Mexico Country Profile

Market Overview:

Mexico has a free market economy with an estimated over US$2.3 trillion dollar Gross Domestic Product, (GDP), on a Purchasing Power Parity, (PPP) basis in 2016. This ranks it 11th largest in the world, just behind France and ahead of Italy, South Korea, Saudi Arabia and Spain.

Euromonitor reports the economic growth in Mexico slowed in 2016, but continues to grow modestly. Real Gross Domestic Product (GDP) rose by 1.9% in 2016 – down from 2.5% in 2015. The real value of private final consumption rose by 4.3% in 2015 and gains of 3.1% were forecast for 2016. Manufacturing and services are the most dynamic sectors. Private consumption will provide modest support though consumer spending is slowing.  

Growth constraints include a fall in oil prices and cuts in government spending. Public investment is also slowing though private investment is still rising. Growth rates will gradually rise, reaching 2.9% per year in the last years of the decade. External demand should strengthen while private investment will continue to rise, eliminating much spare capacity. Mexico’s energy reforms should eventually add about 1.5% to annual growth of GDP.

Mexico’s population has been growing at a steady pace. In 2016, it totaled 123 million, up from 103 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 27.4 years in 2015 – 4.7 years greater than the figure for 2000. The number of those over 65 years jumped from 5.1 million in 2000 to 8.2 million in 2015 and it will reach 15.4 million by 2030.

USDA’s Agricultural Trade Office, ATO, in Monterrey, hereinafter referred to as “Post” reports that Mexico continues to be a growth market representing one of the best opportunities in the world for U.S. products. Overall, Mexico’s top trade partner is by far the U.S., which imports 81.1% of all Mexican exports and provides Mexico with 47.7% of its total imports. Similarly, Mexico has become one of the largest and fastest growing markets for U.S. agricultural products.

U.S. exports of agricultural products to Mexico grew 1% to US$17.8 billion in 2016, ranking it 3rd in the world after China and Canada. Also in 2016, U.S. exports of consumer-ready food products represented 45% of the agricultural total, or nearly US$8 billion, a decrease of 4% from 2015. Mexico remains the 2nd largest export market for consumer ready products. Mexico also imports a considerable amount of U.S. processed foods as well. In 2016 it added up to US$5.7 billion, ranking 2nd in the world although a decrease of 2%. The top processed food exports to Mexico in 2016 included processed/prepared dairy products, food preparations, syrups and sweeteners, prepared/preserved meats, fats and oils, chocolate and confectionery, processed vegetables and pulses, snack foods and condiments and sauces.

The United States has a geographic competitive advantage when it comes to Mexico. Sharing a 2,000 mile-long border with over 45 border crossings, the U.S. is the natural supplier to the market across its southern border. In addition, the close proximity and economic development of the region has made tourism and restaurants a dynamic sector for U.S. exports. Most international tourists visiting Mexico are North Americans and, to a large degree, like to consume products they are used to buying at home.

Mexican consumers are more familiar, and thus oriented towards U.S. products; therefore, these demographic changes in Mexico bode well for increasing U.S. exports. Women continue to join the workforce in larger numbers, which leads to increased demand for consumer-ready food products. Urban women in particular are shifting to healthier lifestyles for themselves and their children and are thus shifting their food consumption patterns to a more U.S./European style. This definitely helps sales of imported and usually higher value products.

Additionally, Mexican consumers recognize U.S. brands and labels and associate them with high, consistent quality and value. Major retailers are developing increasingly sophisticated distribution systems, which will provide more space and better cold chain technology for high value imports. Greater knowledge about organic products is opening new product opportunities at the retail level; likewise, increased awareness of obesity issues is creating greater demand for healthy products.

The Mexican market is not without some distinct challenges for U.S. exporters as well. Mexican consumers are price sensitive; and imported products in general are higher in price, especially with the recent devaluation of the peso to the dollar. Transportation and distribution methods inside Mexico are undeveloped in many regions. Phytosanitary and technical barriers and labeling requirements can cause border crossing problems and delays as Mexican import regulations can change rapidly and without notice.

There is also lots of competition for valuable market share. Mexico is also the country with the most Free Trade Agreements (FTAs) in Latin America, opening the door to many third-country competitors. Mexican retailers are demanding more often that products be delivered locally with local servicing and attention. Local producers and food processors are rising to the challenge of producing quality goods with an increase in variety, learning, and adapting to growing demands. The recent implementation of a special 8% tax on “junk-food” has affected some imported goods’ demand.

