Mexico Country Profile

Market Overview:

Euromonitor reports that Mexico’s economy will dip slightly in 2019.  Strong gains in exports, benefitting from strong growth in the U.S., along with moderate gains in private consumption are the main drivers.  It is hoped that following the negotiation of the United States, Mexico, Canada Free Trade Agreement (USMCA), that investment will soar.  Growth rates should gradually rise over the next few years, averaging about 2.1% in 2020 and reaching 2.8% per year by 2026.

  • Mexico’s economy is performing well. Real Gross Domestic Product (GDP) should grow by 1.9% in 2019 after gains of 2.1% in 2018.
  • The real value of private final consumption rose by 2.3% in 2018 and gains of 2.5% are forecast for 2019. Buoyant remittances and robust employment growth support consumer spending.
  • The USMCA trade agreement was signed in September, guaranteeing tariff-free trade for at least the next six years. Exports should improve over time once the USMCA has been finalized.

The outlook for industries such as electricity, oil and gas, financial services and telecoms is promising.  Mexico’s energy reforms, alone, could add about 1.5% to annual growth of GDP.  The success of on-going structural reforms should eventually encourage additional investment.  Oil prices are expected to rise gradually while the effects of current fiscal reforms will wane.  Both these developments will provide a measure of support for the economy.

Mexico’s population has been growing at a steady pace.  In 2018, it totaled 125.9 million (CIA World Factbook Est.), 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 number of those over 65 years jumped from 5.1 million in 2000 to 9 million in 2018 and it will reach 13.9 million by 2030.

Since joining NAFTA in 1994, Mexico has negotiated 46trade agreements, the most among any country.  This includes the new 11-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), formally created in March 2018.  The agreement entered into force in Canada, Australia, Japan, Mexico, New Zealand and Singapore on December 30, 2018.The recent modernization of NAFTA resulted in the United States-Mexico-Canada agreement (USMCA) in principalas of September 2018, with a review in six years.

Additionally, the EU and Mexico recently upgraded their trade agreement by slashing tariffs on agricultural imports among other adjustments.  Neither USMCA nor the Mexico-EU FTA have entered into force and are awaiting respective government approval processes.  Mexico is also a member of the Pacific Alliance, a trade bloc formed by Mexico, Chile, Colombia, and Peru in 2011.

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 an FTA that has eliminated duties on all agricultural and food products, Mexico is a natural market for U.S. exporters.

In 2018 Mexico passed China to once again become the 2nd largest market for U.S. agricultural products from the U.S. In 2018, U.S. exports of consumer-ready food products added up to nearly US$8.6 billion, an increase of 3% from the same period in 2017.  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 2018 it added up to US$5.9 billion, ranking 2nd in the world and an increase of 2%.  Top processed food exports to Mexico in 2018 included:

  • Processed/Prepared Dairy Products
  • Food Preparations
  • Syrups And Sweeteners
  • Prepared/Preserved Meats
  • Fats And Oils
  • Processed Vegetables And Pulses
  • Chocolate And Confectionery
  • Condiments and sauces

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

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.
  • 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 to the 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.
  • Possible changes after NAFTA renegotiation might turn 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.
  • 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$51.6 billion in 2018, which is 11th largest market in the world.  That represents a growth rate of 27% or US$10.9 billion since 2014.  The forecast for growth in this market is also promising.  By the year 2023, the retail sales in the packaged food market in Mexico is expected to reach US$69.6 billion, a growth rate of 26.7%, or US$14.6 billion. High growth rates in the forecast include:

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

Euromonitor reports that supermarkets in Mexico saw only slow current value growth during 2018, despite the positive performance of the leading players.  The main factor which led the channel to see a weak performance was the sudden exit of the domestic retail brand MZ from the market, along with the restructuring of Organización Soriana, which included the shift of the brand Alprecio into Soriana Súper.  In general, those players that also have a presence in other modern grocery channels slowed down their investment in supermarkets, opening few or no stores during the year.  The leading supermarkets target middle- to high-income consumers with higher disposable incomes and are located in specific areas of mid-sized to large cities.  Given these limitations, supermarkets showed a slower performance than hypermarkets or discounters in 2018.

Hypermarkets in Mexico still operate with the traditional format of aisles and cashiers, with a person in charge to receive the payment.  The automated stores with self-payment that are popular in other countries are not part of mid-term plans of hypermarkets. Instead, they are constantly improving their store concepts to differentiate.  For example, Soriana Hiper and Chedraui have special areas for foodservice, La Comer was redesigned to look more like a department store, Walmart is improving its program to support independent small producers and HEB adapts each store to meet the special needs of consumers in each different location, to mention a few examples.  Over the forecast period (2023) it is expected that hypermarkets will see a positive performance and continue to grow at a moderate pace, given that most players have announced investments in continuing to open new stores.

Discounters in Mexico is expected to continue to see moderate single-digit growth over the forecast period, given that most of the current competitors have investment plans for expansion through the opening of new outlets in cities where modern grocery retailing is underdeveloped.  The rapid growth of convenience stores could be one of the main challenges, mostly due to their locations and service hours; however, the lower prices offered by discounters is one of the strengths that will be difficult for competitors in modern and traditional grocery channels to overcome.

