Mexico’s Changing Marketing System for Fresh Produce: Emerging Markets, Practices, Trends, and Issues By Debra Tropp, Agricultural Marketing Service Dr. David Skully, Economic Research Service John Link, Economic Research Service U.S. Department of Agriculture And Dr. Jaime Málaga, Texas Tech University, formerly with the Texas Agricultural Market Research Center, Texas A&M University Foreword Acknowledgments Changes in marketing practices and the structure The authors wish to thank the Agricultural of marketing channels have been taking place in Marketing Service, the Economic Research Service, Mexico since the mid-1980s when Mexico began to and Texas A&M University for their willingness to open its economy. These changes have accelerated undertake this study and to the Foreign Agricultural since 1994 when the North American Free Trade Services’s Emerging Markets Office for funding the Agreement was implemented. One of the key market study. Special thanks goes to the Foreign Agricultural sectors affected by the expansion of trade and foreign Services’s Office of Agricultural Affairs in Mexico City investment in Mexico in recent years has been the and Monterrey and Mexico’s Secretaría de Agricultura, fresh produce sector, where the rapid expansion of Ganadería, Desarrollo Rural, Pesca, y Alimentación national and international supermarket chains has (SAGARPA) for helping arrange contacts, appoint- forced significant change in traditional distribution ments, travel, and information and data on the proj- practices. Nonetheless, the adoption of modern han- ect. And a very special thanks also goes to the many dling and transportation practices for perishable fruits government officials, farmers, food merchants, and and vegetables in Mexico continues to be inhibited by retail store managers who generously shared their the absence of well-defined quality standards, poor information, data, insight, and general knowledge of supply chain management, and inadequate physical Mexican markets with us. Without their cooperation, infrastructure. This report looks in detail at the supply this project could never have taken place. side and demand side changes that have taken place The authors also wish to recognize the valuable in Mexico’s fresh produce distribution system in contributions of Bill Kost of the Economic Research recent years, the challenges that continue to under- Service, who provided many useful editorial sugges- mine efficient distribution of fresh fruits and vegeta- tions and helped improve the quality of this report, bles, and the implications of these changes and chal- and to thank Juanita Butler of the Economic Research lenges for U.S. fresh produce growers and shippers. Service’s Information Services Division for her assis- tance with word processing. ii Contents Foreword . .ii Acknowledgments . .ii Executive Summary . .vii Chapter 1: The Economic Landscape . .1 Introduction . .1 Growth Fundamentals . .2 Income, Diet, and Food Spending . .2 Supermarkets Transforming Produce Marketing . .4 Produce Trade Profile . .6 Summary . .8 Chapter 2: Preferences and Habits of the Mexican Produce Consumer and Their Impact on the Local Retail Environment . .11 Diversity of Retail Marketing Channels in Mexico . .11 Why Mexican Consumers Shop More Frequently Than U.S. Consumers for Perishables . .13 Differences in Merchandising Strategies Between Traditional and Modern Food Markets . .14 Traditional Distribution Channels . .15 Merchandising Practices at Traditional Markets . .23 Highlights of Field Visits to Public Markets and Tianguis in Guadalajara, Jalisco, and Mexico City, D.F., December 1998 . .25 Self-Service Supermarkets and Chain Stores Finding Niche in Mexican Food Marketplace . .27 Market Share of Mexican Chain Store Food Retailers . .29 Reasons for Growing Popularity of Self-Service Stores in Mexico . .29 Prepackaged Food Product Labeling Tightly Controlled in Mexico . .33 Primary Characteristics of the Mexican Chain Store Shopper . .35 Observations from Supermarket and Mass-Merchandise Chain Store Field Visits, December 1998 . .39 Highlights of Supermarket/Chain Store Field Visits in Guadalajara, Jalisco . .40 Highlights of Supermarket/Chain Store Field Visits in Mexico City, D.F . .41 Highlights of Supermarket/Chain Store Field Visits in Nuevo Laredo, Tamaulipas . .45 Highlights of Supermarket/Chain Store Field Visits in Veracruz and Boca del Rio, Veracruz . .47 Highlights of Supermarket/Chain Store Field Visits in Villahermosa, Tabasco . .48 Summary . .49 Chapter 3: The Changing Role of Wholesale Markets in Mexican Produce Distribution . .51 Current Function of Intermediaries in the Distribution of Mexican Produce . .51 Drawbacks of Wholesale Market Dependence . .53 Barriers to Direct Linkages Between Produce Growers and Retailers . .61 The Mexican Farm-Retail Price Spread for Fresh Produce and Its Implications for the Efficiency of Produce Distribution . .77 Summary . .79 Chapter 4: Long-Term Prospects for Opportunities Associated with the Expansion of Supermarkets/Mass-Merchandise Chain Stores in Mexico . .81 Dynamic Changes in the Mexican Economic Environment . .81 Effects of Changes on Fresh Produce Distribution . .82 Long-term Macroeconomic Trends in Mexico and Their Potential Impact on Mexican Produce Imports . .83 Retail Store Trends . .84 Impact of Logistical Improvements on Future Expansion of Produce Imports in Mexico . .86 Summary . .88 Bibliography . .90 iii List of Tables Chapter 1 Table 1.1. Elasticity of produce expenditures by commodity, 1996 . .5 Table 1.2. Mexican produce shopping patterns, 1996 . .5 Table 1.3. U.S. fresh produce exports to Mexico by commodity, 1990-1999 . .8 Chapter 2 Table 2.1. Store format preferences of Mexican consumers for fresh fruit and vegetables, 1993-1998 (in percent) . .11 Table 2.2. Mexican public markets by state . .17 Table 2.3. Growth of tianguis in the Guadalajara metropolitan area, 1991-1998 . .19 Table 2.4. Retail prices of produce by channel, Mexico City, 1986-1989 . .20 Table 2.5. Comparative retail prices of selected fresh produce commodities, Mexico City, D.F., December 1998 . .22 Table 2.6. Regional distribution of chain supermarkets and mass-merchandise retail food stores, January 1998 . .30 Table 2.7. Mexican imports of selected temperate fruits, 1997 . .31 Table 2.8. Average maximum and minimum temperatures, selected Mexican cities . .39 Table 2.9. Fresh produce prices at Mexico City Wal-Mart (Satélite store), December 11, 1998 . .44 Chapter 3 Table 3.1. Installed and utilized capacity in Mexican central wholesale market facilities . .64 Table 3.2. Mexican and U.S. fresh produce farm price/retail price ratios . .78 Chapter 4 Table 4.1. FAPRI long-term real GDP projections . .84 Table 4.2. Mexico’s supermarket footage in selected Mexican states, 1998 . .85 iv List of Figures Chapter 1 Figure 1.1. U.S. exports of fresh potatoes to Mexico, 1990-2001 . .1 Figure 1.2. Mexico, per capita Gross Domestic Product, 1965-2000 . .1 Figure 1.3. Liberalization of Mexican import tariffs, 1980-1998 . .2 Figure 1.4. Merchandise trade as percentage of Mexican gross domestic product, 1980-1999 . .2 Figure 1.5. Mexican household food spending, 1968 . .3 Figure 1.6. Allocation of food budget for home consumption by income decile, Mexico, 1996 . .3 Figure 1.7. Elasticity of Mexican produce expenditures by income, 1996 . .4 Figure 1.8. Supermarket share.