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Latinos' Paradox: Buying Clout Rises, Income Lags

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Here's what's on display in the large store's main aisle: cans of tamales and jalapeños, packages of masa mix, cases of Corona beer.

That's just the appetizer. On other aisles: arco iris and surtido rico cookies; Jarritos soft drinks; cans of menudo (beef tripe and hominy) and pozole (pork and hominy), and just plain hominy (to make your own menudo or pozole); 25-pound bags of beans and rice; Oaxaca-brand cheeses; Mexican papayas and mangoes; tomatillos, pasilla chilies, chayote (pear squash) and "pico Diana" (sugar mixed with chili powder).

A mercado in Mazatlán? A carniceria in Cuernavaca? Nope. A Food Maxx at Florin and Franklin.

"I thought we could pull Latinos out of other areas if we played up our Hispanic brands," says store director Bart Brackin as he strolls past a display stand of Bimbo-brand pan blanco (white bread). "We are trying to get them in here, and once they get in here, we keep them. They will build our business."

At least that's the hope of Brackin and thousands of other business people vying for a slice of the state's expanding Latino economic pie.

The rush has been pushed by a convergence of elements, including a Latino population in California that is expected to double in the next 25 years, a growing number of Spanish-language media outlets that offer advertising avenues to reach Spanish-speaking markets, and Latino buying power that has accelerated as the population has increased.

A recent study by the Selig Center for Economic Growth at the University of Georgia found Latinos' buying power -- the amount they have to spend on goods and services -- is growing nationally at an 8.7 percent annual rate, almost double the rate of non-Latinos.

In California, Latino buying power grew to $171 billion last year and will reach an estimated $260 billion in four years, which would amount to a formidable annual growth rate of 13 percent.

But the rapid growth in buying power highlights only one-half of an economic paradox: While business increasingly covets the Latino market because of its rapid growth and other factors, Latinos in the Valley continue to lag behind the general population in virtually every statistical measure of wealth.

"There is still a significant gap between Hispanic income and the rest of California," said Adela de la Torre, director of the Chicano Studies program at UC Davis and an economist by training. The buying-power numbers grow, she added, "because you are dealing with a much larger base."

Census data show that in 1980, the median income of Valley Hispanic households was 84.4 percent of the general population's. In 2000, it had slipped to 82.8 percent.

De la Torre said even that figure is a bit optimistic because it doesn't take into account the larger size of Latino households. In the 18-county Central Valley, census data for 2000 showed nearly 54 percent of Hispanic households had four or more people, compared with 31 percent for the general population.

Valley Hispanics' per capita income -- the amount of money taken in per household member -- was less than two-thirds that of the general population's in 2000, virtually the same gap that existed in 1980.

More than a third of Hispanic families in the Valley had incomes below federal poverty levels -- a figure actually higher than in 1980.

One reason Latinos continue to lag in terms of personal and family income data is the constant addition of impoverished new arrivals to Latino ranks -- immigrants, legal and not.

"If you constantly add people who are barely making anything, you drag down the overall numbers," said de la Torre.

But a farther-reaching cause may lie in another set of statistics: More than a third of Valley Hispanics over the age of 25 reported having less than a ninth-grade education in the 2000 census, and less than half had made it all the way through high school.

The graduation rate for Latino high school students in the Valley in 2002 was 63 percent, well below the 76 percent rate for non-Latinos.

"That more and better schooling would help any group has the ring of a truism," wrote researchers Jeffrey Grogger and Stephen J. Trejo in "Falling Behind or Moving Up? The Intergenerational Progress of Mexican Americans," a report by the Public Policy Institute of California.

"But educational improvements are crucial to the earnings progress of Mexican Americans to a much larger extent than for blacks and other disadvantaged groups because their schooling levels lag behind those of almost all other groups."

For the business world, however, other demographic factors outweigh Latinos' slow progress in closing income and education gaps.

Larger household sizes make it easier to concentrate advertising and reach more people. Valley Latinos also are younger than the overall population, which makes them not only a large part of today's market, but of tomorrow's, too. About 77 percent of Hispanics in the Valley were younger than 40, according to the 2000 census, compared with 62 percent of the general population. Moreover, 43 percent were 19 or younger, compared with 33 percent overall.

"Big retailers like Wal-Mart and Kmart are making big strides in reaching the Latino market," said Thomas Tseng, co-founder and principal of New American Dimensions, an ethnic marketing research and consulting firm in Los Angeles. "In addition to advertising (in Spanish-language media), they are changing their inventories and even their credit systems to attract Hispanic shoppers."

Tseng said major retailers also are making efforts to hire more Latinos "because they are realizing they need staff that reflect the community and can act as a bridge to those customers."

Many retailers are trying to walk a fine line between appealing to Latino consumers and alienating other customers, Tseng said, while "others are just going full scale and customizing their stores entirely to appeal to Latinos in high-Hispanic-population areas."

