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Don Quijote Parent Agrees to Buy Gelson's Markets

Specialty Food Association

The private equity firm that owns Gelson's Markets' has agreed to sell the 27-store, upscale chain, based in Encino, California, to global retailer Pan Pacific International Holdings, which operates 638 stores, mostly in Japan.

In addition to its 582 Japanese locations, PPIH operates stores in Singapore, Hong Kong, Thailand, Taiwan, and in Hawaii and California in the U.S. It is primarily known for its Don Quijote discount banner in Japan—commonly referred to by its nickname “Donki”—which it also operates in Hawaii. In California, it has locations under the Marukai, Tokyo Central Specialty Market, and Tokyo Central & Main banners, mostly in the Los Angeles area, where Gelson's operates all of its stores.

Terms of the acquisition, which is slated to close in the second quarter, were not disclosed. Gelson's Markets had been owned by TPG Capital since 2014.

Grocery industry pundit Phil Lempert, founder and editor of The Lempert Report, who is himself a Gelson's shopper, said he questions the fit of the two companies, given Don Quijote's focus on discount pricing.

“Pan Pacific's acquisition of Gelson's is an interesting one—but might be off the mark,” he said. “Their Don Quijote stores are primarily discount stores that are loaded with general merchandise as well as foodstuffs—the polar opposite of what Gelson's is.”

Gelson's has long been known for its fresh, high-quality, and unique food offerings, Lempert said, noting that newer stores have emphasized foodservice elements such as fresh juice bars, various Wolfgang Puck restaurant formats, and pizzerias. Gelson's has also offered a shopping service—temporarily suspended due to the pandemic—that allows shoppers to enjoy a drink at a Gelson's in-store wine bar while a Gelson's employee fills a shopping cart with the items on a customer's list.

“As a regular Gelson's shopper myself, I have to question if Pan Pacific's DNA will be able to maintain Gelson's DNA,” said Lempert.

He cited a cautionary tale about Kings Super Markets in New Jersey, which Lempert said alienated customers by changing some recipes after it was acquired by British chain Marks & Spencer.

Burt Flickinger, managing director at Strategic Resource Group in New York, said he sees the move as “a strategic coup” for PPIH, however.

“Gelson's is the premiere prestige retailer in Southern California, so it gives them a real solid base,” he said. “The only surprise is that over the last 20 years, Gelson's did not take the opportunity to expand to more stores across the 10-county Southern California region.”

Under TPG's ownership, Gelson's has added 10 new stores and remodeled several others.

The Japanese investors bring “tremendous size and scale” to Gelson's, Flickinger said. The combination could also expand Gelson's access to specialty products that appeal to the broad customer base that the retailer attracts, he added.

“This is a perfect acquisition to combine Marukai's and Tokyo Central's considerable skills with Gelson's indigenous skills,” Flickinger said.

Both Marukai and Tokyo Central offer a wide range of Japanese grocery items, including specialty produce and prepared foods, along with nonfood items such as cookware, cutlery, and chopsticks. Tokyo Central stores host several branded foodservice offerings, including Beard Papa's cream puffs, Tonkatsu Kaura fried cutlets, and Komezo rice balls.

“We strongly respect Gelson's brand and history of 70 years known as a premium supermarket chain in the U.S.,” said Naoki Yoshida, president and CEO of PPIH, in a statement. “We have set our footprint in the state of California when we acquired Marukai Corp. in 2013, and we look forward to expanding our presence in California and dedicating ourselves to satisfying customers who value quality products, cleanliness, convenience, and personal service. We feel excited to work with Gelson's team to accelerate future growth.”

Rob McDougall, president and CEO of Gelson's, said in a statement that TPG had not only expanded the store footprint during the last seven years, but also invested in the company's Sana Fe Springs distribution center.

“As we look to the future, we are excited about opportunities for new growth and partnerships under PPIH, while remaining focused on our longtime commitment to the highest standards of quality, value, and unsurpassed customer service,” he said. “PPIH leadership has visited every one of our locations and has been incredibly complimentary of our stores and teams, as well as our customer service philosophy.”

Related: Price Chopper, Tops Market to MergePiggly Wiggly Store Owners Acquire Bi-Lo Locations.

Image: Gelson's Markets