El Salvador Country Profile

Market Overview:

Euromonitor reports that the pace of growth in El Salvador lags behind that of other countries in Central America. The sluggishness has been due to a slump in domestic investment, weaknesses in competitiveness and weather-related shocks. In 2010-2014, growth of real Gross Domestic Product (GDP) averaged 1.9% per year. Growth in per capita income is also below that of regional peers and the potential rate of growth has probably declined. The economy’s performance has been limited by a process of fiscal consolidation.

Growth of real GDP rose to 2.4% in 2016 as private and public investment strengthens and is predicted to maintain that level in 2017. Transport and construction are also important drivers. The prolonged drought is a drag on the economy. High levels of insecurity and an unfavorable investment climate are other problems. The real value of private final consumption rose by 1% in 2015 and gains of 2% are expected in 2016. Nevertheless, growth of real GDP will gradually ease in the medium term, dropping to around 2% by 2020. With supply-side reforms, the potential rate of growth could be raised to more than 3% per year. Policy makers hope to accomplish this by boosting investment and improving competitiveness, which for several decades have been below regional levels.

Trade is important to El Salvador, demonstrated by its free trade agreements with the Dominican Republic, Chile, Mexico, Panama, Taiwan and Colombia, as well as its membership in the Central American Dominican Republic Free Trade Agreement with the United States (CAFTA-DR) that went into effect in 2006. Recently it signed an Association Agreement with the European Union (EU) that includes the establishment of a free trade area. Free Trade Agreements with Canada, Peru, and Belize are under negotiation. A partial Scope Agreement was signed with Cuba in 2011. The latest negotiated Free Trade Agreement was with South Korea, and is expected to be signed in mid-2017, with the main objective to attract investors for the textile industry in El Salvador.

Euromonitor has identified El Salvador as one of the “20 Markets of the Future” that will offer the most opportunities for consumer goods companies. Sound macroeconomic policy, foreign investment and remittances from the U.S. are anticipated to foster sales of consumer goods across all categories. Packaged food and apparel are expected to remain the largest categories over the forecast period, while soft drinks and alcoholic drinks are forecast to be the fastest growing categories.

USDA’s Office of Agricultural Affairs, OAA, in San Salvador, hereinafter referred to as “Post” reports that the Government of El Salvador (GOES) has promoted an open-market economy and has recently led economic diversification initiatives in new sectors such as non-traditional agricultural products (tuna, bakery, snacks, beverages, and dairy products, among others), processed food, distribution, telecommunication services, and tourism. Development in these areas follows a 30 year evolution in the economy from being agricultural based to one of commercial, retail and financial services.

Remittances continue to play an outsize role in the Salvadoran economy because more than 2.5 million Salvadorans live in the U.S. According to data from the Central Bank, between January and October 2016, remittances reached US$3.7 billion, a 6.2% increase from the same period last year. Remittances represent around 16% of total GDP and about 20% of Salvadoran households receive remittances, according to a 2014 Ministry of Economy survey. In a more recent survey in January 2016, 86% of the people surveyed stated that remittances are an important component to their household income, and 6% indicated that remittances are their main source of income.

In 2016, U.S. food and agricultural product exports to El Salvador totaled a new record high of US$560 million, and an increase of 13% from 2015.  U.S. exports to El Salvador in the consumer-oriented product category were US$169.1 million in 2016, an increase of 4% from 2015 and another new record high. That amount was also 30.2% of the agricultural total. El Salvador also imported a record high US$141.7 million in processed foods from the U.S. in 2016, growth of 5% from the previous year. Top processed food exports from the U.S. in 2016 included food preparations, processed vegetables and pulses, chocolate and confectionery, non-alcoholic beverages, processed/prepared dairy products, condiments and sauces, soup and snack food.

Post reports that the Salvadoran market may be significantly larger than portrayed by U.S. export data. A high percentage of El Salvador’s imports of consumer-oriented products are actually registered as imported by Guatemala. The main reason is that many containers come through Guatemala’s Santo Tomas port and even though they are in-transit to El Salvador, local customs officials tally them as Guatemalan imports. Particularly close links with the U.S. are evident by the strong commercial relationship between both countries.

Retail Sector:

Euromonitor has reported that the retail sales value of packaged food in El Salvador was US$1.2 billion in 2016. That represented a decline of 7.2% or about US$93.4 million from that of 2012. They have also forecast the growth rate to 2021 to be nearly US$1.4 billion, an increase of 14.4% or about US$178 million. High growth categories in the forecast include savory snacks, sauces dressings and condiments, processed meat and seafood, ice cream and frozen desserts, ready meals and dairy products.

