Market Overview

Euromonitor reports that the economy in Mexico expanded in real terms in 2021, driven by increasing domestic consumption, public investment and external demand.  Further implementation of the United States, Mexico and Canada or “USMCA” agreement and persisting trade tensions between the U.S. and China are projected to accelerate trade with the U.S.  However, the persisting pandemic-related risks, supply constraints and global inflationary pressures raise uncertainty and weigh on the country’s economic outlook.

• Following real gross domestic product (GDP) growth of 4.7% in 2021, Mexico’s economy is expected to witness moderate economic growth averaging at annual real rate of 1.5% in 2022.
• Inflation in Mexico is forecast to slightly cool down to 5.2% in 2022 from 5.7% in 2021.
• As Mexico’s exports increased by 18.6% and imports rose by 31.2% during 2021, the country became a net importer.
• As foreign direct investment (FDI) inflows into Mexico decreased over 2020, FDI intensity reached 2.8% of GDP.
• Public debt in Mexico fell to 58.8% of GDP in 2021 from 60.3% in 2020.

Following a contraction of 8% in 2020 due to the coronavirus pandemic shock, the real GDP growth of 4.7% over 2021, underperformed the average growth of 6.3% in Latin America.  But as a result, GDP per capita reached US$10,152 in Mexico as of 2021, above the regional average of US$8,030.  During the year, the country’s economic performance was supported by improving domestic demand, thanks to elevated private spending and gross fixed capital formation (GFCF).  However, as the fast-paced global recovery slows, the near-term economic outlook in Mexico remains clouded by the risks of new infection waves and persisting global supply chain disruptions.

Mexico’s population has been growing at a steady pace.  In 2022, it totaled 129.1 million, (CIA World Factbook Est.), up from 101 million in 2000.  Population growth, however, is decelerating over time. Meanwhile, Mexican society – although still young – is undergoing an ageing process.  The median age stood at 29.3 years in 2022 – 6.3 years greater than the figure for 2000.  The number of those over 65 years jumped from 5.2 million in 2000 to 9.9 million in 2022 and it will reach 13.9 million by 2030.

Mexico has more free trade agreements (FTAs) than any other country in the world—12 FTAs with 46 countries—including FTAs with the European Union, European Free Trade Area, Japan, Israel, and ten countries in Latin America. Mexico is a member of the new 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which was formally created in March 2018.  NAFTA was updated to the U.S.-Mexico-Canada agreement (USMCA) in July 2020, along with a review in six years.  The new deal guarantees tariff-free regional trade between the countries.  However, it is feared the updated deal could shift some automobile production from Mexico to the U.S.

USDA’s Foreign Agricultural Service (FAS) Agricultural Trade Office (ATO) in Mexico City hereinafter referred to as “FAS Mexico City” reports that despite COVID-19's negative impact on Mexico´s macro economy, U.S. agricultural products exports to Mexico totaled US$25.4 billion in 2021, outstanding growth of 39%, an all-time record high and making them the 2nd largest U.S. export market after China.  Mexico remains one of the largest and most consistent markets for U.S. agricultural products.  With the geographical advantage of a long land border and the United States-Mexico-Canada Agreement (USMCA) which eliminated duties on agricultural and food products, Mexico is a natural market for new-to-export U.S. companies. 

Advantages and Challenges for U.S. Food Exporters in Mexico

Post adds that like all vital U.S. agricultural export markets, Mexico comes with its own unique opportunities and challenges.

Retail Sector

According to Euromonitor, the packaged food market in Mexico was estimated to reach US$71.3 billion in 2022, which makes it the 11th largest packaged food market in the world.  That represents a growth rate of 21.7% or US$12.7 billion since 2018.  The forecast for growth in this market is also promising.  By the year 2026, the retail sales in the packaged food market in Mexico is expected to reach US$89.4 billion, a growth rate of 25.4%, or US$18 billion from 2022.  

High growth products in the forecast include:

• Pet food
• Ice cream 
• Savory Snacks
• Confectionery
• Cheese
• Baby Food
• Sweet Biscuits, Snack Bars & Fruit Snacks
• Processed Meat, Seafood & Alternatives to Meat

FAS Mexico City reports that according to the Mexican Association of Nationwide Retailers (ANTAD, 2021), there are 31 supermarket chains with 3,284 stores. Additionally, there are 2,507 department stores (apparel, furniture) and 40,599 specialized stores (pharmacies, hardware) that carry food products throughout Mexico. More than 56% of the retail market is covered by traditional trade (mom & pop stores, public and open-air markets) which usually only distribute local products.  ANTAD also reported that retail sales in supermarkets grew steadily by approximately 7.7% per year (2020).

