Mexico: Moving Beyond the Superstore

By Isabel Blasco Ramos

The global slowdown has impacted some sectors of Mexico’s economy but overall consumer spending is relatively strong. After a four-year impasse in which retailers struggled to bring back growth and dynamism to the category, retail sales have shown a clear, sustained recovery from November 2011 onwards—thanks, in part, to El Buen Fin.

A government and private sector partnership, El Buen Fin (the Mexican equivalent to the American “Black Friday” sales event) was launched to encourage consumption by enticing shoppers with a weekend of deep discounts. According to a survey by the National Association of Self-Service and Department Stores (ANTAD), Mexican consumers spent $25.5 billion pesos (USD $2 billion) during this year’s campaign. As reported by Reuters, this year’s El Buen Fin take increased by 30 percent for stores that have been open for at least 12 months and by 36.5 percent for stores overall. No doubt boosted by the campaign, ANTAD also reports that the retail category achieved an 11 percent growth (in total store sales) during 2012.

Despite fears earlier in the year that a spike in inflation might slow spending, supermarkets, perfume and jewelry stores, and, to a lesser extent, apparel stores have all seen modest but steady growth. Though negative depictions of Mexico’s economy persist, social changes are beginning to create a new picture of Mexico: Emigration is slowing, the size of families is shrinking and better employment and educational opportunities are emerging. According to economist Roberto Newell, per capita gross domestic product and family income have each jumped more than 45 percent since 2000—which is good news for the retail sector.

In response to these changes, supermarkets are expanding, specializing their offerings through diverse brand portfolio strategies and improving brand experience by catering to lifestyles. Also, as incomes continue to rise for many Mexican consumers, emerging segments such as fashion and personal care are attracting new customers. That said, the low to mid-low income consumer still represents the biggest opportunity in terms of market size and business growth. Retailers are aware of this opportunity, as evidenced by the strong presence of brands that specialize in this segment, such as Grupo Soriana and Grupo Walmart de México, which continue to expand their smaller format stores in the region.

For this consumer segment, grocery shopping isn’t just a mundane weekly task—it’s also a leisurely family weekend activity. Whether big box format or smaller format, knowing how Mexican families shop and what they expect from products and services will determine the success of retailers that seek a foothold or further expansion in this growing market. The challenge will be creating a family friendly experience while also offering prices and financial solutions that make regular shopping affordable. In markets like Mexico, retailers that offer microcredit may have an advantage. Elektra, for instance, a specialty retailer and financial services company that serves the mass market by providing consumer credit, has been doing so for years. Retailers that offer branded financial services and in-store credit are not only able to better serve low-income consumers, but also tend to encourage both loyalty and increased spending.

Many retailers in Mexico are expanding their product catalog beyond their core business. Although this concept is not new, it’s only now emerging as a trend. Sanborns, for example, started as a drugstore in 1903 and gradually evolved into what it is now—a department store with a restaurant. Another example, Farmacias Guadalajara, pioneered the drugstore and convenience store combination in Mexico. More recently, the top department stores in the country continue to recreate the experience they are offering, with more emphasis on conveying brand character through the architectural space and developing new diversions to encourage mid-upper class consumers to spend more time in the store. Gourmet plazas—where families can take a break, have a high quality snack, and recover some energy to continue shopping—are becoming increasingly popular and beneficial to business.

With hypermarkets or superstores (dominated by Grupo Walmart de México) being the most popular retail format and discount pricing still the main driver of sales, Mexico’s market remains a relatively traditional and conservative one. However, during the last few years, the introduction of digital technologies, corporate citizenship practices, and product and service offerings that reflect demographic and lifestyle changes are all rapidly altering that traditional landscape. For example, product presentations targeting one or two person households or people with specific health needs and retail formats aimed at pleasure-seekers and the luxury-minded are all on the rise. E-commerce is also growing in Mexico, with the market currently worth 83 billion pesos (USD $6.5 billion).

Boasting the second largest population in Latin America and second highest per capita income in the region, it’s no wonder the world’s largest retailer (Walmart) has invested so heavily in Mexico—and no surprise that its expansion here has come under such scrutiny, with allegations of bribery uncovered by The New York Times. Ethics, transparency and corporate citizenship are becoming critical factors for maintaining trust on the local level, as brand loyalty starts to be tested between multinationals and rising homegrown brands.

Retailers that aren’t based in the U.S., meanwhile, have been reluctant to invest in Mexico due to perceived risks such as border violence, inflation, infrastructure and energy challenges. That said, as the economy gets back on track, politics continue to stabilize, discretionary income continues to increase and transportation infrastructure improves, this market will only become more attractive to both food and non-food retailers alike.