Catering to Mexico's Sophisticated Shoppers
While Walmart stole the spotlight in Mexico this year with the controversy over alleged bribes of government officials, on the other end of the spectrum, many top-of-the-line grocers were quietly winning over consumers with fresh produce, imports and other premium products.
The dichotomy speaks to the fragmented situation in Mexico. While value-priced supercenters are expanding, so are upscale supermarkets. And Mexican shoppers overall are spending more money on high-end products, according to the U.S. Department of Agriculture's Foreign Agricultural Service. Mexican retailers are responding by opening high-end banners, stocked with upscale products including many imports.
Marketing Profile S.A.
To some, the trend toward premium products might seem counter-intuitive given economic pressures, but the standard of living is improving for many Mexican consumers. "There's a group in Mexico that, even with an economic crisis, has maintained their salary and purchasing power," says Benjamin Otero, market analyst and general director of Marketing Profile S.A., based in Mexico.
The consumer confidence index has increased in Mexico, fueling growth of high-end products, according to Valeria Di Cicco, business development director of TNS México. Imports from the United States dominate most food categories, according to the Foreign Agricultural Service. Sales of imported fresh fruit and nuts increased about 12 percent in 2010 from the prior year, with the United States representing 75 percent of the imports, while imported fresh and dried grapes climbed 23 percent and fresh apples, pears and quinces rose 14 percent in 2010 from the prior year.
Overall, the United States accounted for 72 percent of Mexico's $18 billion in net imports in 2009, including many high-end items, according to FAS data. But the goods aren't distributed to Mexicans equally. Eight percent of Mexico's population purchases 55 percent of the luxury goods available in Latin America, says Di Cicco.
Still, economic conditions are favorable for continued growth of premium products. Unemployment rates are stable, and the Foreign Agricultural Service reports more women have entered the workforce. With additional money to spend and less time to cook, they are willing to pay more for gourmet and convenience items, including ready-to-serve meals. They're also demanding more choice. "What I see is an overall evolution of supermarkets. Twenty years ago you could only choose from three shampoo brands; now there are more than 30 types," Di Cicco says.
Traveled, educated and multicultural young people demand products they have tried in other countries. "Mexican consumers are becoming more sophisticated," Otero says.
More retail has brought benefits for the consumer, like new types of products and luxury goods at a slightly lower price. But Mexico still has plenty of room for growth in specialty foods and grocery store chains, says Lee Iwan, president of Iwan Consulting in Guanajuato, Mexico. "Mexico is a young country that wants to experiment and that is more sophisticated every day," he says.
TV gourmet shows have become very popular and big-name chefs from around the world have opened author's cuisine restaurants, like Juan Mari Arzak's Tezka, and Enrique Olvera's Pujol, both in Mexico City. "Gastronomic culture in the country has grown together with its multicultural and educated population," Iwan says.
It's also known, at least locally, that Mexicans like to spend rather than save. They enjoy a good party and often spend their paychecks on food, drinks and presents, Di Cicco says. "Which is good because this avoids recession," she says. "There's always money moving around because people love shopping."
While Mexico's high-end population has been growing, middle-class consumers also are willing to spend more for premium products, says Jonathan Rangel, manager of corporate communications at Controladora Comercial Mexicana, the company that owns City Market, which has three stores in Mexico City. "Even if City Market caters to the upper-class customer, other types of consumers are attracted to our concept as well," says Rangel. "They, too, become frequent clients because of the buying experience we offer."
For affluent Mexicans, premium products are of great personal value and convey status. "In Mexico, the high-class is made up of, mainly, new-rich types," Di Cicco says. "There's no cultural capital, but there are loads of money to spend and a willingness to do so, but only if the product in question offers a buying experience."
New Store Concepts
To capitalize on the trend, Groupo Soriana is testing Soriana Super Marne, a new high-end store concept. The company, which is Mexico's third-largest retailer with 228 hypermarkets and 132 medium-sized supermarkets, opened its first Super Marne location in Monterrey in September, the Foreign Agricultural Service says. The new banner is targeting consumers with incomes of more than $65,000 a year by stocking a selection of wines and liquors as well as prepared meals and gourmet deli items made by local chefs. Soriana also emphasizes customer service with a higher-than-average employee-to-shopper ratio.
"City Market...could be considered the first truly high-end grocery store in Mexico, followed by Chedraui Selecto," Otero says. Chedraui Selecto, a gourmet supermarket owned by Chedraui, opened its first store in 2011 in Mexico City to compete with Walmart's high-end Superama. But Mexican supermarkets in general are stocking more value-added items and imported goods. Regional select chains like H-E-B in the northern part of the country are opening new stores, according to the Foreign Agricultural Service.
"These supermarkets fill a market gap. This high-income segment had great purchasing power, and they were unsatisfied with their shopping experience," Otero says. "Walmart didn't cover their necessities. They wanted specialized products like premium meat cuts, preserves, gourmet goods. To buy them they had to go to traditional outlets like Mercado de San Juan in Mexico City, high specialization markets."
The gourmet consumer in Mexico is constantly looking for new products to buy. "The young population with good jobs is healthy and they have an enormous purchase power," Otero says. Young Mexican consumers are following the global trend of delaying marriage and having children and are spending more on themselves.
"They are diversifying their taste and getting to know other cultures. So far, markets that offer them to quench their 'experience thirst' are thriving," he says.
Before they had the option of buying premium products at retail stores, wealthy customers made their specialty purchases at imported goods corner stores like La Ciudad de Oviedo, La Castellana, La Europea, La Naval and meat and fish markets like Mercado de San Juan.
But even as consumers and business owners become more knowledgeable about international trends, business in Mexico still isn't the same as in the United States or other leading markets.
The news about Walmart's alleged bribes of Mexican officials suggests retailers need to consider many different aspects to establishing a company or doing business in Mexico. Bribery is very common in Mexico, especially for large business deals, Iwan says. "When you have heavy bureaucracy like in Mexico and you want to move quickly, you have to grease the wheels," he says. "It's not surprising at all. In fact, any big transnational company that is doing business here has done it. But that's not specific to Mexico; it happens all across Latin America and Asia, for example."
Iwan downplays safety concerns and focuses on the progress made in Mexico resulting in many positive benefits for retailers. "In recent years there's been much more transparency in federal and state government in terms of any kind of applications for permits or any type of imports or exports," he says. "There's also a growth in wealth, an uptick in consumer spending, a much more stable economy since the last PAN administration, and thus people have been able to do business planning," Iwan says, referring to the conservative National Action Party.
If Mexico's new president maintains economic stability, this will allow the middle class to continue growing, feeding the trading up phenomenon and permitting top-of-the-line outlets to thrive.
How long the trend toward premium products will last is anyone's guess. "Economy and safety will play a big role in the upcoming years," Otero says, "although I wouldn't worry that much on safety, but [the] economy is another story."