Post also offers some very important advice for those interested in entering the Mexican market. They suggest suppliers carry out market research, not only in terms of typical market research, but also in finding appropriate business contacts and thoroughly reviewing Mexican import regulations in order to successfully seize market opportunities and overcome market challenges. They feel it essential to participate in and/or attend Mexican trade shows, particularly U.S. pavilions organized at selected shows. A show can serve as a way to contact local distributors/sales agents, buyers and businessmen, and to become familiar with local competition. If no shows are of interest, plan a visit to talk to buyers, retailers, distributors and other players in order to prepare a more effective entry strategy.

In the case of new-to-market companies, suppliers should be prepared to provide support for in-store and media promotions to familiarize consumers with your products. Another option is state/regional trade missions. They also suggest suppliers investigate if they will be able to acclimatize your product to local preferences, if required; prepare product information/promotional material in Spanish and assign a specific budget to promote your product locally. They also recommend companies carry out background checks before entering into contractual agreements with potential importers.

Retail Sector:

According to Euromonitor, the packaged food market in Mexico was estimated to reach US$47.6 billion in 2016, which is 11th largest market in the world. That represents a growth rate of 20.5% or US$8.1 billion since 2012. The forecast for growth in this market is also promising. By the year 2021, retail sales in the packaged food market in Mexico are expected to reach US$52.4 billion, a growth rate of 10%, or US$4.7 billion. High growth categories in the forecast include savory snacks, sauces dressings and condiments, processed meat and seafood, processed fruit and vegetables, ready meals, baby food and sweet biscuits, snack bars and fruit snacks.  

Post reports that despite slow growth in the last few years, Mexico remains as the second largest consumer market in Latin America after Brazil. The retail sector recorded current value growth of 5% in 2015 and major multinationals and local companies continue to expand throughout Mexico in the different segments signaling that opportunities will continue. Despite a very strong U.S. dollar affecting the Mexican economy, the internal macroeconomic environment remained steady due to moderate inflation rates, favoring consumption and therefore had a positive influence on the performance of the retailing industry.

Grocery sales in Mexico represented more than two-thirds of the overall retail value sales in 2015. Grocery retailers and non-grocery retailers are expected to grow. Lead retailers such as El Puerto de Liverpool SAC de CV, Copper SA de CV and Wal–Mart de Mexico SAB de CV, among others, are expected to continue to grow with the expansion of new outlets around the country. The growth of the Mexican middle class as well as the increasing access to credit and payment facilities that many retailers offer, contribute to the optimistic outlook for the retail market in Mexico for the next year.

Leading the retailing landscape in Mexico, Wal-Mart has maintained its expansion plans, opening new stores in different formats and betting on its strength as it moves into e-commerce. Walmart’s operative and administrative efficiency helps it increase its margins and offer better service to its many clients. By 2015, all three business formats of Wal-Mart Mexico had internet retailing, these were; Superama (medium size supermarkets), Wal-Mart Supercenters (hypermarkets) and Sam’s Club (warehouse clubs). Sam’s Club and Superama are known to target the high and middle-high income segments while Walmart Supercenter target the middle-income segment. Usually lower-income consumers are not familiar with e-commerce and do not have internet access therefore the lower end format Bodega Aurrera has no plans to be part of the e-commerce strategy as they target mostly those consumers.

Walmart de Mexico y Centroamerica has been leading the retail market in Mexico for several years, the market share value for 2015 was 12% (including modern and traditional retailing), and the company held an 18% value share of sales in 2015 and led modern grocery retailers with 32% of the total sales across the category. It’s important to mention that the company avoids bringing too many imports careful to avoid further currency devaluation.

Walmart has very strong negotiating power and suppliers usually comply with the high demands from the company (payment terms, delivery conditions, special packaging and more). For the future, Wal-Mart plans are to continue expanding throughout the country and placing new formats in new locations to accommodate the shopping needs of particular consumer groups (mainly discounter stores “Bodega Aurrera”) in small urban areas with fewer than 100,000 residents, thus capturing a market that has remained under the radar of chained grocery retailers in the past.  

