Mexico’s economic star is rising. In fact, the country is being linked with three other emerging nation powerhouses (Indonesia, Nigeria and Turkey) in a new acronym: MINT. A mix of young populations, strategic geographic locations and commodity production is fueling the rise of the MINT nations.
As a result, MINT economies are booming, especially Mexico. Thanks to its proximity to the U.S. and market-friendly reforms, Mexico is expected to have the fifth largest economy in the world. As the country’s economy flourishes, consumer tastes are changing (ready-to-eat and frozen foods are gaining popularity). Since NAFTA, Mexico has become one of the largest, fastest growing markets for U.S. agricultural products. Some food for thought:
- In 2012, U.S. exports of consumer-ready food products reached $7.3 billion – that’s 39 percent all exports from the U.S. to Mexico
- According to Euromonitor, the packaged food market in Mexico hit $55.8 billion in 2012, making it the 2nd largest market in Latin America and 10th in the world
- Imported products are sold through supermarket chains and warehouse clubs
Deconstructing the Mexican retail landscape
Certainly, opportunities await savvy food and beverage retailers. However, it’s important to recognize that distributing food products in Mexico is very different than it is in the U.S. or Canada. According to ANTAD, Mexico’s retail industry association, 36 supermarket chains serve Mexican consumers. Some cover specific regions. Others cover the entire nation. Some cater directly to consumers. Others focus on wholesalers and smaller shops that typically operate on a regional basis.
Distribution of imported food products has traditionally been concentrated in Mexico City, Monterrey, Guadalajara and border cities. Given the country’s rapid growth, all that’s changing. In recent years, two things happened to rejigger the distribution equation. One, modern retail channels are replacing city markets and mom & pop groceries. Two, coverage has expanded to other cities and is expected to continue to spread from big capitals to second-tier cities.
Three distribution challenges Food and Beverage importers face in Mexico
While modern retail channels account for less than 60 percent of food and beverage retailer’s sales, that number is expected to grow. And that growth will offer plenty of opportunity for food and beverage manufacturers/distributors. Before leaping into the ring, be sure you understand the three biggest distribution challenges:
- Complex regulatory environment: ever-changing regulations and document requirements (e.g. labeling requirements) If you’re going to import products into Mexico, know the regulations established to clear products and the border and sell them on Mexican soil For example, different products must display specific commercial information. Navigation these regulatory requirements can be tricky, so it helps to seek informed advice from an agent, distributor, importer, or local consultant familiar with Mexican market requirements.
- Fragmentation: the Mexican distribution system isn’t just complex. It’s fragmented too, and far more so than any supply chain in the U.S. or Canada. Distribution systems comprise two main channels: the modern channel, made up of price clubs & retail stores and the traditional channel, including wholesalers, mom & pops and city markets.
- Changing supermarket landscape: Mexican supermarkets are 68 percent as productive as comparable U.S. stores. However, in recent years, a proliferation of modern supermarkets is transforming the structure of the Mexican market and many Mexican importers are diversifying from traditional supply sources.
Three retail Food and Beverage channels. Unlimited opportunities. If you know how to deliver, that is.
So given that the retail landscape is shifting in Mexico, largely due to changing economic conditions, how do you successfully deliver to the three main F&B channels in this up-and-coming market? Consider these three tips …
Tip 1: How to deliver to the modern channel
- Use the retailer’s existing distribution network rather than delivering products directly to stores, especially for prepackaged foods. Large retailers in Mexico have established networks of regional DC’s in the largest Mexican cities.
- Pay the retailer the required fees to use the retailers network and ensure that your products get on store shelves. The fee is typically a percentage of sales.
- Understand that rules are well established and communicated, deliveries must be scheduled through retailer web portals/systems, and suppliers may have to cover the cost of unloading products in certain cities.
Tip 2: How to deliver through wholesalers
- If you’re working with a larger regional wholesaler, you can deliver products to regional distribution centers that are part of the wholesaler’s established network
- While developing personal relationships is essential with smaller retailers, larger regional wholesalers are adopting more professional practices that enable you to do business in more conventional ways.
- Understand that rules vary from one wholesaler to the next, that deliveries are time-consuming. Because deliveries tend to be smaller in size, wholesalers may require that you break pallets, open cartons and count pieces when they receive them at their warehouses.
Tip 3: How to work with the traditional channel: mom & pops and city markets
- Know that working with mom & pops and city markets can be very challenging, as most are informal, family-run operations
- Distribute via smaller vehicles along delivery routes with hundreds of stops
- Know that drivers typically act as sellers and take responsibility for merchandising and collecting cash.
Written by Juan Cavillo, Sr. Manager of Supply Chain Excellence for Ryder Supply Chain Solutions in Mexico, is a professional with over ten years of supply chain experience including network design, warehousing and transportation, inventory analysis, quality and continuous improvement, operations and start-up management. Juan is now responsible for Engineering, Quality and PM teams for Ryder Mexico.