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Mexico Country Profile

Market Overview:

Euromonitor reports that the Mexican economy continues to grow at a modest pace. Moderate gains in private consumption and exports will provide support. A pickup in government consumption ahead of the 2018 election and reconstruction after the 2017 earthquakes will be other drivers. Fears of a disorderly renegotiation of NAFTA are a source of uncertainty, undermining investment. Growth rates will gradually rise over the next few years before slipping to around 2.5% per year by 2030.

  • Mexico’s economic prospects over the next few years are highly uncertain - In the meantime, the economy will grow at a modest pace.
  • Real GDP should increase by 2% in 2018 – after gains of 2.1% in 2017
  • The real value of private final consumption rose by 2.6% in 2017 and gains of 2.7% are forecast for 2018 - Remittances will provide much-needed support for consumer spending
  • Moderately high rates of inflation curb consumer spending - Government consumption is also falling
  • A contentious and prolonged renegotiation of NAFTA that pushes negotiations beyond early 2018 will increase uncertainty about the future of the trade agreement - Forecasts suggest that the economy could shrink by more than 2% if NAFTA collapses
  • Exports could improve over time but much will depend on the outcome of the pending renegotiation of NAFTA

Mexico’s population has been growing at a steady pace. In 2017, it totaled 124 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 29.2 years in 2017 – 6.1 years greater than the figure for 2000. The number of those over 65 years jumped from 5.1 million in 2000 to 8.8 million in 2017 and it will reach 15 million by 2030.

USDA’s Agricultural Trade Office (ATO) in Monterrey, hereinafter referred to as “Post” reports that Mexico continues to be one of the largest and fastest growing markets for U.S. agricultural products. With the geographical advantage of a long land border and an FTA that has virtually eliminated duties on all agricultural and food products, Mexico is a natural market for U.S. exporters.

In 2017, U.S. exports of consumer-ready food products added up to US$8.3 billion, an increase of 4% from 2016. 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 2017, it added up to US$5.8 billion, ranking 2nd in the world and an increase of 2%. The top processed food exports to Mexico in 2017 included:

  • Processed/prepared dairy products
  • Food preparations
  • Syrups and sweeteners
  • Prepared/preserved meats
  • Fats and oils
  • Processed vegetables and pulses
  • Chocolate and confectionery
  • Snack foods
  • Condiments and sauces
  • Non-alcoholic beverages

As its northern neighbor and participant in the NAFTA the U.S. has some distinct advantages in exporting food to the Mexican market:

  • The U.S. and Mexico are highly integrated economies and Mexicans are familiar with U.S. business practices
  • NAFTA has successfully increased market liberalization and access - Import procedures are becoming more standardized
  • Extensive presence of U.S. Cooperators and industry representatives facilitates detection of trade opportunities
  • Mexican consumers recognize U.S. brands and labels and associate them with high, consistent quality and value
  • Population in urban centers is growing and the rate of employment among women is continuing to grow
  • The Mexican peso continues to be relatively stable in its relation to the U.S. dollar, making unexpected price fluctuations less likely
  • Major retailers are developing increasingly sophisticated distribution systems, which will provide more space and better cold chain technology for high value imports
  • Local investment from restaurant chains continues to grow
  • Continued growth in almost all of the processed food industry in Mexico, will increase the need for inputs

The Mexican market is not without some distinct challenges for U.S. exporters as well:

  • Mexican consumers are price sensitive; imported products in general are higher in price due exchange rate
  • 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
  • Mexico is the country with the most free trade agreements in Latin America, opening the door to many third-country competitors
  • Possible changes after NAFTA renegotiation might make U.S. products more expensive to the Mexican market
  • 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 implementation of a special 8% tax on “junk-food” might affect some imported goods’ demand

Retail Sector:

According to Euromonitor, the packaged food market in Mexico was estimated to reach US$48.3 billion in 2017, which is 11th largest market in the world. That represents a growth rate of 21.6% or almost US$8.6 billion since 2013. The forecast for growth in this market is also promising. By the year 2022, the retail sales in the packaged food market in Mexico is expected to reach US$53.5 billion, a growth rate of 8.7%, or US$4.2 billion. High growth categories in the forecast include:

  • Savory snacks
  • Processed fruit and vegetables
  • Processed meat and seafood
  • Sauces dressings and condiments
  • Ready meals
  • Spreads
  • Sweet biscuits, snack bars and fruit snacks
  • Dairy products
  • Ice cream and frozen desserts

Post reports that grocery sales in Mexico represented more than two-thirds of the overall retail sales in 2016. Grocery retailers are expected to grow. Lead retailers such as El Puerto de Liverpool SAC de CV, Copper SA de CV and Walmart de Mexico SAB de CV, among others, are expected to continue their dynamism, pushing the retailing industry to grow via new outlets and e-commerce around the country. Internet retailing was the most dynamic retailing channel in Mexico during 2016, generating strong double-digit value growth. New players entered the e-commerce competitive landscape, including City Market, Chedraui as well as some newly apps like “Corner Shop”, to mention a few.

Top National Retailers

  • WAL-MART de Mexico y Centroamerica Leading the retail landscape in Mexico, Wal-Mart kept up its expansion plans, opening new stores in the different formats and betting on its strength as it moves into the e-commerce
  • Walmart’s operative and administrative efficiency give it increased margins and better services to its many clients
  • By 2016, 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 Bodega Aurrera has no plans to be part of the e-commerce strategy as they target mostly these consumers

Launched in 2012, Superama Movil (Internet retail application for mobile devices) was very successful reaching 60,000 downloads by the end of the same year and accounting for 20% of all Superama internet sales. By mid-2013 Walmart Supercenter launched its e-commerce site, mainly focused on electronics, leisure and personal accessories and other general merchandise. In 2016, Walmart de Mexico y Centroamerica renovated its internet sites, the in-store e-commerce kiosks could be found on the sales floor and free wireless internet service has begun to be offered in some stores.

Walmart de Mexico y Centroamerica has been leading the retail market in Mexico for several years. It’s important to mention that the company avoids bringing too many imports, careful to avoid further currency devaluations. Walmart has a very strong negotiating power and suppliers usually comply with the high demands from the company (payment terms, delivery conditions, special packaging, sustainability, field practices and more).

  • Organización Soriana: During 2016, Organización Soriana integrated the acquired hypermarkets and discounter formats they bought from Controladora Comercial Mexicana SAB de CV.
  • Soriana has the right to use Comercial Mexicana brands and logos in order to ensure gradual transition to their brand in the acquired outlets
  • Soriana has developed more its e-commerce strategy and worked more on its mobile applications and website “sorianadomicilio.com”

Soriana manages five store-based retailing formats: Hypermarkets (Hipermercado Soriana/MEGA), supermarkets (Supermercado Soriana/Comercial Mexicana), discounters (Mercado Soriana and Soriana Express/Bodega Comercial Mexicana and Al Precio), 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 prescription consultations at very low prices. Soriana has a privileged position in Mexico’s retail market. Having different formats to meet the demands of different population segments and with the acquisition of the 160 stores from Comercial Mexicana in 2015, Soriana showed growth in the market becoming the second largest retail company in Mexico after Wal-Mart with 827 outlets across Mexico.

  • Controladora Comercial Mexicana: After selling 160 stores to Organización Soriana, Comercial Mexicana started to give priority to developing its high-end sector through its formats Fresko and City Market which have wide variety of imported and healthy products
  • 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 had sales of $14,757 MXN millions representing a 5.5% increase in comparison to 2015 having a total of 61 outlets around main urban zones of central Mexico

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 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

Focus on technology/media can attract and keep customers.   

Food Service Sector:

Post reports that the food service industry in Mexico includes the hotel, restaurant and institutional (HRI) sectors. Mexico’s HRI food service sector has faced several challenges in 2016 due to an unstable economy and the negative exchange rate fluctuations of the U.S. dollar versus the Mexican peso. An increase in consumer prices (2.82% in 2016 vs 2.71% in 2015) is also slowing down the economic growth.