Starting in 2015 and over the next two years, Organización Soriana plans to integrate the acquired hypermarkets and discounter formats they bought from Controladora Comercial Mexicana SAB de CV. Soriana has the right of using Comercial Mexicana brands and logos in order to ensure gradual transition to their brand in the acquired outlets. Soriana manages five store-based retailing formats: Hypermarkets (Hipermercado Soriana), supermarkets (Supermercado Soriana), discounters (Mercado Soriana and Soriana Express), convenience stores (Super City) and warehouse stores (City Club). Following the strategy of offering new products and services to its clients, Soriana started to include health centers at its hypermarkets and supermarkets providing consultancy at very low prices.

Soriana has a privileged position in Mexico’s retail market with a 3.4% share of total store-based retailing and 10.9% in modern grocery retailers (during 2015). Having the different formats to meet the demands of different population segments and with the acquisition of the 160 stores from Comercial Mexicana, Soriana expects to show growth in the market, possibly becoming the second largest retail company in Mexico after Wal-Mart.

With several grocery-retail formats targeting all socioeconomic levels, Comercial Mexicana started to give priority to developing its high-end sector through its formats Fresko and City Market which have a wide variety of imported and healthy products.

In January 2014 Controladora Comercial Mexicana announced the possibility of being sold, and by the end of the year Organization Soriana had bought 78% of Comercial Mexicana (160 stores) for a total of 2.6 billion MXN. Comercial Mexicana has a nationwide presence, with a very strong focus on the central area of the country, which is considered the most important consumer market. Its e-commerce presence will be developed during the coming years. After selling most of its stores, Comercial Mexicana plans to expand the high-end formats (City Market, Fresko and Sumesa) with an investment of 3.2 billion MXN between 2015 and 2020. Comercial Mexicana accounts for 4% share of value sales in retailing during 2015; holding the seventh place in the retail market in Mexico and the fifth among modern grocery retailers with a 5.3% market share.

Best Prospects:
Post reports that recently, Mexico’s growth has been slowed but it still has some appeal making the market attractive for new products. A more educated population, expansion of urban lifestyle in small cities, credit availability as well as the growing Double Income No Kids (DINK) couples, all open several possibilities for products of high quality and value. They advise to keep in mind the boom of and fast pace of commercial centers being built each year despite the slow pace of the general economy in the country.  

As they mentioned before, retailers are expanding their high-end formats where import products are the main spot for consumers. Given the rapid expansion of stores in these niches, in order to keep their customers and expand the market, retailers need to offer products in the following categories: Health and wellness products (Body care products, dietary supplements); fresh food; “RTE” or ready to eat food; snacks, instant meals; wines/spirits/craft beer and a focus on technology/media can attract and keep customers.  

Food Service Sector:

Post reports that the foodservice industry in Mexico includes the hotel, restaurant, and institutional (HRI) sectors. Mexico’s HRI foodservice sector has faced several challenges in 2015 due to a more unstable economy and in the first half of 2016 the depreciation of the peso has slowed down growth.

However, the area of chained full service restaurants grew at twice the rate of independent players in 2015. Mexico is still an attractive market for international foodservice players. There are export opportunities for U.S. suppliers of food and beverages interested in this market, especially in the restaurant and hotel sector because of a growing number of foreign and domestic tourists and a rise in young chefs opening their own restaurants.

According to Euromonitor, chained foodservice showed sustained growth driven mostly by the increased investment by foodservice companies in Mexico over the last two years. Chained foodservice companies grew faster than independent players in nearly every foodservice area in 2015. The entrance of several new players to Mexico reflected that the country remains attractive to international players. For example, Allied Domecq re-entered Mexico with its Dunkin Donuts brand in October of 2015, and Ilitch Holding tripled the number of outlets of Little Caesar’s Pizza in 2015.

According to the National Restaurant Chamber, CANIRAC, and the last census from The National Institute of Statistics and Geography (INEGI) there are 515,049 establishments dedicated to food sales in Mexico. Only 5% are defined as full-services restaurants, chains, and franchises, which offer consolidated services. The remaining 95% of the total is medium and small independent restaurants.  Out of the three segments in HRI foodservice, restaurants is the biggest segment by number of outlets. However, because of the socio-economic categories it targets, hotels represent a better opportunity for imported products, where price differential might be an issue for other markets.