Supermarkets were considered essential businesses, maintaining regular operation hours with some capacity limitations.  Supermarkets maintained their sales as the population concentrated on acquiring basic staples in food and personal care.  According to the National Survey of Income and House Spent (ENIGH) which is conducted every other year, in 2019 Mexicans spent US$187.50 monthly in foods and beverages.  The 2021 surveyed showed that the monthly expenses on basic food staples were US$189.65. Supermarkets, discount stores and price clubs were the biggest beneficiaries during the pandemic. Food and beverage sales grew as more Mexicans cooked and consumed at home due to remote work and schooling.  There was also an increase in sales of healthy products as Mexicans sought to prevent diseases and improve their eating habits.

ANTAD classifies the various types of retail outlets according to their size, product lines and additional services they offer. A) Megamarkets: Surface area of 10,000 m² and sell all lines of merchandise such as groceries, non-food items, perishable products, clothing, furniture, personal care, computer equipment, etc. They also offer additional services such as pharmacy, restaurants, banking services, among others. Megamarkets in Mexico are Mega (Soriana), Selecto (Chedraui), and City Market (La Comer).

B) Hypermarkets: Surface area between 4,500 and 10,000 m²; hypermarkets handle almost all the merchandise lines mentioned above and provide some services.  Walmart Supercenter and HEB are examples of hypermarkets in Mexico.

C) Supermarkets. They have surface area of 500 to 4,500 m². The products at these stores are mainly groceries and perishables such as fruit, vegetables, and frozen foods. Generally, they offer pharmacy services as well.  There are also regional supermarket chains with important presence in Mexico according to its location, some of them are Casa Ley (Pacific), Calimax (Baja California), Super San Francisco de Asis (South Mexico), among others.

D) Price Clubs: Surface area is greater than 4,500 m² and sell groceries, perishables, clothing, and general merchandise (furniture, gifts, personal care products, household appliances, among others); domestic or imported, some of the products are seasonal or single occasion purchases.  The stores are not decorated. Most of the products are intended for wholesale or hospitality purposes.  Some of the services include pharmacy, optical stores, and soda fountain. Price Clubs in Mexico are led by Sam’s Club, Costco, and City Club.

E) Discount Stores: Also known as Bodegas (Warehouses), their surface areas is around 2,500 m².  They manage most product lines with fewer varieties.  Their prices are lower due to the lack of decoration and services offered at the stores.  Bodega Aurrera (Walmart) is led in sales among all supermarket categories, as they have several formats like Bodega Aurrera Express which is like a convenience store located in low-income neighborhoods and Mi Bodega located in small cities.

F) Convenience Stores: Surface is less than 500 m², functioning 24 hours.  Their sales rely mainly on “on-the-go” purchases while commuting. Convenience stores offer a wide variety of services like cell phone credit, bank deposits, and food courts.  Oxxo is the most important chain followed by 7-Eleven, Circle K, and Supercity (Soriana).

G) Mini Markets: Located in venues with less than 250 m² offering basic staples, frozen and refrigerated products.  Some examples are Walmart Express (Walmart) and Sumesa (La Comer).  In the last decade, the Mexican government and some food and beverage companies have offered support to Mini Markets to enhance their venues, training on best practices and incorporation to the electronic payment system.

Best Prospects:

FAS Mexico City reports that based on FAS Mexico City assessments, the U.S. food and agricultural products with the highest sales potential are:

• Healthy and environmentally-friendly processed foods (i.e. lower sodium, fat, sugar, etc.)
• Dairy products – functional yogurts, added with probiotics, and lactose-free
• Plant-based beverages and products – e.g. soy, almond, coconut, rice, oat, beverages/yogurt/pudding/ice cream products
• Convenience Foods - such as ready-to-eat, meal helpers, and frozen foods
• Family-size packaging for household and food product
• Pet foods (80% of households in Mexico own at least one pet)

Food Service Sector

FAS Mexico City reports that Mexico is the world’s 15th largest economy and Latin America’s second largest.  In 2020, Mexico experienced its worst economic downturn since 1932, mainly due to the COVID-19 pandemic.  Despite the economic headwinds, 2021 U.S. agricultural and related-product exports to Mexico reached US$26.5 billion, an astounding increase of 40% over 2020.  Nonetheless, Mexico’s hotel, restaurant, and institutional (HRI) industries were negatively affected by the pandemic, with numerous hotel closures and over 120,000 restaurants closures.  

