Mexico: A Destination for Growth

Market opportunities for UK retailers 2 Mexico: A Destination for Growth

Foreword

Mexico is a country full of opportunities - and there has never been a better time to consider it as a business destination. The British perception of Mexico is often inaccurate. In fact, Mexico is a modern country with a dynamic economy. It has a young population of 112 million, with a growing middle class and strong macroeconomic fundamentals. Mexico has an impressive network of Free Trade Agreements (including with North America and the EU), and a strategic location between the US and Latin America. But at the same time, the Mexican Government and local businesses have said they wish to reduce their dependency on trade with the US. So for UK companies, Mexico has the potential to act as a springboard into the Americas, as well as being an attractive market in its own right.

British products have a significant presence in the country; our products are generally recognised for their quality, and have performed well in the local market. Yet, while Mexico regularly ranks in the top three emerging markets in which to do business, the UK exports much less to Mexico than many of our major competitors. So, while the opportunity clearly exists, other countries are taking greater advantage of it.

For this reason, UK Trade and Investment (UKTI) has produced this report with the help of global research agency Millward Brown. It aims to identify opportunities for UK retailers through a simple yet insightful document, to help British companies make more informed decisions. The report has various sections that outline a range of sectors and industries in Mexico.

This report is designed as a useful reference guide for readers to dip in and out of. It should be used in conjunction with the UK Trade & Investment website (www.ukti.gov.uk/mexico), and our other services. The report will guide you through the retail sector in Mexico, while the website will give you regularly updated market and sector information, business opportunities, and details of relevant events.

From luxury goods and shopping centres, to food and drink, this report intends to give the UK retailer a real picture of what is happening in Mexico, and why Mexico is an exciting destination for growth.

JOHN PEARSON First Secretary, Trade & Investment British Embassy, Mexico City 3

Contents

4 Overview - Meet Mexico 6 Understanding Consumers 8 Understanding Retailers 10 Challenges 12 Mexico’s Retail Sector 16 Apparel 17 Groceries 18 The Big Players 20 Centres of Activity 21 Key markets in Mexico 22 Healthcare 24 Drinks 28 Food 32 Luxury 35 To Keep in Mind

This guide was produced for the UK Trade & Investment team in Mexico by Millward Brown Optimor Mexico. This project was developed through consulting primary sources developed by Millward Brown and its Knowledge Bank, as well as secondary sources relevant to the project. 4 Mexico: A Destination for Growth

Overview

Mexico is the 14th largest economy in the world, according to the International Monetary Fund (2013):

US $1,162 billion(Real GDP) Following a significant decline in the recent economic downturn, the Mexican economy is Meet already showing strong signs of recovery.

$ $ $ $ $ $ $ MEXICO! $ $ You’ve heard of Mexico, but have you A HUGE COUNTRY CULTURAL RICHNESS heard it’s a country with a fast growing Mexico’s 2 million sq km are A country rich in art, music, international presence? rich in natural resources and languages and tradition, its 9,330km border with the Mexico blends the best of US gives the country access European and Amerindian to even more. cultures. With Europe’s Retailing in Mexico “economies “remains strong. A HINGE STATE FOREIGN TRADE stagnating, China Despite the state Mexico is a bridge between Mexico has 14 Free Trade worrying about of the international North America and the vast Agreements with countries sustaining growth economy, Mexico cultural area of Latin America, including the US and Canada, and property bubbles managed to continue uniting the distinctive Japan and the EU. This makes it and India faltering, growing in GDP terms characteristics of both. one of the countries most open Latin America and kept inflation to foreign trade in the world. remains one of the rates under control. few regions exhibiting Retailing grew at LEADING A BIG HAPPY continued growth above GDP levels, PLAYER IN POOL OF CONSUMERS and healthy long- outperforming in A GROWING POTENTIAL WILLING & term prospects. categories such as REGION BUYERS ABLE TO SPEND The Futures Company department stores Mexico is a leading A market driven Despite a complex and specialised country in Latin by a huge middle social situation retailing. America, with class (48.3% of in which criminal sound economic population), yet undertones colour Euromonitor International indicators that with important everyday life, Mexico’s figures for show a strong recent economic higher and lower performance. socioeconomic upturn has generated groups. a sense of optimism in consumers. 5

Mexico’s modern Monterrey retail infrastructure is concentrated in its Mexico City three largest cities

Guadalajara

You just need to push the right buttons... 6 Mexico: A Destination for Growth

Understanding Consumers

Mexican consumers are spending their money across a smaller number of categories

Average household WHAT ARE MEXICANS wealth in Mexico: SPENDING THEIR MONEY ON? Other £6,273.89 3.6% Personal (2012) care: 8.2%

Education and Food, beverages entertainment: and tobacco: 32.7% 13.6%

% Transport and communications: 18.5% 11 5.6% Clothing Housing and footwear Increase in expenditure and fuel: in the beauty and 9.3% 2.7% 6.2% personal care categories, Healthcare from 2006 to 2011. Household items and services

FACE OF SUCCESS BEAUTY OF SUCCESS BIG BRAND TRUST Mexican people are looking Importance is increasingly In Mexican culture, well- to turn their aspirations being placed on the link known, established brands of success into reality by between looks and success. are seen as reliable and spending more on beauty trustworthy. and personal care products.