In the restaurant foodservice sector, independent full-service restaurants accounted for the majority of value sales in 2015. Chained foodservice companies, however, grew faster than independent players in nearly every foodservice area in 2015. Restaurant chains expanded their presence in major and smaller cities, in addition to increased geographic coverage and a strong presence in retail locations like shopping malls, airports, bus stations and highways. Similarly, the institutional segment registered a positive trend, with hospitals, caterers, airlines, industry cafeterias, and even prisons and schools evolving into professional foodservice providers, creating a large market with several opportunities for specific niches.

According to CANIRAC’s president, Mr. Hugo Vela, the restaurant industry in 2016 suffered a slowdown in growth driven by the impact of the exchange rate on some imported products used by the industry, including meat, seafood, and specialty products.

The sector is very fragmented; full service restaurants in Mexico serve a wide range of consumers. However, the majority of outlets are independent family –owned “Fondas” and “Taquerias”. Fondas are small independent restaurants which are popular among middle and low income consumers who do not eat at home. Restaurants that belong to the “organized” restaurant segment are chains and large establishments, which only represent around 1% of all the restaurants in Mexico and generate 6% of all value sales of the sector, these include fast food, casual dining, fine dining, cafes and bars.

The consumer foodservice industry in Mexico continues to experience growth in full service restaurants, especially in home delivery, driven mainly by heavy traffic and fast pace lifestyle in the biggest cities like Mexico City with 20 million consumers, where many people prefer to eat at work or on the run. In October 2016, UberEats, a new ‘premium’ food delivery service was introduced in Mexico City. UberEats has signed alliances with around 500 restaurants in Mexico City from fast food and full service chains like Fisher’s to gourmet restaurants such as Eno and Tori Tori. New concepts in restaurants and hotels with non-traditional cuisines, particularly Asian (Thai, Chinese, Japanese, Indian etc.) are consolidating throughout the country, and Mexican consumers have a strong preference for oriental cuisine. Another trend in the restaurant sector is on sustainable ingredients, restaurants offering local and sustainable raised ingredients.

Convenience remains a key in the form of convenience stores as well as on quick-on-the-go foodservice. Fast food sales through convenience stores had a double-digit sales growth in 2015, driven mainly by a growth in outlets, which increased by 9% in 2015. The chain OXXO had more than 13,912 outlets in Mexico in 2015. The preference for quick on-the-go is expected to keep growing over the next five years according to Euromonitor.

Post encourages U.S. suppliers to look for multiple local distributors in Mexico and identify distributors that service the major cities including Mexico City, Guadalajara, Monterrey, Cancun and other Pacific coastal cities, where most of the foodservice market is concentrated. Distribution is the most important factor in the success of selling food products in Mexico. A distributor is the primary channel for food products exported from the United States and sold in Mexico. Food and beverage products for the HRI market are supplied through various types of distributors. Purchasing decisions by large restaurants chains are usually made by the purchasing manager or the corporate buyer. Chefs play an important role in purchasing decisions and they tend to focus more on the quality and taste of the product then buyers who focus primarily on price.

Competition among suppliers is based on price, quality, service, and volume sizes. The key is price competitiveness and quick access/availability of products. Suppliers prefer to have their demand directly linked with the size of the business. Products with the biggest volumes are meat, processed foods, and cold meats. The foodservice sector looks for suppliers that can also offer product variety and emergency necessities. They purchase 80% of their fresh produce directly with a supplier at the central market. Their suppliers need to offer a variety of products depending on general preferences, unless they have specialized needs. They source imported specialty products from local/regional distributors, due to volume.

Best Prospects:
Post advises it is important to highlight that although the following products have high sales potential in the hotel foodservice segment, volumes required might be small, so exporters should take this into account when preparing for shows and exhibitions, or trade missions: Meat (pork and beef), cold cuts; salmon, crab, and other seafood products that Mexico does not produce, organic foods especially produce, specialized food products for specific food-styles (Thai, Korean, Mediterranean, etc.), including dressings and salsas, craft beer and wines. 

Food-Processing Sector:

Post advises that with over 186,000 food processors and more than 800,000 employees the Mexican food processing sector produced US$135.5 billion worth of processed foods making it the 3rd biggest producer of the Americas and 10th producer in the world. Due to demographic and lifestyle changes, the sector could expand depending on whether the Mexican peso can resurface or if it will continue to devalue against the U.S. Dollar. Since 2014, the peso has lost 31% of its value versus the USD and 42% since 2010.

