In You’ve Got Mail (1998) mega-chain operator Tom Hanks falls in love, online no less, with Meg Ryan. Little do they realize that she runs a little corner bookstore – the very sort he’s trying to run out of town. 2013 for the town of Loreto, Baja California Sur (the historic capital of the Bajas) will go down as its “You’ve Got Mail” moment.
Grocery chain Ley (“Casa Ley”) opened this year in Loreto, and threatens to shut down many a family-run business. It’s a big deal. Along with Carlos Slim buying Loreto Bay (most of its significant non-homeowner owned assets) it’s the most significant news in years.
U.S.-based Safeway Inc. (NYSE: SWY) owns 49% of Ley. You can bet that the Pleasant, California-based company knows a thing or two about scale. Operating 1,700 stores and with $41 billion (USD) in revenue Safeway is the second largest grocery chain in North America. This is important to know because operational expertise, resources and scale are absolutes when it comes to running a retail business that runs on next-to-no margin. With Safeway as a major backer, Ley, which operates predominantly in the western states of Mexico, has substantial capability to draw from. The little guys don’t stand a chance – unless they specialize or differentiate. For them Ley is anything, but romantic or comic.
Walk into the Ley grocery store here in town and the first thing you notice is the meticulous attention to merchandising. Borrowing from the Costco playbook, electronics are the first thing you see. Tablets, small televisions, and other consumer products are prominently displayed on shelving just inside the main doors; the scale is far, far smaller than a typical North American Costco, mind you, but the idea is there. Also, aromas of fresh baked goods waft across the storefront. It’s inviting. Gringos will feel immediately at home. Frozen goods are located along the back. Multiple cashes are open at any given time resulting in short wait times. Every indication points to a well capitalized operation. Everything from training, stocking levels, and ambiance appears to come from time-tested processes and procedures.
Pre-Leh Loreto, and Post-Leh Loreto
Competition is generally a good thing. But it doesn’t come without pain. Sadly, there are winners and losers. Talking with many locals, I’ve learned that many of the mom and pop shops in town are “stepping up their game.” Mid-sized grocer El Pescador, for example, has re-arranged its aisles, hired an “ambassador” for English-speaking patrons, and attempted to add in-demand goods that can’t be found elsewhere.
Anecdotally, I’ve detected a decrease in traffic at various smaller grocers around town. Head to Ley and the energy is palpable. The parking lot is busy (finding a spot is often difficult), kids run around enjoying some of the soft ice cream served out front, and, overall, there’s a somewhat festive feeling to the shopping experience. Contrast that to near empty, somber stores nearby, and, it’s hard not to empathize. Many of the stores in Loreto have operated for decades, many even longer, handed down, generation after generation.
MORE Stories from Loreto
Progress seems inevitable. Loreto is not immune. How she responds will be a developing storyline. FONATUR (Mexico’s tourism agency) appears committed to making the region a jewel of the Baja – an unprecedented mix of beauty, tourism, economic Mexican prosperity. Now that Carlos Slim has financial interests here (word is, he wants to upgrade the Loreto Bay hotel, located on the Sea of Cortez, to a five-star luxury resort), there are many signs that Loreto is on the verge of a new era of growth, beget by commercialization. Sources tell me work will soon resume on the unfinished condo buildings in Loreto Bay.
It remains to be seen how this stage of Loreto’s growth will end. Don’t expect it to come without a tear or two. Hollywood screenwriters would give us the happy end we all know and want. That’s very much a possibility. A large operator like Leh and Safeway creates jobs. Overall, the effect can positively impact a community. This much I know: the Post-Ley era has begun in Loreto.