California report; Mi Pueblo Food Center, flexing its muscles (Part 1)

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Mi Pueblo Food Centers is striving to regain its muscle a year after emerging from a Chapter 11 bankruptcy — and it’s succeeding, company officials told SN.

It’s been a tough, albeit rewarding, year-plus for Mi Pueblo, said Javier Ramirez, president and CEO of the 19-store Hispanic chain.

“When a company goes through what we went through, it’s not business as usual, and we still have our hands full right now. But we’re making so much progress, and we’re working hard to get up to speed.

“In fact, we’ve been able to reach an important metric — positive EBITDA — only a year after coming out of bankruptcy, which was faster than anticipated.

Mi Pueblo operates 19 stores in Northern California.“When your EBITDA is positive, everything improves.”

According to Ramirez, achieving positive EBITDA was just one of 60 initiatives he set in motion when he joined the company in June 2014. Other initiatives undertaken and checked off, he said, include “renegotiating everything, including leases and vendor contracts, because we wanted Mi Pueblo to survive. And everyone came through for us,” he noted.

“Now we’re pursuing our next metric — approaching the industry standard for net income — and we’re getting close,” he said.

The company’s plan going forward includes installing new accounting and IT systems, Ramirez noted.

Employee training has also been a high priority, given the fact the company was forced to replace 80% of its workforce following a 2012 federal audit of undocumented workers. As a result, one of its primary initiatives has been to continue to train the 1,000 employees who were hired to replace the undocumented workers, Ramirez noted.

“We’re back to offering great customer service, consistent quality and better product rotation,” says Mi Pueblo president and CEO Javier Ramirez.“There were only about 200 people left with on-the-job knowledge — the new people we hired had almost no experience,” he explained.

“The real challenge was to immerse the new staffers in our service-oriented culture, and it’s taken us a year to develop expertise among them through training programs we’ve developed in-house. As a result, the employees are getting better every day, and we’re creating leaders.”

As part of its training, the company is encouraging employees to offer shoppers a more interactive experience by engaging with them as soon as they enter the stores, Ramirez said — similar to the customer experience in Mexican plazas, where vendors try to lure customers to their merchandise by announcing specials, he explained.

Employee incentives

To incentivize workers, Mi Pueblo has instituted a series of employee-focused programs, Ramirez indicated — soliciting employee input on how to make Mi Pueblo a better place to shop, with cash prizes for winning suggestions; offering scholarships to encourage employees to continue their education; and recognizing employees of the month.

The company, based in San Jose in Northern California, was founded by Juvenal Chavez in 1994. Stores extend from the San Francisco Bay Area 130 miles south to the Monterey Peninsula and 100 miles inland to Modesto. Sales for the chain’s 19 stores are close to $400 million, according to industry estimates.

Mi Pueblo has had to hire and train and army of new workers since emerging from bankruptcy.Mi Pueblo filed for bankruptcy in July 2013 — a year after it lost 80% of its work force and several months after it was hit with a demand by its primary lender to renegotiate its financial agreements. The company emerged from Chapter 11 in June 2014 when Victory Park Capital, a Chicago-based investment firm, provided $56 million in exit financing in exchange for a 50% stake in the business.

In the process of restructuring, Chavez retained the other 50% stake and became one of five directors on a board controlled by VPC, and Ramirez was hired to run the business.

The relationship between VPC and Mi Pueblo is working well, Ramirez said. “They’ve been extraordinarily supportive,” he noted. “We tell them what we need and so far, they’ve given us what we’ve asked for.”

Industry sources told SN that VPC may be interested in selling a portion of its 50% stake in the company to help provide additional financial input — by bringing in another investment group or possibly allying itself with a conventional chain that could benefit from Mi Pueblo’s expertise in marketing to Hispanics.

VPC officials could not be reached for comment.

According to one source, additional financing would help Mi Pueblo overcome its biggest challenge — cash flow, encompassing restructuring, accounting, auditing and legal costs resulting from the bankruptcy. “If it can just turn that corner and resolve its cash-flow issues, Mi Pueblo has huge potential,” he noted.

“It’s doing a good job at store level and making a lot of progress there, and employee attitudes and morale have risen considerably over the past 15 months. But Mi Pueblo still has to work its way past those post-bankruptcy costs.”

Ramirez said the company’s long-term goal is to grow Mi Pueblo organically, “and, if the opportunity becomes available, to look at possible acquisitions that fit our criteria.”

Room for growth

There is still a lot of room for Mi Pueblo to expand in Northern California, he noted, though the company is more focused on remodeling than building at this time, he said. “Fortunately, Mi Pueblo has always kept its stores up, and because half of them opened in the last five years, they’re in great shape,” Ramirez pointed out.

The company has done some remodeling since the bankruptcy ended —including painting, repairing parking lots and upgrading floors and refrigeration equipment — “and now we’re pretty much caught up,” he said.

Customer service is a major component of Mi Pueblo's culture.Asked if Mi Pueblo might consider a merger with another Hispanic chain, Ramirez replied, “It’s not likely.”

Mi Pueblo opted to close two of the 21 stores it was operating before the Chapter 11 — locations in Atwater, near Modesto, and Seaside, near Salinas, neither of which fit its demographic criteria, Ramirez said.

“Though we welcome all customers, our primary target is Hispanics, and the percentage of Hispanics in those areas has grown very small, so our offer wasn’t as relevant for them, and traffic was not where it needed to be to ensure profitability,” he explained.

Unlike Southern California, which has several Hispanic chain operators, Mi Pueblo is the only large Hispanic retailer in Northern California. “But Northern California is a tough environment because leases are higher than in Southern California,” Ramirez said, “and also because we’re competing with Safeway, along with several other chains and a number of smaller Hispanic independents.”

Mi Pueblo operates what Ramirez described as upscale stores — comparable to a Whole Foods in terms of quality of product and service, he noted — and it’s working hard to attain the service levels it had before the employee audit and the bankruptcy, he said.

“We’re back to offering great customer service, consistent quality and better product rotation,” Ramirez pointed out.

“We use mystery shoppers, who give us scores that are as good as what Safeway gets, though that’s not good enough for us. Even during the bankruptcy, as we hired new people, they all had to learn how to treat customers and to carry our vision forward.

“Now we’re looking for even better customer service, and we believe we will get there within a few months.”

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