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Crain's Chicago Business

Ethnic Biz Owners Say, 'Bring It On': As Mainstream Competitors And Gentrification Move In, Grocers Are Undaunted But Will Have To Adapt


February 9, 2003
Copyright © 2003
Crain Communications, Inc. All rights reserved. 

When customers enter Pal Mex Mini Market in Little Village, on the outskirts of the Pilsen neighborhood, they might think they're back in their native Mexico or Puerto Rico. Mexican-style cheeses and meats crowd the cooler. Spanish-labeled beverages line the shelves. Bags of Canilla-brand rice, preferred by many Puerto Ricans, await shoppers.

Owner Bassem Abdallah knows many customers and greets them at the door. "They're not just customers, they're friends," he says.

That service and selection are what Mr. Abdallah and other small business owners in ethnic neighborhoods like Pilsen see as their best defense against two rising forces: neighborhood gentrification and competition from mainstream businesses.

"Some of the businesses might be able to adapt to the changes, but some of them won't make it," says Atanacio B. Gonzalez, associate director of Neighborhoods Initiative, a non-profit organization that studies Chicago neighborhoods and is a division of Great Cities Institute, run by the University of Illinois at Chicago.

Neighborhoods like Pilsen and Chinatown have traditionally been entry points for immigrants, offering the comfort of familiarity and lower housing costs.

But gentrification is nibbling the edges of Pilsen, a traditionally Mexican neighborhood southwest of the Loop. University Village, a 930-unit residential development just north of the neighborhood, will likely bring more non-Hispanics into the area, as may Pilsen Gateway, an upscale condominium development at 1601 S. Halsted St.

Residents and business owners in ethnic communities often welcome gentrification because they expect it to improve conditions and reduce crime, explains Mr. Gonzalez. But it also brings in non-ethnic residents who don't patronize the same businesses.

Nicholas J. Lombardi, owner of La Casa Del Pueblo, 1810 S. Blue Island Ave., says he is courting new non-Mexican residents by offering more varied coffees and other upscale products. "We get a very positive response from those who shop here," he says. Mr. Lombardi estimates that 80% of his customers are Mexican, 15% are African-Americans and Eastern-Europeans and only 5% are new residents. But he adds that the 5% is growing.

`Set in the old ways'

La Casa Del Pueblo may be the exception. "What I've seen working with businesses on 18th Street is that many are set in the old ways and know how to service only one market," Mr. Gonzalez says. "They may be excited about serving the new market that gentrification is bringing, but they're not set up to do that, and not too many of them are going to be able to do it."

Small businesses can't necessarily count on even their ethnic customers' long-term patronage. "As Hispanics stay here longer, they have less and less need for some of these stores," says Juan A. Ochoa, president and CEO of the Mexican American Chamber of Commerce of Illinois Inc. But he adds that a steady stream of new arrivals continues to support the businesses for now.

If residential rents increase, however, Pilsen may lose its status as an entryway for new immigrants. And gentrification can increase commercial rents, says Cesar M. Melgoza, president of Miami-based Geoscape International Inc., a demographics tracking company specializing in multicultural neighborhoods.

"One thing that may happen is property values will go up, and with higher real estate prices, rents for (existing small) businesses may get too expensive," Mr. Melgoza says.

Gentrification in Pilsen may be temporarily slowed by the presence of numerous outdated industrial buildings that eventually will be converted to residential use, says Mary L. Thompson, a real estate broker with Chicago firm Camins Tomasz Kritt who has served commercial and industrial clients in Pilsen since the mid-1980s. But for now, the area is a federal empowerment zone, so industrial building owners can get financial benefits, but it's extremely difficult to convert the buildings to residential use.

However, empowerment zone protection will end in 2014.

In addition, growth in Chicago's Hispanic population may moderate the impact of gentrification. The 2000 U.S. Census showed that Chicago's Hispanic population grew 38%, to more than 750,000, from 1990 to 2000.

That growth is fueling competition from mainstream businesses. "Given the past growth and future growth of the Hispanic market-it is going to be a very strong area in the next five or 10 years-it behooves us to be prepared for that and meet their needs," says Andrew Kramer, director of ethnic marketing and specialty foods for Boise, Idaho-based Albertson's Inc., corporate parent of Jewel-Osco.

Of the 512 Hispanic-owned businesses in the 60608 zip code, two-thirds have only one to four employees, and 260 have sales of less than $500,000 per year, according to Geo-scape.

It's no surprise, then, that behemoths like Jewel pose a threat.

Melrose Park-based Jewel has targeted the Hispanic market by creating special Hispanic sections, adding more produce used in Hispanic cooking and advertising in Spanish. And new large grocers such as Chicago's Delray Farms LLC have sprung up to tap the market.

But winning the Hispanic market will require more than simply stocking Hispanic products, says Bill Bishop, president of grocery consultancy Willard Bishop Consulting in Barrington. Competitors will need to establish the proper atmosphere, provide appropriate service and display products properly. "It's not an automatic that if (large retailers) target this market they will win," Mr. Bishop says.

Community creates confidence

Indeed, small grocers interviewed for this story expressed only confidence in their future.

"As far as the ethnic end of my business, (large retailers) can't hurt me," says Mr. Lombardi. "They don't know what the hell they're doing. No chain does. We are deeply integrated into the Mexican community, and nobody does it better than us."

Mr. Abdallah says he fights the chains with price, selection and service, adding that his low overhead costs enable him to undersell Jewel but still make a profit on some Mexican products.

Hispanic restaurants also will be subject to pressure from bigger corporations. Taquerias have long operated in Pilsen, but Pollo Campero, a fast-food chicken restaurant based in Guatemala, has said it may be targeting Chicago.

Experts like Mr. Gonzalez expect gentrification to pose significant problems in Pilsen.

"My studies have shown that small Mexican businesses sort of followed their clientele from Mexico," Mr. Gonzalez says. "If they're pretty sharp they'll be able to transform their businesses to serve the new clientele. If not-and most of them don't have much business training-they either follow the homeowners to their new homes or many of them shut down."

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