Post reports that the market expectations for the retail foods sector remain positive, as it continues to be a key area of the Salvadoran economy, supported by employment, increasing purchasing power, mainly fueled by remittances, and a steady expansion of consumer credit. Hypermarkets/supermarkets, convenience stores, coexist with the traditional small grocery stores (mom and-pop) and open-air markets.  

There are two dominant supermarket chains in El Salvador: Super Selectos and Walmart Mexico y Centroamerica. In addition, there is also the participation of PriceSmart, with headquarters in San Diego, California and has two stores in El Salvador, both of which are located in the capital city of San Salvador. Similar to membership warehouse clubs in the U.S., it carries a mixture of groceries, apparel, electronics, household goods, and automotive parts. PriceSmart's first chosen location (1999) was in the upscale Santa Elena area, and it initially focused on two market segments: the growing upper middle class seeking imported goods, and restaurants looking for a source of premium ingredients/products alongside known staples and local brands.

As PriceSmart's presence became stronger, its offerings appealed to the larger middle class and the second store opened in a few blocks away from the popular Metrocentro shopping mall. It is more accessible than the Santa Elena location and it has made American imports available to consumers that were familiar with them via firsthand migration or by proxy through family members in the U.S.    

One the latest trends of the two major players of the retail sector, Super Selectos and Walmart, is the development of a wide range of private label products, since a good number of their clients are constantly looking for better quality products at a more competitive price. In this regard, Super Selectos currently has 10 private label brands with a total of 2,200 products and it is planning to introduce 309 new products under this segment, so that they can participate in all of the supermarket categories, as per the Private Label division of Super Selectos. Walmart, on the other hand, currently accounts six private label brands locally, which offer 385 products in total.  

Super Selectos supermarket is owned by the Calleja Group. This local supermarket chain currently accounts 95 stores, and with its slogan “The Salvadorans’ supermarket” (“El Super de los Salvadoreños”) keeps a fierce competition among other retailers.  In 2008, Grupo Calleja, along with other seven supermarket chains from the Central American/Panama region joined in a strategic alliance named SUCAP (Panama and Central American Supermarkets). SUCAP groups 8 different supermarket chains that combined add up 330+ stores in the region. SUCAP negotiates and buys in large volume for the region; therefore they get lower prices which can be transferred to the final consumer. Although SUCAP is a method of procurement for Super Selectos, they also use all other sourcing methods, such as buying from local importers, distributors and import directly from international suppliers.  

Walmart Mexico y Centroamerica is the largest retailer in the region with over 600 stores. In El Salvador, there are a total of 92 stores. In order to reach different consumer segments, Walmart has stores in four different formats: Walmart Super Centers, Despensa de Don Juan, Maxi Despensa and Despensa familiar. Walmart entered the region in 2005 and became Walmart Centroamerica in 2006. In 2009, Walmart Mexico acquired Walmart's operations in Central America from Walmart Stores, Inc. and two minority partners.

In 2010, Walmart Mexico became “Walmart de Mexico y Centroamerica”. Walmart is positioning as the place where “You always find everything and pay less”, promising low prices and deep discounts, as well as offering a wide range of products from food to electronics and more recently a tire shop. In 2015, Walmart invested about $38 million to open 4 new retail outlets, as well as a revamp to many of their stores in order to provide a better shopping experience and lure new customers to their retail outlets.  

Post reports that convenience stores at gas stations are becoming more active players in the retail sector. Some of these stores are offering more than light refreshments and ready to eat/heat products. In some cases, food offerings include home-made style meals and specialty coffee drinks available throughout the day, making this trend a good opportunity for higher quality food products and/or ingredients from the United States. Main clients for these stores are truck drivers and other workers who travel across the country on business. In response to these clients’ demands, another trend that is developing in these stores is having other services, such as banking transactions, pharmacy, cell phone services and free Wi-Fi connectivity, making these stores convenient for casual business meetings.

At the end of 2016  the Ministry of Economy records show there are 336 gas stations in El Salvador belonging to four different companies: Chevron El Salvador (Texaco), Grupo Terra (UNO), Puma Energy (Puma) and Alba Petroleos. Each company has its own chain of convenience stores: Puma- Super 7; Texaco-Food Mart; UNO- Pronto/Flashmart and Alba Petroleos- El Camino.