With disposable incomes rising, Mexicans are more willing (and able) to invest in themselves, be it on clothing, health or beauty products. $ $ $ $ 7

Understanding Consumers

INTRODUCING...

Brands with the highest level of consumer engagement in Mexico according to BrandZ. Their recipe for success? Taking into account four basic principles that apply to the Mexican marketplace:

WELL KNOWN FOR EVERYONE

Brands that command Accessible brands for trust and loyalty. the majority.

Consumers know exactly Brands that create pricing what to expect from strategies to match these brands. consumer spending power.

EMOTION LEADERS

Brands that create Brands that inspire. a strong emotional bond.

They are highly regarded Brands that understand as category leaders, as Mexico´s emotional and innovators, as the brands social landscape. that everyone else follows. 8 Mexico: A Destination for Growth

Understanding Retailers

With a growing population, and a positive economic outlook, Mexican consumption (and thus retailing) is experiencing positive growth SOLID PERFORMANCE

INCREASE IN THE NUMBER OF HOUSEHOLDS BY 2018 BY 12% 32,891,810 GDP GROWTH 3.9% IN MEXICO 2012

INCREASE IN RETAIL UNITS 8.7% MORE THAN 1900 OUTLETS OPENED IN 2012 Solid economic performance has driven retail growth across the country. GROWTH ON BOTH FRONTS

£7.33 BILLION £119.84 NON•STORE BILLION VS INSTORE

2012 RETAIL SALES £127.18 BILLION

Mexico’s retail environment is growing and evolving due to the country’s dynamic economic and demographic outlook. 9

Understanding Retailers

Modern retailers in the country have focused their strategies on expansion through smaller stores and in smaller cities

Reflecting social 2. An increased focus on complexity the importance of time Mexico’s retail landscape is and price has driven two made up of brands that serve main formats: Convenience the country’s social reality, Stores (which have grown where the richest and poorest by CAGR+9%), and live side by side. Discount Stores ( which have grown at CAGR + Leading retailers show 21%). that they cater for various socioeconomic groups (Where CAGR is Compound by offering contrasting Annual Growth Rate) channels and store 3. Stores aim to create formats. one-stop shops. Smaller populations Mexico’s economic 4. Complementary services development has reached are becoming increasingly Nagel Photography / Shutterstock.com smaller populations across important. the country (in tier 2 and Consumers are 3 cities).But this has also happened in big cities: urban increasingly searching for dwellers that were once practical options when ignored by retailers are now buying and retailers are demanding more attention as responding accordingly. their disposable income rises. Mobility on the go Retailers’ answer? In many ways, Mexican Expansion through the society is centralised. As construction and opening of a result, retailers have new, smaller stores near to historically concentrated these populations. their efforts in large cities and central locations. As The new trend? To get these locations have become closer to customers. saturated, they have been Consumers change too: forced to change their Practical consumers expansion strategies. Retailers have altered their approach to meet the needs As saturation has been of increasingly practical reached, most retailers consumers: have moved to mid-sized destinations or developed 1. Grocery retailers are new formats to reach opening small discount previously inaccessible stores to reach new audiences. urban dwellers. 10 Mexico: A Destination for Growth

Challenges

The search for practicality and more accessible options has pushed non-store retailing formats

PRACTICALITY PUSHES NON-STORE OPTIONS Growth figures (% growth between 2007 and 2012)

656.4% 112.5 % 60.7 % 54.2% Internet retailing Vending Home shopping Direct selling £7.33BILLION (2012) machines Traditional stores and other Sales - 2012 formats have also grown. £1.78bn £ 0.14 bn £0.23 bn £ 5.17 bn

User distribution by age User distribution by socioeconomic group 46,600,000 INTERNET 13 - 18 31 ABC+ 51 internet users 19 - 25 23 C 21 in the country 26 - 32 15 C-/D+ 22 DOMINATES 33 - 39 D/E 11 6 40 - 46 9 47 - 53 6 54 - 70 5 Internauts are currently concentrated in specific age groups, but this will change in the future. MEXICO’S INTERNET CHALLENGES:

With a growing young workforce, belonging to all social sectors, Mexico will soon have a population that is proficient in technology and has increased • Perceived as The internet is not disposable income. unsafe a primary channel • Low credit card for leading retailers. By 2030, this workforce - aged between 15 and 64 penetration MercadoLibre.com e-Retailers years old - will account for 65.7% of the population of • A high figure of is the only retailer the country. technological to appear on in the country illiteracy (55%) Mexico’s Most in adults Visited Websites. still have some work to do. 11

MEANS OF COMMUNICATION IMPORTANCE Recurring behaviour online People are spending more time 83% 68% on the internet (4 hours 3 minutes EMAIL SEARCHING per person daily). And there is increasing usage at home: 87% (2011) VS. 93% (2012) 90% 48% 61%

Informal retailing still plays a big part in the Mexican mindset. of internauts belong of internauts belong consider social Consumers from every socioeconomic group are willing to to a social network to a fanpage media to affect their opinion on brands consider buying through the internet if it offers clear benefits. However, when deciding how to purchase, the in-store retail The internet is a trusted media channel for Mexicans. It experience is also an important factor. is generally seen as a good way to communicate with similar groups. MOBILITY IS KEY of Mexican internauts % navigate through 70 mobile devices.

This is understandable given that most Mexican internauts are young and from higher social groups.

Mobile devices should be considered as a way to boost retail strategies. AN UNDERDEVELOPED SALES CHANNEL of internauts have bought or made a 57% payment online 21% 6 % 15 % TICKETS BOOKS CLOTHING Despite being an important way to stay in touch with brands, this sales channel remains under-developed. 12 Mexico: A Destination for Growth

Mexico’s Retail Sector

Retail success in Mexico is built on strong attractive brands across all sectors, from groceries to luxury goods. Retail is dominated by a number of major players and the development of shopping malls continues to grow. Increasing competition has seen retailers develop innovative ways to differentiate the in-store experience for consumers. 13

The secret to success is building strong attractive brands

There is no place for MEXICANS ARE BRAND-ORIENTATED CUSTOMERS uncertainty in Mexican culture – brands must be BRAND creative and assertive. A Consumers may consider AS new brands but they always need a IVE S compelling reason to T ER A T make a purchase. E I R V C E BRAND BRAND 44.9% of Mexico’s population C B are in lower income groups. They

E S may try new brands but only at the V T I right price. R T O C N A G TR The size of the lower and middle AT classes makes them the natural target market for brands looking to D increase their customer base. BRAND THE RETAIL SALES FORECAST We make it for you We’re local to you + % We know your area +3.1% 6000+ 16.3 2012-17 Compounded 2012-17 Total Value Annual Growth Rate Growth Rate RETAILERS – KNOW YOUR STORE-BASED RETAILING SALES £287 bn CUSTOMER! NON-STORE RETAILING SALES £144 bn 14 Mexico: A Destination for Growth

BRAND LANDSCAPE & CLASSIFICATION

ST Upscale, high fashion with exclusive designer merchandise and excellent customer 1TIER service. Saks Fifth Avenue, El Palacio de Hierro

ND Reasonably priced merchandise with less of a focus on customer service. 2 TIER Sears, Liverpool, Fábricas de Francia, Sanborns

RD Value-orientated retailers that target price-conscious customers. 3 TIER Electra, Famsa, Woolworth 15

Mexico’s Retail Sector

The general merchandise retailing outlook mainly comprises local powerhouses

Outlets Performance Strategic focus Aggressive growth – £577.27m targeting mid-sized cities 93 net profit in 2012 The leading department store in Mexico, serving middle-high and high-income consumers through affordable prices in 56 cities across the country (2012) £842.73m Discrete expansion 12 net sales in 2012 Targeting upper-middle and high-income segments, this is Mexico’s upscale department store par excellence 8 of them in the Greater Mexico City Area (2012)

Full-on accessibility: Increasing geographical £2.978bn presence in mid-sized cities 980 net sales in 2012 across the country, while The leading variety store in empowering their financial Mexico, focusing on offering department, thereby granting low-income consumers the people access to credit options. chance to acquire at low-prices (55 new stores in 2012)

Full-on accessibility: Increasing geographical £1.014bn presence in mid-sized cities 967 net sales in 2012 across the country, while A leading variety retailer and empowering their financial financial services provider, department, to give lower specialising in furniture and classes access to credit options. home appliances (2012)

A ‘one-stop’ department store From a restaurant to toiletries, £1.844bn drugstore to jewellery, candy, gifts, electronics and magazines, 165 Group profit in 2012 Sanborns is a unique store An interesting department store mixing that brings together a wide characteristics of department and assortment of products in ‘small’ convenience formats ( 2011) store formats in central locations. 16 Mexico: A Destination for Growth

Mexico’s Retail Sector – Apparel

The market in Mexico is fragmented and complex for specialist apparel retailers MORE THAN

retail chains (both national and international) make up the market.

