McNulty woos investors for more projects; entrepreneur plans IPO to fund startup designed for Hispanic, Asian customers - Robert J. McNulty planning Familia Mercado warehouse chain

Discount Store News, Oct 1, 1990 by Richard C. Halverson

McNulty Woos Investors for More Projects

Entrepreneur Plans IPO to Fund Startup Designed for Hispanic, Asian Consumers

LONG BEACH, Calif. -- Hispanic consumers are the latest targets of HomeClub founder Robert J. McNulty.

Through an initial public offering expected for early October, McNulty hopes to raise up to $8.6 million to launch a new retail startup called Familia Mercado, or Family Mart in Spanish. The money would be used to open a 100,000-square-foot warehouse in the Greater Los Angeles area, McNulty said, and operate the fledgling company for six months.

It would be the fifth time McNulty has tapped the public stock market for startup money in the past two years. If the IPO stays on schedule, it would come just one month after McNulty raised $10 million to launch Auto Depot, another auto warehouse chain, despite a plunging stock market.

In his S-1 registration statement filed with the Securities and Exchange Commission in May, McNulty first called his new venture Fiesta Mercado, similar to the Fiesta Mart name of a chain of Hispanic combo stores operating in Houston.

As the name suggests, Familia Mercado would be geared primarily to Hispanic food offerings, both perishables such as fresh produce meat, seafood, dairy, bakery and dry groceries, McNulty said. But it also would stock other ethnic foods, such as Chinese and other Asian minorities, including Korean, Japanese and Vietnamese.

Familia Mercado also would make on-site such Hispanic specialties as tacos, tamales and tortillas.

In Hispanic foods, Familia Mercado would compete with supermarket chains such as Vons, which operates eight Tianguis Markets in the Los Angeles area.

In general merchandise, Familia Mercado would resemble a Price Club, McNulty said, carrying about 2,000 sku's.

Total sku's would be about 8,000, compared with 25,000 for a typical supermarket, the S-1 statement states.

"The emphasis will be on national brands," McNulty said, "because ethnic shoppers trust them more" than private labels. But unlike a Price Club, Familia Mercado would charge no club dues and be open to the general public, he said.

It would operate with margins of about 14%, he said. Of total selling space, 60% would be devoted to foods, concentrating on the fresh produce and beef that Hispanics especially favor, with the remaining 40% devoted to general merchandise.

Hispanics now make up about one-third of the Los Angeles market, the S-1 states.

A key factor of Familia Mercado would be the ability to obtain national brands, either directly or through diverters, the S-1 notes.

McNulty blamed the failure of his SportsClub sporting goods warehouse club, which a bankruptcy trustee liquidated in March 1989, in part on the refusal of certain vendors to sell brand name sporting goods.

Familia Mercado is another concept McNulty's American Business Ventures developed.

In the Familia Mercado S-1 filing, McNulty disclosed that, as customary, he is chairman of the new venture. President and chief executive officer is Albert T. Lujan, an Hispanic-American who formerly headed the Pak 'N Save food warehouse division of Safeway Stores. Juan M. Aguayo, previously human resources manager for Pak'N Save, is vp for personnel.

After the IPO, management, directors and principal stockholders would own 90.5% of the common stock and control the company without concurrence of the public stockholders.

Like the previous McNulty offerings, the Familia Mercado offering consists of a unit of common shares and warrants to buy additional shares.

Projected to sell for $6, a Familia Mercado unit would consist of two shares of stock, plus two class A warrants to buy two more shares of stock at a set price and two class B warrant to buy two additional shares at a set price.

At projected prices, the entire offering would raise about $35.3 million if investors exercised all warrants. Costs to open the first store would total $3.6 million.

In another development, HQ Office Supplies Warehouse, the office products chain that McNulty launched in February 1989 with money raised in a similar IPO, turned to a private placement in Europe for its third infusion of capital.

Hoping to raise as much as $40 million more, HQ had raised at least $15 million by the end of September, McNulty said. When it went public in June 1988, HQ raised a net of $26.5 million in start-up money, and this June raised $10 million more through a public debenture offering.