and formulated and named the drink accordingly.

“Jugo means juice, but it appeals to a number of people,” says Paul Herrera, advertising manager. “Even if you don’t know Spanish, it seems like a word you should know.” Separate English and Spanish advertising and promotional programs are driving both groups to Jugo. Similarly, Pepsi first introduced its Manzanita Sol in Mexico, then brought it into the U.S..

Do ethnic marketing right, and it can boost ethnic sales while pleasing mainstream customers as well. “Retailers who compete effectively for these customers will be in a position to profit from this growth,” according to the Coca-Cola report. “Those who ignore the changing makeup of the marketplace—or make only token efforts— will not find success.”