In Mexico, convenience stores continued to be one of the most attractive retail channels, seeing double-digit growth in current value terms for the fifth year in a row.  The main competitors made strong investments and continued to open new outlets and increase their presence in more cities in the country.  Both international and domestic retail brands are committed to bringing consumers more products and more services to maintain their attraction, and are constantly launching promotions or offering exclusive products that cannot be found in other grocery retail channels.  Convenience stores is seeing faster improvement in terms of the shopper experience than hypermarkets and supermarkets; instead of focusing only on selling grocery products, these outlets offer financial services such as bill payment or cash transfers, cash withdrawals and debit cards, amongst others.

Although there are independent competitors within convenience stores, chained competitors have the strongest expansion plans and are set to continue growing over the forecast period.  For brands such as 7-Eleven and Circle K, there are still several regions of the country in which they do not have a presence. While OXXO covers almost all the 32 states of the country, 7-Eleven is a strong competitor in the northeast and central regions; Super City has an important presence in the north and central regions, and Circle K in the central region and some southern states.  The northwest, the Pacific region and the south have plenty opportunities for all competitors to open new outlets and reach new consumers. For those companies with a franchise model, such as Tiendas Mambo, growth could be slower, but still positive.

Best Product Prospects:

A more educated population, expansion of urban lifestyle in small cities, credit availability all open several possibilities for imported products of high quality and value. 

As mentioned above, retailers are expanding their high-end formats, where imported products are a major draw for consumers.  Given the rapid expansion of stores in this niche, in order to maintain customers and expand the market, retailers need to offer products in the following categories:

  • Health and wellness products (Dietary supplements, power foods, gluten free products);
  • Gourmet products;
  • Fresh food (organic);
  • Ready to eat food (Savory and non-savory snacks, instant meals, eat on the go); Wines/Spirits/Craft Beer
  • Frozen food

Food Service Sector:

During 2017, Mexico remained the top destination for international visitors in the North America region, with Canada second and the United States in third place.  Major hospitality multinationals, as well as local companies, will continue to expand throughout Mexico, launching more sustainable (i.e., construction materials being sourced nearby, eco-friendly use of resources like water, electricity, and waste disposal) and practical formats to capture new visitors (international and locals).

According to Banxico (Bank of Mexico), during 2017 the number of international visitors arriving to Mexico was 99.6 million, representing 5% growth in comparison to 2016.  The average expenditure of long-stay visitors was US$909, representing a decrease of 2.3% from previous year.  The current strong momentum in the tourism sector is expected to continue in 2018, though at a slightly reduced pace after eight years of steady expansion following the 2009 economic and financial crisis.  Based on current trends, economic prospects and the outlook by the United Nations World Tourism Organization (UNWTO) international tourist arrivals are projected to grow by 3.5%-4.5% percent in Mexico during 2018.

U.S. suppliers continue to enjoy favorable market conditions as American restaurants and hotel chains expand operations in Mexico.  U.S. products dominate imports, with the main competition coming from local firms.  Of all food products consumed in hotels and restaurants, over 50% are imported.  Independent distributors continue to be the main suppliers for the hotel, restaurant institutional (HRI) sector; however, they have been experiencing greater competition from large club stores, which have been aggressively pursuing their share of this market, especially in resort areas.

A more educated population willing to travel outside their countries, expansion of lodging options, credit availability, and the booming number of Double Income No Kids (DINK) couples around the world, all open several possibilities for imported products of high quality and value in the HRI industry.  As mentioned above, 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:

  • Health and wellness products (power foods, vegan and gluten free products).
  • Gourmet products.
  • Organic and non-GMO foods.
  • Ethnic foods (spices, food bases, cereals and condiments)
  • Wines/Spirits/Craft Beer.
  • Specialized dairy products (gourmet cheeses, non-fat sugarless yogurts, lactose free, etc.)

Food-Processing Sector:

Mexico continues to be a growth market for U.S. food processing ingredients.  However, as Mexico continues to seek diversification in agricultural trade, in recent year’s competition emerged from the European Union, South America, and Asia.  Additionally, with President Andrés Manuel López Obrador (AMLO) taking office in December 2018, Mexico shifted its focus domestically, promoting programs and incentives to enhance both local production and consumption with a goal of becoming self-sufficient in core agricultural products, including processing ingredients

The processing industry in Mexico is stable and trending towards diversification.  Multinational companies such as Nestlé and Unilever own processing facilities in Mexico, and some companies export their processed goods as well as selling them domestically.  The key Mexican companies within the food processing industry are Sigma Alimentos (Mexican leader for processed meats), Lala (Mexican dairy production leader), Bachoco (a Mexican poultry production leader), Bimbo (a global baked goods leader) and Grupo Maseca (a global flour and tortilla production leader).   Many of the large companies own their supply chain or have a well-established supply chain. 

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 countries (such as Brazil, Chile, and the European Union) continue to make inroads in various processing ingredient sectors such as poultry and dairy, the U.S. maintains distinct advantages.  For example, a U.S. exporter may be able to ship one truckload or train car per urgent order, while such a small shipment would not be economically viable via a third country (who would seek to ship multiple containers or a complete shipload).

Best Product Prospects:

  • Healthy processed foods (Low sodium, low-fat, reduced sugar);
  • Premium products- claiming better quality and product innovation;
  • Gourmet Food – sauces, condiments, artisanal cheeses;
  • Ethnic Foods such as Asian type items, Mediterranean food, European food;
  • Dairy products- distinctive formulation of yogurts (Greek etc), segmentation of milk products;
  • Plant-based beverages and products –soy, almond, coconut, rice, oat;
  • Convenience Foods such as Ready-to -eat, meal helpers and frozen foods;
  • Craft Beer –there is a growing demand for differentiated premium beers.
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