50A complex market in which both chains and HIGHLY FRAGMENTED HIGHLY independent retailers are fighting for business.

affordable Mexican consumers fashion have wide access to brands, designs not trendy, and styles, yet price but affordable is generally still considered very important in this Brand promises category.

Price is seen as an easy way to counteract PRICE HOLDS SWAY counterfeit and pirated goods.

Increasingly, specialist apparel retailers are focusing on creating more sophisticated store experiences. Visual merchandising is becoming more important, led by more fashion-driven competitors such as Grupo Axo, a trading company for brands such as Thomas Pink, Benetton, Brooks Brothers and Armani.

Retailers have increased investment in store ambience: they are increasingly investing RETAIL-TAINMENT in-store ambience, intent on creating ‘experience’ destinations. 17

Mexico’s Retail Sector – Groceries

Despite its complexity, the Walmart de México, Soriana, Chedraui, Mexican grocery sector is Comercial Mexicana and Oxxo are dominated by five main Mexico’s five key retail brand owners retailers… BRAND LANDSCAPE & CLASSIFICATION HYPERMARKETS SUPERMARKETS UPSCALE/ DISCOUNTERS CONVENIENCE WAREHOUSE OTHER • WALMART • WALMART SPECIALISED • BODEGA • OXXO CLUBS REGIONAL • SORIANA HIPER • COMERCIAL SUPERMARKETS AURRERA • 7 ELEVEN • COSTCO PLAYERS • CHEDRAUI MEXICANA • SUPERAMA • MERCADO • EXTRA • SAM’S CLUB • LEY • MEGA • SUPER • CITY MARKET SORIANA • SUPER CITY • CITY CLUB • H-E-B CHEDRAUI • FRESKO • SUPER CHE • GO MART • SORIANA SUPER • SUMESA • BODEGA • SELECTO COMERCIAL CHEDRAUI MEXICANA • MERCADO EXPRESS 18 Mexico: A Destination for Growth

Mexico’s Retail Sector – The Big Players

cuesta menos

super

Walmart de México is the largest Having acquired one of their Chedraui, the third largest Walmart operation in the world leading competitors, Soriana retailer in the country, has after that of the US and is, by has become a powerhouse in followed trends set by far, the most influential grocery the country, with its aggressive larger competitors. retailer in Mexico. growth strategies.

Strategic focus Strategic focus Strategic focus An aggressive expansion driven An aggressive expansion through Focus on the development of by lower income groups. complementary formats. smaller formats. • Aggressive pricing strategies • Mercado Express was recently created • Pushing investment in its discount adopted by the rest of the retailers to compete directly with Walmart’s format to compete with Walmart’s in the country. Bodega Aurrerá. Bodega Aurrerá.

NUMBER OF NUMBER OF NUMBER OF OUTLETS 2,275 (2012) OUTLETS 606 (2012) OUTLETS 243 (2012) +340 outlets in 2012 The second largest retail chain mainly focused in the southwest

NET NET NET SALES £17,458.13 SALES £5,005.31 SALES £2,578.33 billion billion billion

Walmart has focused on Soriana has been traded Chedraui stores are mainly discounters since 2008. publicly on the Mexican hypermarkets, accounting for Over three quarters of store Stock Exchange since 1987 an 8% share in this format - openings are in this format. and employs more than only surpassed by Walmart. Bodega Aurrerá surpassed 80,000 people. 1,200 stores in 2012. 19

Having recovered from near Oxxo is the leading convenience Once one of the main grocery bankruptcy in 2008, Comercial store in Mexico, having players in the country, Grupo Mexicana has focused on growth responded to the consumer Gigante is a company known for and expansion, though this has need for practicality. having no financial debts and been modest when compared plenty of resources. to competitors.

Strategic focus Strategic focus Historically an important grocery retailer Decreasing the company’s Rampant expansion, full-city financial debt, focus on growth. focus, excellent locations • One of its latest moves was to sell • Oxxo continues to focus aggressively Costco (its warehouse club format) on securing the best locations across to its American partner (Costco Mexico. Wholesale Corp.) In the process of leaving modern grocery retailing

NUMBER OF AGGRESSIVE+ OUTLETS 199 (2011) EXPANSION 1000 (2012) NEW STORES Increasingly focusing on other businesses NET NUMBER OF + SALES £2,074.64 OUTLETS 10,500 billion STORES (2012)

Other than grocery retailing, Parent company FEMSA Grupo Gigante’s last the company owns two reports more than 8 million transaction was selling their consumer foodservice brands: transactions a day, which 50% share in Radioshack’s California and Beer Factory. represents 77% of total Mexican operations to their retail sales. American partner. 20 Mexico: A Destination for Growth

