Hispanic food a hot commodity

By Melinda Fulmer
Los Angeles Times

Burned by dot-coms and telecom, investors now are thinking enchiladas rather than e-commerce, burritos instead of broadband.

Or in Rick Palmer's case, salsa. The food-industry veteran, with the help of a San Francisco investment firm, has in recent weeks quadrupled the size of his Senor Felix Foods to $100 million in sales, buying up the nation's top-selling refrigerated salsa brand and another dip rival.

The Baldwin Park, Calif., company, which started out as a one-man kitchen operation, now has the scale to sell its tubs of fresh salsa and guacamole to supermarkets nationwide and elbow out smaller regional competitors.

"Retailers don't want 20 different salsas on the shelf," said Palmer, who took the helm of Senor Felix last fall. "They want the No. 1 brand, No. 2 and their own private label."

Companies such as Palmer's are rapidly being cobbled together from Southern California's fragmented network of small to medium-sized food processors as investors look for more recession-proof investments.

"Growth is so hard to get in the food industry with everyone eating out," said John McMillin, a food-industry analyst with Prudential Securities in New York. "One of the few areas of the food business that is growing is Hispanic goods. Food companies are willing to pay for this kind of growth."

That's what Palmer was thinking when he took the job with Senor Felix. "The idea was to sell it to someone who would be positioned to take it to the next level," he said.

This rush of investment should catapult some of Southern California's regional brands into national distribution and ultimately expand the limited offerings of Latin food in mainstream supermarkets.

Yesterday, Don Miguel Foods in Anaheim, one of Southern California's largest Mexican-food companies, was acquired by The Shansby Group, a San Francisco-based investment firm. Terms of the deal were not disclosed. Don Miguel Foods makes frozen Lean Ole and XLNT burritos as well as frozen entrees and appetizers for supermarkets and convenience stores.

Shansby hired former Nestle USA President Robert W. Schult to advise its portfolio, which includes five Mexican-food companies purchased in the past several years.

Some have welcomed the opportunity to sell while interest and prices are high. "We do one thing and we do it really good. But we are a one-trick pony," said Michael Murdock, who this month sold Senor Felix his family's company, Chilay Foods in City of Industry, Calif., which makes Rojo's fresh salsa, the nation's top-selling brand. "We had a choice of whether to plow a bunch of capital into the company to expand to other items" or, he said, sell now.

Senor Felix also bought Murdock's rival, Itella Foods, from the Galletti family of Los Angeles. Terms of the deals were not disclosed.

Analysts say demand is growing and a wider range of Latin products is coming to market, beyond the usual belly-stuffer frozen burritos and crispy taco shells.

"Every day there's something new coming out," said Morrie Notrica, a 50-year supermarket veteran who operates two Notrica's Family Markets in central Los Angeles. "The whole industry has changed so much in the last five years, we have to change our thinking" about what Latin food is.

That's why San Francisco-based Swander Pace Capital Management, which owns the controlling stake in Senor Felix, last year brought in Palmer, a veteran of such mainstream firms as Nestle and Seagram's.

The 37-year-old has worked on cutting overhead, developing new markets and getting better deals from suppliers of ingredients.

He also rechristened Senor Felix as Fresh Foods Concepts Inc. and is moving the company to one large facility in Buena Park, Calif., at the beginning of next year.

But even with the help of grocery veterans, there's no guarantee that investments in Latin food will take off.

Most new grocery products fail, food analysts say, and miscalculations can result in costly stumbles.

But that won't stop investors from following this trail of money, said Pat Turpin of USBX Advisory Services, an investment banking firm in Los Angeles, which has helped broker some of the marriages between Latin food processors and private equity firms.

"You are going to see a lot more of these deals." And, he said, "you're going to see a lot more Mexican food products in supermarkets."