With his purchase of scandal-ridden Numero Uno Markets, Luis Nogales is ready to expand beyond the eight stores in heavily Latino neighborhoods that are known for stocking ethnic food and merchandise.

“The plan is to add more stores in the Los Angeles-area market,” Nogales said.

Nogales, managing partner in L.A. private equity firm Nogales Investors LLC, bought the company May 1 for an undisclosed sum in partnership with Breco Holdings Inc., a Houston investment firm.

The new owners intend to grow Numero Uno by buying more stores and keeping the same format. Uno stores are bigger than mom and pops, but smaller than most supermarkets.

George Torres, Numero Uno’s founder and former chief executive, was convicted of murder and racketeering charges April 20. Prosecutors said Torres used his grocery stores to launder drug money. He was convicted on charges of running a criminal enterprise under the Racketeer Influenced and Corrupt Organizations Act. The allegations included cheating on his taxes, bribing a public official and even arranging to have people killed when they crossed him.

The Nogales-Breco partnership negotiated the purchase of the chain from Torres while Numero Uno was under the supervision of federal law enforcement. When the deal was announced, Nogales and Brener said the chain had revenue of $120 million per year. Using standard ratios, Howard N. Jackson, president of Tennessee-based HSA Consulting, which specializes in Latino markets, estimated a purchase price of about $40 million.

Steven Soto, president of the Mexican American Grocers Association in Los Angeles, said that Numero Uno was a well-performing, professionally managed operation despite Torres’ criminal activity.

“They are good stores with good locations and good volume, and they are needed in those neighborhoods,” Soto said.

He expects expansion and improvements under the new ownership.

“I can guarantee you haven’t heard the last of Mr. Nogales and Mr. Brener,” he said. “They are actively looking to purchase other small chains of independent retailers.”

Numero Uno has a favorable outlook for its growth strategy as the economic downturn has created a lot of retail vacancies that would be a good fit. Other Latino markets are expanding, too.

“The Latino markets are acquiring stores from the mainstream supermarkets that have chosen not to target Latino areas,” said Matthew May, president of May Realty Advisors in Sherman Oaks. “For Numero Uno, there are real estate opportunities and there is a market segment opportunity.”

However, Numero Uno will face challenges as larger competitors move into Latino neighborhoods with bigger stores, one expert warned.

Jackson said chains such as Gigante and Wal-Mart in Mexico, as well as Vallarta and others in the United States, have trained Latino shoppers to appreciate large, full-service stores.

May said a typical mainstream supermarket has about 50,000 square feet. . Many Mexican markets, including Numero Unos, are about 25,000 square feet. But Soto said the large new Mexican markets, like Pro’s Ranch Market or Superior, occupy about 80,000 square feet.

“The idea that you can open a bodega in the barrio is past,” Jackson said. “Even at lower income levels, Hispanic consumers expect larger locations.”

Brener’s return

Nogales said the Torres scandal has had no effect on Numero Uno revenue because shoppers care about location, price and service, not who owns the chain.

“We have been working on this acquisition for years, having discussions with the owner before he was arrested,” Nogales said. “We think the stores are well run, well merchandised with a good strategy, and we plan to continue with that.”

One advantage of buying a market that was being run under government supervision: Nogales doesn’t expect any surprises.

“The U.S. Marshal’s Office has been there for two years monitoring every financial transaction, so I think we have reliable information,” he said.

Brener, who leads the other half of the partnership, is the U.S. representative of a wealthy Mexican family that controls Mexicana Airlines. Brener has experience in the L.A. grocery sector as the former owner of Boy’s Markets, a chain he sold in 1989 to billionaire Ron Burkle’s Yucaipa Cos.

Both Nogales and Brener will serve on Numero Uno’s board and they will jointly control it, Nogales said. They have already hired Vince Alvarado as chief executive. Alvarado previously worked as chief operations officer at San Jose-based Mi Pueblo Foods, a chain of 15 stores in Northern California. He also previously worked as a regional manager at Wal-Mart.