Mexico’s processed food imports for 2015 were US$9.4 billion, with 63% imported from the U.S. Exports were US$11.8 billion with 72% of the total bound for the U.S., making Mexico the second leading processed food exporter to the U.S. Mexico has a strong food processing industry in which leading Mexican brands like Bimbo, PepsiCo, Lala, and Nestle amongst others have a well-developed national distribution network that is well positioned in the market and enjoys high brand awareness with consumers who are very loyal despite economic variations.

Key market drivers for the food processing sector include an increasing interest in healthy foods across all age groups as well as increasing demand of organic foods and natural ingredients. There is also increased demand for convenience foods and prepared meals, due to the growth of urban cities and more women entering the work force. In 2015, a woman was the sole or main provider in 29% of all Mexican homes. This represents a 5% increase from 2010. There is also more demand for gourmet and more sophisticated food products. Consumers are looking for new food experiences and are open to trying more exotic flavors and ethnic foods.

Private label products are popular among the masses and in lower socioeconomic levels since they offer unit prices which are significantly lower than those of the leading brands while maintaining good quality. Recent demographic changes in Mexico point to the number of persons per household decreasing. In 2015 the average Mexican household contained 3.8 people. With the increase in the number of single households now in Mexico, there is increased demand for processed food products in smaller packages or single portions. Lifestyle changes such as time away from home, urbanization and more access to information have also affected consumer trends.

Locally produced food products continue to have certain competitive advantages over foreign imported products. First, given their location, domestic processors are often more aware of the current and evolving market trends and tendencies and are therefore often quicker to make modifications and meet the demands. Also, domestic processors tend to have a better understanding of the local foodservice industry, including the resources and contacts to gain prominence in this key channel of distribution for the industry. Imported products face direct competition with local specialty companies that cater to particular niche markets relative to regional demands in the country. Smaller domestic companies also tend to have a well-established supply channel with major warehouse food clubs in Mexico, including Costco and Sam’s Club, which in turn serve a large portion of the foodservice sector.

Domestic producers of several important processed foods groups, including canned/preserved food, chilled processed food, sauces, salad dressings, and condiments, maintain a leading edge in the market over similar imported products because they cater to local flavors. Artisanal processed foods in Mexico, such as tortillas and bolillos (local bread unit), and other traditional local breads, remain basic food staples in the Mexican diet and as a result, domestically-produced versions of these goods are more favorable to imported brands.  

A great deal of competition exists in the category of snacks foods and the “impulse/indulgence” food products. Key companies such as Grupo Bimbo (the largest baked goods company in the world) and Grupo Sabritas (owned by PepsiCo.) produce a large number and assortment of baked goods, snacks and impulse and indulgence products, making it difficult for smaller producers to compete locally. Additionally, their efficient distribution and logistical network makes it difficult for new-to-market products to compete as the local brands are found even in the smallest mom and pop stores nationwide. This sector is also faced with the challenge of keeping production costs down in order to stay competitive while meeting new trends.

Large multinational companies have a competitive advantage over smaller domestic producers in certain product categories such as frozen foods, soups; specialty canned and preserved products, and well-known condiments and flavors that cater to the international pallet. Because of this, companies able to meet the demands of this competitive processed food sector must have the means to invest in technology and innovation not only to meet consumer demands but also maintain low, competitive prices.

In addition, there is the influence of other competitors, such as China, the European Union, South America, New Zealand and Australia that are gaining ground in the Mexican food market as a result of the various Trade Agreements Mexico has signed with these countries.

Best Product Prospects: 
Best prospects for U.S. exporters in the food processing sector include healthy processed foods (low sodium, low-fat, reduced sugar), premium products- claiming better quality and product innovation, gourmet foods – sauces, condiments, artisanal cheeses, ethnic foods such as Asian type items, Lebanese food, European food, dairy products- distinctive formulation of yogurts, segmentation of milk products, ingredients for the processed food industry, convenience foods such as ready-to -eat, meal helpers, frozen foods, craft beer – there is a growing demand for differentiated premium beers. Consumers are demanding ales such as porters, stouts and IPA’s.  

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