"Donde todos califican" -- "Where everyone qualifies" -- is the slogan of the Los Compadres Auto Plaza, which celebrated its one-year anniversary over Labor Day weekend with a customer appreciation party at its south Sacramento car lot. Israel Ramirez, one of the owners, said the niche has worked for them so far: Business has been steadily growing there, despite the drag of the state's economic downturn on other car dealerships.

Nearby, at the Food Maxx, Brackin and produce manager Ernie Alarcon said a demographic study done before the store opened last April concluded about 18 percent of the store's drawing area was Latino. Instead, Alarcon estimates about a third of the store's business is coming from Latino customers.

"They don't just shop for TV dinners," Brackin said. "It's a family thing, they bring the whole family, mom and the kids and dad and grandma, and they fill up the shopping cart."

It's a generalization backed by statistics. A 2002 survey by the Food Marketing Institute, a grocery trade association, found that the average Latino family spent $117 per week on groceries, compared with $87 for the general population.

One afternoon at Brackin's store, shopper Maria Aguilera is filling up a shopping cart being pushed by her daughters Karina, 6, and Yovanna, 8.

"They used to be hard to find," she says of Mexican brands as she stocks up on a few containers of El Mexicano "Mexican-Style" strawberry yogurt. "But now, you can find them in more places, so I come where I can get the best price."

Some retailers also are finding a surprising amount of crossover appeal for Latino brands and products.

"Non-Hispanic buyers might taste a Mexican papaya at a party, and they come in looking for them here," Alarcon said. "Or they try out some other product, and they come back for more. It's still mostly Hispanic, but the appeal of the products is broadening out all the time."

Allen and Brenda Arnett of south Sacramento are a case in point. The couple were recently perusing the Food Maxx shelves for canned chiles, part of their quest for the perfect salsa.

"We don't usually shop here," Brenda Arnett said, "but we're just learning to make this stuff, and a friend told us we could find the real ingredients we need here."

The crossover market, however, is a bonus; the principal target remains Latino. Hispanic Business magazine reported in July that companies spent $2.46 billion in advertising targeted at Latinos in 2002, an 11 percent increase from the year before.

But successfully aiming advertising at the Latino market takes more than just a Spanish translation of an English campaign.

"Latinos are fiercely loyal to products, but you have to establish a comfort level and a level of respect first," said Los Angeles advertising guru Anita Santiago. "... (Y)ou have to have some insight into the culture."

Santiago, the daughter of an American father and a Cuban mother, grew up in the jungles of Venezuela and cut her advertising teeth in the jungles of Southern California. Armed with a degree in clinical psychology, she opened her own firm in 1987 and has specialized ever since in marrying mainstream companies to Latino consumers.

When the California Milk Processor Board approached her for help with its "Got Milk?" campaign, for example, she pointed out that a literal translation of the slogan could be construed as "Are you lactating?"

"I explained that Hispanics don't really drink a lot of milk by the glass, and certainly not with peanut butter sandwiches," Santiago said. "But we do use a great deal of milk in cooking, especially desserts … so we designed a campaign that reflected the Latino culture."

Santiago's campaign focused on the idea of Latino parents caring about their families by making sure milk was in their diets. "Got Milk?" became "Familia, Amor y Leche" ("Family, Love and Milk").

Product purveyors aren't the only businesses seeking the Latino dollar. More than 75 banks in California, for example, now accept matricula consular cards as proof of identity from people opening accounts.

The cards, which in one form or other have been issued for more than a century by the Mexican government to Mexican nationals in other countries, have been criticized for helping illegal immigrants establish themselves in the United States. In addition to banks and other financial institutions such as credit unions, about 800 police departments and local government agencies around the state and country now accept the cards as proof of identification, and in July, the managed health care group Health Net of California announced it too would accept the card as a valid form of identification.

But legislation pending in Congress, under the mantle of national security, seeks to ban banks from accepting the card along with requiring the State Department to deny visas to citizens of countries that do not comply with strict U.S. anti-fraud requirements.

Proponents of the legislation say it's a needed tool in the war on terrorism.

The cards "provide an opportunity for terrorists to move freely within the United States without triggering name-based watch lists that are disseminated to local police officers," FBI intelligence official Steve McCraw testified before a Congressional committee in June.

In opposing the legislation, however, financial institutions say it's not a security or immigration issue, but a bow to the realities of the marketplace. Wells Fargo, for example, reported about 80,000 new accounts using the card in the first six months after it started accepting them in November 2001.

"We believe that banking services ought to be made available to everyone so that they can manage their money without carrying large sums of cash," Bank of America executive Gabriel Manjarrez told a congressional subcommittee in July.

Bank officials pointed out that they do require additional forms of identification, though they acknowledged that the additional IDs don't have to establish an applicant's legal residency status.

"We are trying to bring financial services to the Hispanic community," said Wells Fargo spokeswoman Miriam Galicia Duarte. "We want them to open bank accounts, to succeed financially … this is just good business practice."

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