Tourism accounts for 8.1% of Mexico’s GDP.  Despite the COVID-19 pandemic, Mexico was 2020’s seventh-largest international travel destination, as the GOM limited restrictions for international visitors.  Total revenue generated from tourism decreased by 55% in 2020, reaching just US$1.1 billion.  The average foreign traveler in 2020 spent US$1,033.  Mexico’s tourism industry started to recover in 2021 and, barring any unforeseen events regarding COVID-19; FAS Mexico City expects tourism will continue to rebound in 2022.  The ongoing recovery will correspond with increasing levels of vaccination among Mexican and among international tourists, as well as evolving domestic and international vaccine COVID mitigation protocols.

Products perceived as healthful are increasingly featured on menus, due in part to more awareness about personal nutrition because of the pandemic.  Plant-based options, meat and dairy alternatives, probiotics, and healthful snacks have achieved more market share than during pre-pandemic times.  More Mexican consumers have become increasingly health conscious, as many COVID-related deaths in Mexico have been due to underlying health issues, including obesity.  

Retail and foodservice have become increasingly intermingled, as some foodservice outlets began to offer their products through retail channels as ready-to-eat or ready-to-cook options products for home preparation.  To attract customers back to full-service dining, some restaurants are focusing on creating customer experiences and seeking to raise their ‘wow factors’. Some restaurants have started to use gimmicks like smoke and fire special effects to attract consumers.

Food service trends in Mexico are on par with what is happening globally.  Mexican consumers are aware of popular diets such as Keto or Paleo, they want to be informed of were products come from, the caloric content, or if they are free of allergens.  Consumer experience is important in restaurants, and food needs to be appealing to be captured in photos and shared in social media, whether it comes from a street stall or fine dining.

Best Prospects:

FAS Mexico City reports that the hospitality industry is expanding on the high-end/sustainable formats, where imported products are a major draw for consumers.  Given the rapid expansion of hotels and restaurants in this niche, the HRI industry needs to offer products in the following categories:  Products perceived as healthful (superfoods, vegan, and gluten-free products).  Probiotic and fermented products (kefir, Kombucha, kimchi); Sugar-free and alcohol-free beverages (smoothies, juice blends, Mocktails, sugar-free sodas, alkaline water, vitamin added water);  Asian-style products (noodles, sauces, beverages);  Products perceived as natural, including organic, ‘non-GMO’, ‘all natural’,  Ethnic foods (spices, food bases, cereals, and condiments); Wines, spirits, and craft beer; Specialized dairy product.

Food-Processing Sector

FAS Mexico City reports that Mexico is the 3rd largest food processor in the Americas behind the United States and Brazil, and it is in the top 15 worldwide.  Moreover, the food industry in Mexico is one of the most dynamic with an average annual growth of 4.3%, with a gross domestic product (GDP) contribution of US$39.4 billion in 2020.

According to the National Institute of Geography and Statistics (INEGI), there are 216,685 economic units including offices, manufacturing plants, and distribution centers under the industry classification of “food and beverage manufacturing and processing.” In the second half of 2021, 1.96 million people worked in this sector, of which 50.1% were women.

Recovery in Mexico’s tourism sector (although still behind 2019 levels) following depressed travel numbers in 2020 due to COVID-19, was a primary driver for increased demand for food processing ingredients in 2021.  Bakery and tortilla, meat processing, and dairy production were the primary processing industries, with bakery and tortilla accounting for 25% of the total production.  Though Mexico traditionally sources around 90% of its food processing ingredients locally, it remains an important market for U.S. food ingredients.

Supplies sourced locally in Mexico include fruits, vegetables, cartons, glass, plastic, and tinplate.  Domestically produced products have certain competitive advantages, such as a better understanding of the local industry and its needs and logistical advantages due to their closeness, but small players may face issues of quality, traceability, or lack of ability to meet larger quantity orders.

The remaining supplies are imported mainly from the United States, Canada, Japan, the European Union, China, and Chile.  The United States remains the main supplier of processing ingredients to Mexico.  The U.S. industry has a good reputation in the Mexican market for its consistent quality, stable supply, and proximity. 

While third-party countries (such as the European Union, Japan, Chile, Brazil, Uruguay, etc.) continue to make inroads in various processing ingredient sectors such as poultry, dairy and rice, the United States maintains its commercial, geographical, and logistical advantages.  For example, a U.S. exporter may be able to ship one truckload or train car for an urgent order, while such a small shipment would not be economically/logistically viable via a third-party country, which would rather ship multiple containers or a complete shipload.

Best Product Prospects:

FAS Mexico City reports that products with potential include dairy products; milk protein; micellar casein; flours; extracts and functional products; vegetal proteins; tree nuts, flours (wheat, oat, rice, almond, etc.); herbal extracts and functional products; vegetal proteins (such as soy and chickpea) and premium products.