Best Prospects:

Post advises that high potential prospects for U.S. food exporters in this sector are based on the fact that health and nutrition are a main concern for most consumers; therefore, there is a stronger demand and potential for products that are fat free/low fat, low cholesterol, low in sodium, gluten free, and unsweetened or reduced calories beverages. These include energy boosters; shakes, juices, energy bars; organic foods and beverages; soy milk, almond milk (unflavored and flavored varieties); whole-wheat or seeds-base products; granola bars, flaxseed products, etc.; artisan made and special sauces and condiments; pancake mixes;  soda beverages, natural juices, both regular and reduced sugar content (targeted to kids);  dairy products; cookies/candy; deli meats; ready-to-eat/heat meals- demand is growing due a larger younger workforce looking for convenience. Examples of these are ramen style soups, sandwiches, canned soups, etc.  

Food Service Sector:

Post reports that tourism has been on the upswing since the creation of the Ministry of Tourism in 2004. The arrival of tourists is expected to have an economic impact in El Salvador of approximately US$1.3 billion in 2016, 19% higher than the US$1.1 billion received in 2015, according to the Ministry of Tourism. Part of the strategy to increase tourist visits began with the launching of a new promotional campaign, “The Best Kept Secret.” The aim is to attract tourists particularly from the U.S. and Canada, who represent 36% of tourist volume. This strategy seeks to convey the message that El Salvador is a closer destination that is a “host par excellence and authentic”.

The hotel sector has also increased the number of four and five-star hotels enjoying a high occupancy rate, mainly for convention tourism. Construction work for 2 new hotels, a Fairfield by Marriott and a Hyatt has already started and they are scheduled to open in 2016 and 2017 respectively. Also there has been a significant increase in small hotels nationwide. Given a 10% average growth rate in tourism, the demand for food products, especially high quality of U.S. foods should continue to grow.

The Government of El Salvador (GOES) views foreign investment as crucial for economic growth and development and has taken numerous steps in recent years to improve the investment climate. U.S. food franchises have increased their presence in El Salvador rapidly during the last eight years, including McDonalds, Burger King, Wendy’s, Pizza Hut, Kentucky Fried Chicken, Bennigan’s, Tony Roma’s, Chili’s, Asia Grill, China Wok, T.G.I. Fridays, Starbucks, Papa John’s, Taco Bell, Domino’s Pizza and Red Mango. Grupo Piramide is a Salvadoran franchising operator that also manages U.S. franchises in Guatemala and Panama.  In 2012 they opened the first outlets of Ruth Chris Steakhouse. In 2014, Ruby Tuesday’s, Longhorn Steak House, and Cold Stone Creamery were inaugurated.

Food-Processing Sector:

Post reports that the food processing industry in El Salvador is relatively small compared to Guatemala and Costa Rica. Snack food production is at the top of the list in this sector. The DIANA brand offers respectable quality for the price, and has roughly 80% of the local market and 24% of the Central American market. Currently with a 70 products portfolio, DIANA is already exporting to ethnic markets in the U.S. and in the last two years has seen the need to innovate some of its products to satisfy new consumer demands, especially those looking for more spicy and intense flavors. Other local snack producers are Bocadeli and Ideal. These companies are working hard to increase market share and offer a wide variety of snacks.

U.S. suppliers can take advantage of the need for ingredients from these snacks producers. There are also some joint venture investments in food processing by U.S. companies such as Del Monte, Clamato and Badia Spices who produce locally for the Central America region. CAFTA-DR has also attracted foreign investment to El Salvador including companies such as Calvo, a tuna processor from Spain. Sigma Alimentos, a large Mexican meat and deli company, has invested in a pork processing plant to cover local demand and export to other Central American countries.

Another important industry in this sector is meat processing. There are approximately 10 companies which are members of the Salvadoran Meat Processors Association (ASICARNE). Imports of U.S. pork meat by this sector have grown tremendously over the last five years, due to the fact that the Salvadoran population is a large consumer of cold cuts/ sausage products. Walmart Centro America has invested in a meat processing plant to supply its stores nationwide.

Another significant sector is the dairy industry. Dairy processors in the market offer a wide variety of products which include cheese, yogurt, and sour cream. The dairy industry also has an association called ASILECHE (Salvadoran Association of Milk Producers and Industrial Processors). This sector is already exporting dairy products to the U.S. The dairy sector is also a very interesting market for U.S. ingredient suppliers as the industry is looking to innovate and add new products, mainly for the specialty cheeses/yogurt categories, to diversify their portfolio and meet consumer demands.

The bakery industry is the last component of the food processing sector. Bakery consumption has increased tremendously, mainly due to the availability of fresh bakery centers in all major supermarket chains, convention events and coffee shops demand.

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