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Loblaw Buys Asian Supermarket

July 27, 2009

Loblaw Companies Ltd., Canada's largest food distributor, last week acquired T&T Supermarket Inc., the country's largest Asian food retailer, in a deal worth $225 million. Founded in 1993, T&T operates 17 stores in the provinces of British Columbia, Alberta and Ontario.

Averaging between 35,000 to 45,000 square feet, most T&T stores have an in-house bakery, an Asian deli, sushi and Chinese barbeque counters, as well as the many departments found in a regular supermarket. T&T is a joint venture of Uni-President Enterprises Corp., one of Taiwan's 10 largest conglomerates; Tawa Supermarkets, which owns the 99 Ranch Asian supermarket chain in California; as well as Canadian investors.

"T&T's talented management team and colleagues have developed what we believe are the best Asian stores in Canada, which will be used to help Loblaw extend its ethnic offering to better serve Canada's largest growing consumer segment," Galen Weston, executive chairman of Loblaw, said in a statement. Loblaw has more than 1,000 corporate and franchised stores across Canada, including Loblaws, Zehrs, Fortinos and Real Canadian Superstore.

Cindy Lee, CEO and founder of T&T Supermarket, told the Vancouver Sun, that the acquisition will help the company grow.

"For the company to expand in the future, we have to plant deeper roots," said Ms. Lee. "To do this, we must get our products to more Canadian consumers. There are only two ways: Either we bring these mainstream consumers into our stores, or we put our products into their aisles."

In a call with Chinese-language media, however, Ms. Lee spent much of the time insisting that the T&T model wouldn't change.

"It's only with our unique characteristics that we are attractive," she said. "We emphasized this important point in negotiations [with Loblaw]. They see us as having had success in handling the Asian supermarket segment. That is why they are buying us.

"They approached us because they want to break further into Asian groceries. They don't want to change us. We are both thinking the same thing."

She also said the name wouldn't change to incorporate Loblaws.

"There is an Asian sense of pride here. I don't want them to change it," Ms. Lee said.

But she acknowledged that cultural and language issues would be somewhat of a challenge in the transition.

"Most of our staff mainly speak Cantonese or Mandarin. Loblaws obviously won't be speaking to us in Chinese. But it's a small challenge, not a big one. Pushed to it, we can be quick to adapt," said Ms. Lee.

In the U.S., 99 Ranch claims to be the largest Asian grocer with 28 stores, primarily in Southern California. Although heavily concentrated in Southern California and the New York Metro region, many other small Asian supermarket chains can be found across the country. Although some focused on Chinese food, others specialize in Korean, Japanese and Filipino.

Discussion Questions: What do you think of Loblaws' acquisition of T&T? What are the challenges in the merger and in Loblaws reaching Asian consumers? Should U.S. supermarkets consider acquiring local Asian grocers?

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Discussion Questions

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Comments:

Canada's foreign-born population is growing at a rate that is four times greater than the domestic population. The vast majority of Canadian immigration is from China and South Asia. Moreover, it is projected that this pattern of immigration will continue well into Canada's future.

On those grounds alone, I think the move makes absolute sense.

The challenge for Loblaw will be bringing two distinctly diverse management culture's together. However, Loblaw is no stranger to acquisitions with cultural nuance, so I would look for them to successfully work through these challenges.

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Doug Stephens, President, Retail Prophet

This reminds me of last week's discussion on PetSmart going into pet services (stay with me). Just as pet services remain a highly fragmented industry that is still dominated by private operators, the same holds true for Asian groceries. With both sectors already enjoying tremendous demand that should only continue to increase, both are ripe for consolidation and big first-mover runs by larger entities. Great move, Loblaw's!

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Carol Spieckerman, President, newmarketbuilders

Being a resident of Canada, this move makes perfect sense. The Asian community is growing rapidly, and represents an outstanding market to capture. I agree totally with Carol's perspective stated above. A more professional approach to a segment that is dominated by independents will pay dividends. Beware though, Loblaw: don't try to homogenize the stores (like you did with the Fortino's acquisition)...maintain their individuality or you'll lose.

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Kevin Graff, President, Graff Retail

The Supermercado de Wal-Mart in Houston is a huge success. Targeting concentrated ethnic groups with a unique offering makes much business sense.

In the years before supermarkets, every community had its own small retailers. Those retailers were serviced the community with products, language and a feeling of comfort. In the days of supermarkets, it should be no different if the population exists.

These stores may be transition stores, having relevance for no more than a generation as the immigrant population melds more and more into the mainstream culture. But, in that generation, there is business to be done and money to be made. And if the business is done well, the retailer will develop a customer loyalty that will transcend the ethnic orientation of the shopper, just as the Supermercado and the soon to be Mas Club will ultimately create customers loyal to all of Wal-Mart.

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Gene Detroyer, Entrepreneur, Advisor, Consultant, Professor, Independent

This acquisition makes sense even if the stores don't make a nickel for Loblaw. This is a minuscule price to pay to better understand Asian shoppers--knowledge that can be applied to their other 1,000 stores.

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Al McClain, CEO, Founder, RetailWire.com

This has to be one of the best ideas Loblaws could develop for growth. There is a lot to be learned from T&T - stores are always crowded, service is quick, and the shelves are full of unique Asian sourced products as well as household staples.

This market is growing and T&T provides access to an eager and sophisticated shopper. The possibilities to make mainstream Loblaws more interesting places to shop are wide open!

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Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

Been there, done that. Gim Wong emigrated to the U.S. from China in 1916, started a very successful produce farm in NorCal, and in 1955 opened the first Bel Air supermarket in the Sacramento area. The Asian-influenced, quality-driven chain grew to 21 stores, and in 1992 was purchased by Raley's when Gim's children began to seek retirement. George Wong, the son who ran the chain for 40 years, was a friend of mine, and I was hired by Raley's to help integrate their operation with Bel Air's.

At the time (and still today), Bel Air stores were considered to be even more upscale than the uber-upscale Raley's stores (perennially designated as one of the best chains in the country by Consumer Reports). What a marriage. The Asian population and their influence in NorCal was and remains as strong as anywhere in North America, and they favor Bel Air stores for their authenticity coupled with American brands and practices. Non-Asian customers agree in droves.

So the question is, which chain influenced the other more? In my opinion, shared by most of my colleagues, Bel Air influenced Raley's significantly more. From the perimeter departments like Hot Wok and sushi, to the feng-shui-influenced store d cor. It was never just to court Asian customers, but to attract regular, everyday people of every ethnic and economic background like you and me. And it worked. I'd love to have a T-shirt from '92 that says, "I was there when Raley's bought Bel Air." Among a tight cadre of less than a thousand people, it would be a collector's item.

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

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