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SAN RAFAEL – A rapidly growing Bay Area chain of Hispanic grocery stores plans to open its first North Bay location in east San Rafael by this fall.

Mi Pueblo Foods Inc. wants to convert the recently closed Circuit City store in the Canal district into a full-service grocery store with outdoor seating, according to Juvenal Chavez, 49, chief executive officer and co-owner of the San Jose-based chain with his wife, Maria.

The chain has been growing – with sales topping $175 million in 2007 and surpassing $200 million last year – even during an economic recession. Since the couple purchased their first store in 1991, the company has opened 13 locations in Modesto, Salinas, Watsonville, San Jose, Mountain View, Oakland and Pittsburg. The company is scouting sites in Napa County and Sacramento and has stores pending in Vallejo in mid-2010 and in East Palo Alto this fall.

“San Rafael is a prime location for Mi Pueblo,” he said. “In this location, we have a lot of customers from Mexico, but many are from Central America, and we will twist our business model to fit that.”

Nearly a quarter of the 57,000 San Rafael residents tallied in the 2000 census were of Hispanic origin, with many living in what is known as the Canal district between Bellam Avenue and Canal Street east of the junction of Highway 101 and Interstate 580. Mi Pueblo’s target site is located at 330 Bellam.

The city has several Hispanic-oriented grocers, some of whom have expressed concerns about a 36,000-square-foot new competitor, according to Raffi Boloyan, a principal city planner assigned to the Mi Pueblo proposal. However, there has been longstanding interest in having a larger store near the Canal area.

“A full-service grocery store has been a desire of residents in that area and the city for many years because many residents do not have a full-service store in walking distance, so they have to go to Whole Foods and Safeway downtown,” Mr. Boloyan said.

San Rafael can support another full-service Hispanic grocer, but the several independents that are scouting for bargain space in the number of recently closed big-box or junior anchor stores around the Bay Area are leery of going head-to-head with Mi Pueblo, according to Terranomics Retail Services’ John Schaefer. He heard about the competitive landscape while marketing the former Elephant Pharmacy store in San Rafael.

“They’re definitely a strong competitor in the grocery business,” he said.

Mr. Chavez said Mi Pueblo’s competitive advantage comes from high standards for operational efficiency, respectful service and store environment as well as a selection of products that is sensitive to the interests of a given community and cultural distinctions between Hispanic consumers.

That means understanding how color and decor cues differ between the states in Mexico and with southern Mexico, Central and South America. Also, included in store design are large inside and outside areas that provide gathering places for groups of men who work or live together as well as women with children while shopping.

Employee training also is key to the appeal. The 200 or so employees to be hired for the San Rafael store may come in without a lot of skills, but they will learn how to meet cost targets for each department as well as how to win each customer with common courtesies such as looking them in the eye.

As Mi Pueblo expanded and has faced increasing competition for the Hispanic consumer from mainstream grocers, it has adapted to attract non-Hispanic shoppers looking for ingredients, produce and baked goods they enjoyed while traveling or included in a recipe. For example, 25 percent to 30 percent of the shoppers at the Pittsburg store, which opened March 13, are not Hispanic. At the Oakland store, 20 percent are African American, and many are Filipino.

Key to that cross-cultural appeal is store cleanliness, yet employee training is critical for helping customers still feel comfortable when they stop to shop after working in agriculture, Mr. Chavez noted.

The company’s core market is first- and second-generation Hispanic consumers who miss foods from their homelands and have household annual income ranging from the high $40,000 level to $80,000.

The average Mi Pueblo store size is 30,000 to 50,000 square feet and includes meat, produce, bakery, hot deli and tortilleria departments. The average total cost of converting, outfitting and opening a store is $4 million to $5 million. However, the chain has two 6,000-square-foot neighborhood markets and has been considering more such markets in communities with a sufficient density of core customers.

The closure of Mervyn’s, Circuit City and other retail stores around the Bay Area has attracted a number of ethnic grocers interested in lower-cost expansion, according to Mr. Schaefer. Those include the 99 Ranch Market chain of Chinese supermarkets, which has 10 Bay Area locations; the H Mart chain of Korean/Asian big-box grocers; and Santa Rosa-based Lola’s Market. Also in the running are discount retailers such as Dollar Tree, Big Lots and TJ Maxx.

Mi Pueblo’s store designer, Mena Architects of San Francisco, submitted an application to the city on March 30 for review of the new exterior, change in signage, the plan for outdoor seating and whether another alcoholic beverage license can be issued for the Canal area, a requirement under state law. The city Zoning Administrator will hold a hearing on the application May 19 in the third-floor City Hall conference room.

For more information, call 408-928-1171 or visit www.mipueblofoods.com.