Mexico’s Retail Sector – Centres of Activity

The development of New shopping centres opened in 2012, covering more shopping centres in Mexico 18 than 10,000 sq km continues to grow as retail new activity increases At projects are least currently in 40 development CONFIGURATION OF MALLS IN POWER CENTRES FASHION MALLS OTHER MALLS MEXICO Mall configuration in Mexico Share of Share of Share of shopping shopping shopping fits into three classification malls malls malls groups. Because of a 28% 58% 14% rising need for practicality, • Supermarket • Department store • Convenience these configurations have • Hypermarket • ‘Big Box’ upscale • Bank merged to some degree • ‘Big-Box’ Discounter specialist (Boutique • Pharmacy/Drugstore (for example, malls with • ‘Big-Box’ Specialist Palacio or the like) • Small Discounter both grocery retailers and • Price Club • Fast-Food Chains department stores) or even • Petrol stations promoted the existence of ANCHOR STORE stand-alone small format • Affordable apparel • Chains • Destination stores such grocers (especially true for specialists • Exclusive international as dry cleaners. discounters). • Electronics specialists apparel specialists • Independent retailers • Independent retailers selling diverse goods. selling diverse goods. OTHER STORES

Because of TWO IMPORTANT FIGURES the security £478 million sold annually. they represent AMF PNF for investors, Mexican Franchising National Franchising 6.2% Association Program franchises have Mexican GDP The most important franchising Founded in 2007, the PNF gives association in the country, support to Mexican franchisers proven to be a including a number of important (loans, coaching) with figures members. In charge of the most over £330,144 GBP dynamic set-up 12% important trade fair for the sector. in the country growth in 2012 21

Key Markets in Mexico

The key retail markets in Mexico are healthcare, groceries, food and drink and luxury goods. Each sector is driven by a different set of consumer priorities and values. As the economy grows, the lifestyles of Mexico’s consumers are changing and they are becoming increasingly westernised in their tastes and aspirations. 22

Mexico’s Retail Sector – Healthcare

Increasing competition DEVELOPING has led this retail category to try and EXPERIENCES Large chains have stopped competing on price or differentiate based on portfolio expansion alone. Instead, they are increasingly investing in sophisticated store formats to create a refined in-store experience customer experience. Farmacias Farmacias Farmacia Farmacias del Ahorro Benavides San Pablo Guadalajara Patent Generics

MEDICINES Own-brand generics Doctor’s office in-store Limited Home-delivery 24-hour service SERVICES Private/public services payment (telephone, electricity, mobile bills)

Despite the increasing focus on store sophistication, layout and experience, convenience and price are still the main drivers in this category. Specialist retailers have been experiencing A BATTLE ON MULTIPLE FRONTS eroding growth because of the expansion of other retailing formats. Grocery retailers in the country not only have in-store pharmacies, but they have also started to develop or plan independent, stand-alone stores that tackle both the health OXXO WALMART and beauty markets.

Expansion of portfolios and the geographic HEALTH AND LIVERPOOL BEAUTY expansion of other ‘generalist’ retail formats SPECIALISTS pose a significant risk to specialist health retailers in the country. 23

Healthcare

The specialist health retail segment is particularly interesting. This 2.7% +6% dynamic segment is OF HOUSEHOLD This translates VALUE GROWTH (2012) EXPENDITURE IS into growth for REACHING A VALUE OF currently enjoying SPENT ON MEDICINE specialist health £8.97 BILLION increased consumer retailers expenditure. Health represents an important part of consumer expenditure.

A FRAGMENTED MARKET EIGHT KEY POINTS IN (YET DECREASINGLY SO) MARKET TRANSITION Not surprisingly, • Highly fragmented and regional. With the development of retail chains in the specialist health pharmacies are sector, the Mexican market will experience an increase in the • Corporativo Fragua (Farmacias the main channel following phenomena: Guadalajara) and Farmacias for this category. Similares are the strongest 1 5 players overall. Capital will be Price wars will probably • No international players. accumulated by characterise early just a few players market development 2 6 GENERIC MEDICINES: IT’S Bargaining power Companies will react ABOUT RESOURCE ALLOCATION will increasingly be more quickly to their Mexico’s price- concentrated in a competitors sensitive population For each patent medicine few players has created a boom 7 in generic medicines 3 Expenditure on on the market. Small, independent marketing will Generics are thought players will tend to increase to be a viable option disappear PATENT GENERIC GENERIC GENERIC GENERIC that responds to two GENERIC 8 main concerns in the 4 A dynamic of ‘leaders population: price and 4.26 generics are sold There will be more and followers’ will be resource allocation. barriers to entry established

Transition to an Retail chains are increasingly gaining importance over independent imperfect oligopoly. stores in this sector. A market transition is taking place. 24 Mexico: A Destination for Growth

Drinks

The alcohol and soft drinks market is one of the country’s fastest growing categories

