Justo Frias, the architect of Mexican retailer Grupo Gigante SA de CV’s ambitious move into California seven years ago, has left the grocery chain to help run a private equity fund aimed at boosting Hispanic businesses.
The fund, with headquarters in New York and a small office in Rancho Santa Margarita near Frias’ home, hopes to raise roughly $225 million from potential investors.
Nexos Capital Partners LLC plans to focus on investments in smaller, established companies owned by Hispanics. Food manufacturers, retailers, staffing companies and others with yearly sales of up to $100 million are targets.
Frias left Santa Ana-based Gigante USA Inc. at the end of 2005.
“I love them and wish them all the darn best,” Frias said of Gigante. “In life, you are dealt a set of cards, and you have to play those cards. Certain circumstances made us take the path we did. That’s the way things happen.”
Frias now is a partner at Nexos Capital. The other partners are Eduardo Boh & #243;rquez, who used to run New York-based private equity firm WestSphere Capital LLC, John McIntire y Salazar, formerly of Goldman, Sachs & Co., and Joseph J. Vadapalas, WestSphere’s former chief investment officer.
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Gigante’s Anaheim store: opened in 2003 |
Nexos plans to invest $10 million to $30 million in companies for three to seven years before seeking a buyer. The firm is looking for companies that are growing on their own or that could expand by acquisitions.
Fund raising for Nexos is expected to last through the year, according to Frias.
Frias said he had been interested in starting a fund for a few years, even while at Gigante. He started working on it as a side project about a year ago.
“Gigante was kind enough to help me,” he said. “The owners of the company are my friends, and always will be. They knew I wanted to do something like this.”
Frias, a native of Spain, moved to Washington state in the late 1960s. He rose through the ranks of Pleasanton-based Safeway Inc., first as a bagger, then later opening and managing stores in the Middle East as part of Safeway’s global push in the 1980s.
By the early 1990s, Frias returned to the U.S. to open his own supermarkets in the Pacific Northwest.
Gigante Tenure
Gigante recruited Frias in 1994 to run the company’s operations in Baja California. By the late 1990s, Frias was asked to devise a strategy for expanding in the U.S.
Frias’ departure from Gigante comes at a critical time for the retailer, which is under fire at home from the Mexican operation of Wal-Mart Stores Inc.
Jack Deceliere, a Grupo Gigante executive from Mexico City who replaced Frias as head of the U.S. operation, didn’t return calls for this story.
Frias described Deceliere as a “good man” with roots at Gigante in Mexico City.
Last year, Gigante USA’s nine U.S. stores did $116 million in sales, making up about 4% of the company’s $2.9 billion in sales, according to parent Grupo Gigante.
Operating losses for Gigante USA’s stores were $17 million in 2005, up 70% from $10 million reported in 2004.
Some believe Gigante USA may seek to team with a bigger U.S. retailer as part of a bid to continue expanding,and to make money.
“It’s not profitable,” said Giovanna Caccialanza, an analyst with Fitch Ratings, the credit rating agency that’s part of New York-based parent Fitch Group Inc.
Grupo Gigante cited tough competition in the U.S. as a factor for its losses.
Besides the big rival chains of Albertson’s Inc., Safeway’s Vons Cos. and Kroger Co.’s Ralphs Grocery Co. and Food 4 Less, Gigante faces competition from several grocers vying for Hispanic shoppers.
They include OC’s largest Hispanic supermarket operator, Northgate Gonzalez, as well as “R” Ranch Bodega and Jimenez Ranch Market.
Anaheim-based Northgate Gonzalez generates about three times the yearly revenue of Gigante’s U.S. operation.
Gigante officials don’t seem to be interested in selling the U.S. operation, according to analysts.
Big Ambitions
The company came to the U.S. with high hopes. There was talk when it entered the market nearly a decade ago that it could open 50 to 100 U.S. stores.
Gigante opened its Anaheim store in 2003. Others are in Pico Rivera, Arleta, Covina, Los Angeles, Inglewood, Chino and Santa Fe Springs.
“Would I have like to have opened more stores? Yes, but it wasn’t possible,” Frias said, declining to elaborate.
Gigante’s troubles in Mexico may have slowed expansion here. Finding space for stores also has been an issue, particularly in OC. But that situation could be easing.
Boise, Idaho-based Albertson’s plans to close several stores in the county as part of its sale to a group led by Minnesota-based Supervalu Inc. Ralphs also is closing some OC stores.
Representatives with Gigante, Northgate Gonzalez and others declined to comment on whether they were interested in taking over any of the closing stores.
One way for Gigante to get out of its financial doldrums is to form a partnership, or several joint ventures, analysts said.
Such a joint venture would be crafted similar to others in Mexico where Gigante has opened stores with RadioShack Corp. and Office Depot Inc.
Fighting ‘Walmex’
In Mexico, Gigante has lost ground to Wal-Mart’s Wal-Mart de Mexico SA de CV, or Walmex.
Gigante has fought back by forming a buying group, Sinergia, with two other Mexican retailers. The joint buying with Organizaci & #243;n Soriana SA de CV and Comercial Mexicana SA de CV has helped Gigante cut costs, Fitch analyst Adriana Beltran said.
Gigante could have a Salt Lake City store in the works, which would be its first outside California.
Alison McFarlane, an economic development adviser to Salt Lake City’s mayor, said she sat down a year ago with developers interested in bringing a Gigante supermarket to a Hispanic part of the city.
The plan is to develop a 9-acre site with a Gigante market and 10 smaller retailers.
No plans for the project have been submitted to the city. If the developer can wrap up acquisition of the land soon, it’s possible construction could begin by the fall, McFarlane said.