However, the full service restaurant sector kept growing as more independent operators opened in 2016. Mexico is still an attractive market for international food service companies. 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 (28 million U.S. tourists) and domestic (18 million Mexican) tourists that visited Mexico in 2016, and a rise in the number of young chefs opening their own restaurants across Mexico.

Out of the three segments in the HRI sector, restaurants are the biggest segment by number of outlets. However, because of the socioeconomic categories it targets, hotels represent a better opportunity for imported products; whereas the price of imports might be a problem for other sectors.

According to the National Restaurant Chamber (CANIRAC), and the last census from the National Institute of Statistics and Geography (INEGI) there are 544,937 establishments dedicated to food sales in Mexico. 5% are defined as full-service restaurants, chains and franchises, which offer consolidated services. 95% of the total is medium and small independent restaurants.

The restaurant industry in Mexico employs about 1.5 million people directly and 3.5 million indirectly. The sector represents 1.5% of the national GDP. According to INEGI, 19.8% of the family budget is destined towards “meals away from home”. In 2016, the same trend of 2015 was maintained, independent full-service restaurants accounted for the majority of value sales. Chained food service companies grew faster than independent ones. 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.

Domestic companies Alsea (owners of Chili’s, PF Chang’s, Burger King and The Cheese Cake Factory) and FEMSA (Fomento Economico Mexicano, part of Coca Cola Bottling) remained the top two players in the Mexican consumer food service sector in value sales terms during 2016. The institutional segment registered a positive trend with hospitals, caterers, airlines, industry cafeterias and even schools and prisons developing their own professional food service providers and creating a large market with several opportunities for specific needs.

CANIRAC divides the Mexican restaurant market into four categories:

  • Fine dining and full service restaurants: higher priced establishments targeting middle to high end consumers
  • Casual dining restaurants: affordable, family friendly dining outlets
  • Fast food: known chains like McDonald’s, Burger King, KFC, Subway, Panda Express, etc.
  • Quick and casual restaurants: coffee shops, independent restaurants, street and mobile outlets (kiosks, stalls, etc.)

New concepts in restaurants and hotels with non-traditional cuisines, particularly Asian (Thai, Chinese, Japanese, Indian etc.) are consolidating throughout the country; 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 (farm to table) are being developed, especially in the high-end high-profile Chefs sectors. Convenience food service remains a key factor in the form of convenience stores as well as on quick-on-the-go food service. Fast food sales through convenience stores had a double-digit sales growth in 2016, driven mainly by a growth in outlets (part of the aggressive expansion strategy of FEMSA). The preference for quick on- the-go is expected to keep growing over the next five years according to Euromonitor.

Post advises it is important to highlight that although the following products have high sales potential in the hotel food service 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, lobster and other seafood products that Mexico does not produce
  • Gourmet products including artisanal cheeses, breads, olive oil and pastries
  • Organic foods especially produce
  • Specialized food products for specific food-styles (Thai, Korean, Mediterranean, etc.), including dressings and salsas
  • Wines and craft beers. 

Food-Processing Sector:

According to INEGI, there are over 170,000 registered companies under the industry classification for food and beverage manufacturing/processing. Mexico has a relatively strong food processing industry, growing at a rate of almost 4%, and with a market value of almost US$135 billion.

Leading Mexican brands have well-developed national distribution networks and are well positioned in the market and enjoy high brand awareness with consumers, which are very loyal, despite economic variations. Still, since a new class of Mexican consumers is demanding products that are healthy, convenient, and innovative, food processors are adjusting to these new demands and seek innovative inputs or, in some cases, establish business relationships with foreign food processors in order to exchange technological innovation for their knowledge of the market.

Although the majority of the food processing sector in Mexico is dominated by multinational (both domestic and foreign) corporations, there is a large and growing opportunity for small to medium companies to participate in this industry.

Key market drivers for the food processing sector include:

  • 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 there is increased demand for processed food products 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.

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 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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