On-trade and off-trade: A MARKET On-trade value sales (GBP million – 2011) TO KEEP £6,874.69 AN EYE ON ON THE RISE soft drinks Alcohol and soft drinks account for an important part of Mexican expenditure. £8,997.66 Almost 2% of it goes on alcoholic drinks alcohol alone. Off-trade value sales (GBP million – 2011)

Expenditure is increasing… (year-on-year growth 2010-2011) £14,981.82 +28.4% soft drinks soft drinks £8,922.90 +41.5% alcoholic drinks alcoholic drinks Sales of soft drinks in Mexico And so is consumption… look likely to remain among (volume litres per capita 2006-2011 growth) the highest in the world in volume terms. They are set +6.0% to reach more than 48 billion soft drinks litres by 2016, with bottled water and carbonated soft +16.7% drinks set to account for alcoholic drinks more than 88% of this total. 25

ALCOHOLIC For both categories, off-trade consumption is the single most DRINKS: important figure to understand. Formats per share (% off-trade value) Despite the size of Small grocers 45.1 their gigantic grocery Specialist retailers 31.1 A MARKET OF counterparts, specialist Hypermarkets 9.0 retailers still hold an Discounters 6.1 SPECIALISTS interesting position Supermarkets 4.9 in the market. Non-store 3.8

Despite a fragmented The specialist landscape Example specialist in Mexico is made up of chains: landscape, a independent stores that sell • La Europea ALCOHOL series of specialist alcohol and mixers and a • Alianza retailers still remain handful of chain stores. • La Castellana SPECIALISTS: • Vinoteca FRAGMENTED YET IDENTIFIABLE identifiable in the market. • Vinos América

% of soft drinks sales SOFT DRINKS: FRAGMENTED DISTRIBUTION 68.5 are off-trade (value) Bottled Water Soft Drinks Concentrates Mainly Non-Store Retailing 70.7% Mainly Store-Based Retailing 99.5% Store-Based Retailing 100.0%

41.1 28.6 70.7 % 78.1 % 15.8 % % 5.3 6.1 6.4 8.O 7.2 7.3 8.9 0.5 0.O % % % % % % % % % % Non- Store Supermarkets Discounters Hypermarkets Small Grocers 26 Mexico: A Destination for Growth

Drinks

BUT WHAT DO MEXICANS DRINK? Strong figures already exist for both the alcohol and soft drinks markets, but the evolution is such that there continues to be opportunities for new products to enter and be successful.

Market share by volume off-trade (%-2011) Company shares by total volume (%-2011) Volume growth 2006-11 93.9 Beer 11.1% 52.7 Modelo SA de CV 3.0 Spirits 7.1% 39.1 Heineken NV 2.0 RTDs/High Strength 21.7% 1.2 Pernod Ricard Groupe 0.9 Wine 43.9% 0.9 Anheuser-Busch InBev 0.2 Cider/Perry -6.1% 0.9 Brown-Forman Corp

Market share by volume off-trade (%-2011) Company shares by total volume (%-2011) Volume growth 2006-11 53.7 Bottled water 28.2% 16.2 Coca-Cola 37.4 Carbonates 0.9% 10.9 Bonafont (bottled water) 6.6 Fruit/Vegetable juices 42.2% 9.8 Pernod Ricard Groupe 0.9 Sports & energy drinks 6.9% 6.2 Ciel (bottled water) 0.6 Concentrates 2.1% 3.5 Pureza Aga (bottled water)

Research shows that consumers have their The most popular favourites. It also shows that beverages in Mexico they are looking for more according to Millward sophisticated options. Brown’s BrandZ: 1. Coca-Cola (soft drink) 2. Corona (beer) The perceived health 3. Heineken (beer) benefits of soft drinks and 4. Indio (beer) sophistication of alcohol 5.Tecate (beer) are driving growth in each category. 27 28 Mexico: A Destination for Growth

Food

AN EXCEPTION IN LATIN AMERICA MODEST GROWTH

% increase % increase in purchase in food + frequency + bundle & ticket volume expenditure growth 2.8 KWP (2013) 1.8 Nielsen (2013)

Mexico is one of the few markets in Latin America to Modest growth, explained by rising prices. be experiencing an increase in purchase frequency A 4.4% registered price growth for the period. and expenditure.

A MARKET BEST UNDERSTOOD THROUGH ITS Natural phenomena, have hit the country and disease in and affected the COMPONENTS poultry and livestock, prices of staple foods. FRESH FOOD CANNED FOOD FROZEN FOOD The staple segment in the A growing sector associated There is a negative country when talking about with practicality. Growth of perception of frozen food; food. It sets the standard, as 2% in volume and 4% in that it is less nutritious, it is associated with health value (Euromonitor 2012). unnatural, not convenient KEY and a natural, ‘homely’ taste. Overall a fairly developed and more expensive. COMPETITORS category, except where fresh options are cheaper. •Herdez •La Costeña •Lala PREFERRED PRACTICALITY UNDERDEVELOPED •Bimbo •Kellogg’s •PepsiCo •Nestlé •Mondelēz (Kraft Foods) •Sigma Alimentos 29

When looking at the food industry, the first course must be the country’s culinary habits.

