By Jason Baker and Kenneth Katz
A city with a booming population, one of the nation’s lowest unemployment figures, and an expanding presence on the national and international stage, Houston, Texas is on the rise. Already the fourth largest city in America, Houston has been recognized in recent years as a social and economic powerhouse that deserves to be considered alongside iconic cities like New York and Chicago. Unsurprisingly, Houston’s retail development growth has been a big part of its ascendance.
The first piece in this three-part series, Houston’s Mission: Control traced some of the story behind that growth, exploring the influx of new grocery concepts and the rapid changes taking place in the city’s grocery sector. In this, the second of three articles exploring Houston’s emergence as a diverse and dynamic real estate metropolis, we will focus on the growing social and economic impact of an increasingly influential Hispanic population, discuss some of the ways retailers are adjusting to meet the preferences of Hispanic consumers, consider some of the opportunities and challenges that retailers face while doing so, and suggest how this trend might impact the Houston market in 2014 and beyond.
An influential demographic
As Houston’s retail development landscape continues to evolve, no demographic has played a more important role than the city’s Hispanic community. That should not come as a surprise, considering the fact that Houston’s Hispanic population is growing faster than any other major group.
Today, Houston has one of the largest Hispanic populations in the nation, second only to Los Angeles. In total, 37% of the Houston metropolitan area identifies as Hispanic. In terms of financial influence, those big numbers translate into big dollars — and it is a figure that is on the rise. In 2008, Houston was the fourth largest U.S. market in terms of Hispanic buying power, at $27 billion annually. What is especially eye-opening, however, is that that number rose sharply to $44.9 billion in 2013.
With those numbers in mind, it is clear that business as usual is not an option: Houston retailers will truly have to adjust to meet the preferences of Hispanic consumers, if they haven’t started to evolve already. Wal-Mart, for example, spent $66.6 million in 2010 on advertising to the Hispanic market, and they projected that they would increase that investment by 100% in 2014. Other major national brands are right on Wal-Mart’s heels.
Largely as a result of its rapidly growing Hispanic community, Houston has one of the most diverse consumer populations in the country. In fact, according to Rice University, Houston is the most racially and ethnically diverse city in the United States.
But that diversity exists not just across demographic segments, but within them, as well. To understand why that matters, consider just how difficult it is to define what the term Hispanic even means. The Hispanic label encompasses a very large and very diverse demographic, which includes people from a wide range of cultures and countries. According to the Pew Research Center, as of 2009, 7.1% of Hispanics in Houston were Salvadoran, 78.8% were Mexican, and the other 14.1% was made up primarily of Puerto Ricans, Dominicans, Cubans and Guatemalans.
There are absolutely cultural nuances among the countries of origin of the Hispanic population ― from dialect differences to consumer behaviors. Some Houston residents of Hispanic descent have lived here for generations while some are relatively new to the country, and so many different degrees of assimilation, backgrounds and experiences make for great variation in perspectives and preferences. Because the majority of the Hispanic population in Houston is of Mexican descent, local retailers tend to focus their marketing power on this group.
To illustrate how difficult it can be for retailers to account for these differences in cultural and behavioral nuance, there is no need to look further than the rocky road that Guatemalan chicken franchise Pollo Campero has travelled. A noteworthy success story in Guatemala and across much of Central America, Pollo Campero’s aggressive entry into the Hispanic-heavy Houston market may have seemed like a sure thing. But the restaurant’s cuisine was not an immediate hit with Houston’s predominantly Mexican Hispanic population, and Pollo Campero has opened, closed and reopened a number of Houston locations over the years, trying to find a formula that works.
Evolve and adapt
While the Pollo Campero identity crisis might be a sign of the challenges some retailers face trying to boost their appeal to Houston’s Hispanic residents, failing to adapt and appeal to Hispanics is no longer a feasible option.
To see that dynamic in action, consider a comparison between two high-profile grocers with significant Houston market share who have had very different strategies — and subsequently very different outcomes—over the years. One private, Texas-based grocery chain figured out quickly how to evolve, aggressively developing new brands and concepts, and ultimately unveiling an entirely new concept designed specifically to appeal to a Hispanic demographic. In contrast, a competing national chain has struggled to adapt, doing little if anything to change, and watching sales drift steadily downward as neighborhoods change around them.
Part of the challenge that some Houston retailers are facing is structural: even some that are used to targeting different populations have struggled somewhat with the intra-demographic diversity of the Hispanic market. Historically, retailers have also had some success focusing on and appealing to discrete neighborhoods. In Houston, however, this is problematic, because (with a couple of exceptions) the city’s Hispanic population is not geographically clumped together as commonly as it once was, but rather increasingly woven into the fabric of the city. Perhaps the most pressing question of all this is: how do you include and appeal to Hispanic shoppers without sacrificing your appeal to the rest of your customer base?
Marketing and market share
How are Houston retailers adjusting and adapting to this sizable and fast-growing demographic with significant buying power — and what are some of the ways in which they are driving retail decision-making?
Increasingly, Houston’s most successful retailers are coming to understand that marketing to this segment means doing things a little bit differently. According to LatinoShop, Hispanic consumers are more social shoppers than non-Hispanic consumers, sharing more opinions, engaging in social networks to discuss shopping experiences and writing more product reviews. Additionally, 49% judge product quality by product packaging, as compared to only 19% of non-Hispanic consumers, and the majority prefers community-driven environments. As a result, creating a "shopping experience" with human connection and customer service is a savvy move. Expect to see more Houston retailers working to build dynamic, social spaces where consumers can touch and learn about the product. Because Hispanic shoppers tend to be younger than average (about a decade younger than the population as a whole), technology can and should play a larger role in terms of marketing and communications efforts to this youthful and tech-savvy demographic — 48% of the Hispanic market engages on social networks, while only 31% of the non-Hispanic demographic are active.
Going forward, expect to see more Houston retailers continuing to accommodate the Hispanic marketplace, creating these experiential environments and focusing heavily on creating strong and enduring brand and store relationships with Hispanic customers. In Houston’s ongoing retail evolution, the ability to both literally and figuratively speak the language — down to the various dialects — of a critical market segment will be a prerequisite for sustained success.
Co-authored by Jason Baker and Kenneth Katz, co-founders and principals with Houston-based Baker Katz, an X Team International partner and full-service commercial real estate brokerage firm specializing in retail tenant representation, investment sales, and project development and leasing. To learn more, visit Bakerkatz.com.