Breakfast OPTIONS TO BUY “The most important meal of the day” Staples such as cereal, yogurts, fruit or flour-based products. 37% (Lunch) Seen as compensation for a poor breakfast. The more Mexicans mix traditional and ‘filling’ the better. modern ways of cooking and eating based on their Foods such as fruit and associations. Freshness yoghurt, or more indulgent is directly associated with options such as biscuits and traditional food, while modern cereal bars. food equals practicality.

(Afternoon lunch) Not a formal meal, but a response to cravings. Here there is a preference for crisps, salty snacks and other 31% indulgent options.

Dinner The focus here is on taste GROWING and satisfaction. MODERNISATION Anything goes, but the With the rise in small, preference is for home convenient and specialist cooking and convenience. stores (such as Comercial Mexicana’s Fresko, which is focused heavily on fresh Supper food), modern retailing is Enjoyed with family or friends. increasingly trying to outpace the traditional. 30 Mexico: A Destination for Growth

Food

With a rich gastronomic 3 KEY ELEMENTS heritage, Mexican IN FOOD CHOICE consumers are very particular about their

food choices HEALTH

INFORMED ENERGY TASTE DECISIONS? NO As a result of rising obesity, the Government, civil organisations and even brands have been taking on the role of educator about ‘healthy eating’. Consumers have found themselves bombarded by contrasting messages and a lack of consistent, accurate health and nutrition education.

PICKY DOESN’T MEAN MORE INFORMED A FOURTH DIMENSION: PRICE Thanks to socioeconomic conditions and a fragmented market, Mexicans remain price sensitive in most food categories. -DESIRE- BLINDFOLDED APPROACH Most developed Decisions are based categories 2012: upon nostalgia. Most Feel-good: Impress: • Iced tea consumers define Spoiling myself, taking care Looking good to impress • Chilled desserts home-cooked as the of me and my loved ones others • Chocolate bars better tasting food. Indulgent Great taste categories, but is defined by not particularly familiarity. Energy: Risk: healthy. Energy for optimal Minimising the risk performance. of becoming ill These characteristics have pushed two main trends: food practicality and wellbeing. 31

With a growing economy comes a A major trend in Mexico is busy lifestyle. The lifestyle of Mexicans, particularly in big cities, has changed. People have acquired more ‘westernised’ the shift towards a more traits - there’s less time but more things to do. practical approach to life People crave opportunities that allow them more time for themselves and their loved ones.

WHAT IS PRACTICALITY? NEED MORE TIME TRANSLATED IN THE MARKET AS: FOR ME For older age groups more practical means SMALL ‘less love’ but younger working consumers, Growth in categories such as have a different attitude. They’re open to canned food, especially small more options, but still see cooking as a way portions. to pamper loved ones.

ENRICHED Suppliers have developed ready-to-eat Products that do more than one options designed to be combined with PREPARATION thing. For example, yoghurt is fresh food. This combines the desire for filling, rich in calcium, small and practicality and convenience with the taste readily available. of home cooking that Mexicans love. DISTRIBUTION CLOSE Convenience stores and small MORE discounters are the fastest PRACTICAL growing markets. = LESS LOVE (?) The second trend is seeing food not just as a means to WELLBEING get energy but as a step towards personal wellbeing

With a culture that is not keen on making sacrifices that ALL ABOUT are seen as unnecessary, Mexicans prefer searching for BALANCE food or habits they considered ‘balanced’.

THE EASY In the Mexican consumers’ mind a good diet is heavily FOOD WAY associated with social success, beauty and health. Following global trends on beauty and wellbeing, Mexican consumers aspire + 14% HIGHER to a better, healthier, more OBESITY 20 MILLION natural lifestyle. THE BIG ISSUE THAN THE WORLD AVERAGE OVERWEIGHT ADULTS 32 Mexico: A Destination for Growth

Luxury

Latin America, including Mexico, is the most BILLIONAIRES & UHNW*: ON THE RISE

imbalanced region in Number of billionaires in Mexico the world 11 (Forbes, via ECLAC) BUT IT’S NOT JUST ABOUT THE SUPER-RICH 3,240 2013 Mexico’s economic and social landscape has created a wide spectrum of consumers with enough money to afford luxury goods. 2,900 2012 SOCIO ECONOMIC Approx no. Approx no. Estimation of total GROUPS of households of individuals monthly income Mexico’s number of billionaires may seem 1,945,315 7,586,727 + £1,997 small compared to those in A/B developed countries, but its population of UHNW* continues to rise. C 4,062,276 15,842,871 £1,249-1,996

RETAILERS AND WEALTH IS SPREADING ARE FOLLOWING THE GOLD RUSH Mexico’s middle and upper socioeconomic groups are spreading Luxury goods retailers have into traditionally poorer regions. These new inhabitants are been expanding to smaller characterised by their youth, income and hunger for the products cities. and services they had in the largest cities. Their objective? To offer high income consumers the opportunity to buy luxury goods without having to travel Monterrey to other cities or even abroad.

Mexico City

Cancun & Puebla Cozumel *“For historic and cultural reasons, in Mexico, there has always been a small Cabo San Lucas but powerful class of Ultra High Net Worth individuals Guadalajara (UHNW).” Acapulco 33

Consumer confidence in these segments is what drives consumption of luxury goods

% Of people view % Increase in their personal consumer financial situation credit granted positively or .9 by commercial 51 fairly positively. 19 banks.

Strong consumer confidence and a strong performance in the credit market have given the population the ability to buy luxury goods.

£2,448.4 23.1% Sales of MILLION of all luxury goods sold in luxury goods Latin America, by value. Euromonitor (2013)

WHAT’S LUXURY? Luxury is not only a sign of IF YOU’VE GOT IT, social status or trendiness. FLAUNT IT In the Mexican mindset, luxury is related to a sense • QUALITY of personal fulfillment, of • DISTINCTION distinction. • NOVELTY • SUPERIOR SERVICE TWO TOP TRENDS

YOUNG AND ASPIRATIONAL PERSONALISATION Consumption is being driven It’s not about having an all- by young professionals. For luxury wardrobe but choosing them it’s not about price, but the right garments to about the exclusivity and way suggest distinction. of life that the brand projects. 34 Mexico: A Destination for Growth

Luxury

Some luxury British brands in Mexico

Aquascutum Alexander McQueen Burberry Chivas Brothers (Brand Owner: Pernod Ricard) Hackett London Jimmy Choo (limited assortment, fragances) Myla London Neil Barrett Paul Smith Stella McCartney Technology UK Ltd. The Rug Company Thomas Pink William Grant and Sons (through brands such as Glenfiddich, Hendrick’s and Tullamore Dew).

Limited Less number = corporatised The limited number of British From Smythson’s leather brands in the country may goods, to Holland & be a reflection on the wildly Holland’s sporting rifles or different development the Clothier’s trunks, British British Luxury industry has Luxury brands have taken followed compared to its a less corporatised and French or Italian counterparts, much more local, traditional who have experienced a and even familiar approach more aggressive process to commercialisation, of corporatisation. something which has had a positive impact on their international growth. 35

To keep in mind…

In and out Mexican adolescence

Mexico is a culture where insert your brand into the Mexico is a developing nation and in many ways it can be individualism is sometimes group. Sounds complex? It is. understood as an “adolescent” society. Mexicans depend collectiveness. You can call it heavily on mother or father figures (being either the family or ‘being a tribe’: my group has Mexicans are loyal, even the Government, in many ways) or the opinion of others to certain conditions that make fanatically so, but you’ve got take decisions. They won’t take risks. Mexicans are open to it unique and better than the to be assertive and creative. trying new things, as long as they are are sufficiently “strong” rest. This highlights a strong Your offering has to help the to be considered. This strength comes from references such difference between ‘us’ and consumer to communicate as brands, price or even its position amongst a given social ‘them’: we are not them. something about his persona, clique to which they aspire. and about individual or To be considered “in” means in-group progress. Mexicans rarely save money and are keen to consume. They to be close, relevant and to try to live life, to live the now and enjoy it as much as they can. The challenge is to enter these dynamics, to create a strong offering that helps them on both fronts: to help them be who they want to be and who they should be in the eyes of everyone else. “Meet Mexico: complex, traditional, yet changing and increasingly savvy; a country willing to spend.” To find out more, scan this Copyright code with your smart phone. www.ukti.gov.uk +44(0)20 7215 5000

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For more information please contact the You can download this publication UK Trade & Investment team in Mexico. from www.ukti.gov.uk/mexico

British Embassy in Mexico Rio Lerma 71 Mexico 06500 DF Legal disclaimer Whereas every effort has been made to ensure that the information given in this T: +52 55 1670 3200 document is accurate, neither UK Trade E: [email protected] & Investment nor its parent Departments W: www.ukti.gov.uk/mexico (the Department for Business, Innovation and Skills, and the Foreign & Commonwealth Office) accept liability for any errors, omissions or misleading statements, and no warranty is given or responsibility accepted as to the standing if any individual, firm, company or other organisation mentioned.

URN 13/1163 - Mexico: A Destination for Growth Published September 2013 by UK Trade & Investment © Crown Copyright