Thread: International food companies eye potential down Mexico way

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Food companies eye potential down Mexico way
26 January 2009 | Source: Ben Cooper


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Recent investment in Mexico by Barry Callebaut and PepsiCo underlines the country's significance as an investment opportunity for international food companies. While it may not receive the attention of larger emerging markets such as China and India, according to a new report from just-food, the Mexican packaged food market is set to expand at a compound annual growth rate of 7.5% between 2008 and 2013. Ben Cooper reports.

Mexico may have the lowest investment potential ranking of the five BRICM markets - Brazil, Russia, India, China and Mexico - according to research carried out by just-food, but recent news of increased investment in the country by both Barry Callebaut and PepsiCo underlines that it is an exciting development area for the international food industry.

As part of the research into the BRICM countries undertaken for a series of five individual market reports, just-food ranked the five countries by an overall index of the investment potential for food companies, looking at population in 2007, population growth between 2002 and 2007, GDP growth in 2007, GPD growth between 2002 and 2007, packaged food market value in 2007, and packaged food market growth between 2002 and 2007.

Perhaps unsurprisingly, China comes out on top, followed by India, Brazil and Russia, with Mexico bringing up the rear. But it should be borne in mind that Mexico has the smallest population of the five, standing at 107,811,000 in 2007. Moreover, gross domestic product (GDP) growth in 2007 was just 3.3%, up from 0.8% in 2002. These figures are extremely low in comparison with the other four BRICM countries. However, between 2002 and 2007 the year-on-year increase in GDP growth has risen at a stronger rate than the other countries offering inspiration for potential investors in the country.

According to the just-food report, Branded foods in Mexico - forecasts to 2013, in terms of the size of its packaged food market, Mexico compares more favourably with some of its BRICM counterparts. The packaged food market in 2007 was valued at US$57.9bn, compared to US$13.4bn in India. The largest market value within the BRICM economies is China at US$96.2bn in 2007. That said, growth in Mexican packaged food value sales has been comparatively slow, the report states.

However, Mexico is rising up the ranks from a retail perspective according to consultancy AT Kearney. In 2006, Mexico was ranked in 19th place in AT Kearney's Global Retail Development Index, but by 2007, it had risen to ninth position. Retail sales per person in Mexico are rising year-on-year and per capita GDP is also increasing, the just-food report states.

"The Mexican retail sector is, however, approaching saturation, which is likely to threaten its position in rankings such as the Global Retail Development Index," the report continues. "Mexico's retail sales were hit by a weak economy and rising unemployment, encouraging consumers to curtail spending at the end of 2008."

Looking further ahead, however, by 2013, the Mexican packaged food market will be worth approximately US$90bn, the just-food report forecasts. Having shown, a compound annual growth rate (CAGR) of 6.7% between 2002 and 2007, the market is set to grow at a CAGR of 7.5% between 2008 and 2013. "The fact that market growth is getting stronger reinforces the huge potential in the Mexican food market for both domestic and foreign investors," the report states. "Rising disposable incomes among the upper-income and middle class, as well as increasing food prices, will fuel this growth. The President's national programme to 2012 will also go some way to reducing the lack of food availability for those living in extreme poverty."

Grocery retail sales in 2008 reached an estimated US$52.1bn. "Growth will pick up again in 2009 and fluctuate to 2011 when it will then start to gradually increase again year-on-year, as the retail market becomes more established with a higher concentration of modern formats," the report says. By 2013, just-food predicts that the Mexican grocery retail market will be valued at around US$64.8bn.

While the Mexican retail market shows some signs of maturation, the country is, according to the just-food report, "years away" from the consolidation and concentration seen in developed retail markets. Supermarkets have been extremely well received in Mexico dominating the market with a share of 42% versus the 33% global average, the report points out. However, the share of supermarkets is set to decline gradually year-on-year over the next three to five years as hypermarkets and discount stores increase their value share.

"The Mexican food and drink market is increasing in sales value each year, driven by rising disposable income and greater economic, political and social stability," the report states. "The food and drink industry in Mexico is growing in success on both sides of the Mexican-US border with exports from Mexico appealing to the thousands of Mexicans living in the US."

"In the US, Mexican-origin foods are surging in popularity due to the 'melting pot culture', rising immigration and a subsequent demand for authentic products that help consumers maintain a link with former homelands and generations," the report states. "The influence of Mexican food and culture in the US is growing each year." According to just-food estimates, the Mexican food sector in the US was worth some US$60bn in 2008, with year-on-year growth forecast over the next five years.

It is the combination of a growing local consumer economy and access to neighbouring countries which is attractive to investors. And it is not just typical Mexican foods that offer potential for food companies expanding production in Mexico.

This month, Swiss cocoa and chocolate supplier Barry Callebaut opened a new US$40m chocolate factory in Monterrey, Mexico, which will be its third-largest chocolate factory globally, with an annual production capacity of around 100,000 tonnes. The company described the investment as "paramount" to its global expansion strategy, allowing it to deliver chocolate to the local Mexican market, southern parts of the US, and to Central and South America.

"Our new chocolate factory in Monterrey, Mexico, will enable Barry Callebaut to move closer to its growing customer base of multinational and local food manufacturers in this region," said CEO Patrick De Maeseneire. "Chocolate confectionery in Mexico is expected to grow on average by 6.5% per year in value terms over the next five years. These growth projections make the Mexican market a very attractive investment for Barry Callebaut."

So while Mexico may be the smallest of the five BRICM markets - and may not generate the excitement and constant attention of the likes of China and India - to view it as a poor relation would clearly be a considerable misjudgement.

Mexico produces and exports clothing automobiles and electronics to the United States but the best industry for expansion of jobs in Mexicos rural communities is foiod. There is a huge gap between local producers and major modern factories in the big cities. If more Mexicans produced their own food or bought locally there would be more money circulated in towns and states away from Mexico City, Monterey and Guadlajara. The modern major manufacturers can export .

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This report is the final part of a new series considering five countries known as the ‘BRICM’ economies – Brazil, Russia, India, China and Mexico – from the perspective of the branded/packaged food industry. The five countries are widely regarded as the ultimate emerging destinations for manufacturers and retailers prepared to invest now in order to reap the rewards once the countries ‘come of age’.

This series of just-food reports provides analysis and insight into the potential of the food sector in the five markets by considering the best-practice strategies employed by leading multinational and domestic manufacturers alongside trend analysis. Market value forecasts by category are provided to 2013, based on secondary research conducted by just-food in 2008. SWOT analyses are also included for at least one major domestic food company per country report.

just-food has ranked the five countries to provide an introductory overview into the potential for investment from a food company’s perspective. Perhaps unsurprisingly, considering the attention it has received within the global food industry over the past five years, China comes out on top, followed by India, Brazil, Russia and, finally, Mexico. Each report contains the ranking criteria and scoring system used.

This report analyses this expanding market, provides an insight into retail market trends, analyses the major branded foods categories and considers the best-practice strategies employed by leading multinational and domestic manufacturers. Consisting of over 11,000 words of analysis and commentary, and 13 data tables covering investment potential, market values and more, the key chapters of the report include:

An introduction to the Mexican branded food and drinks market
Detailed analysis of the mass grocery retail market in Mexico
A breakdown of categories including analysis of bakery and cereals, confectionery, dairy and savoury snacks
Trend analysis with forecasts to 2013
Report coverage:

Chapter one Introduction
After looking at the aims and objectives of the report, as well as its methodology and author, we provide an introductory overview of the BRICM markets, including each country's market investment potential, population size and growth 2002-2007, gross domestic product growth and packaged food market value.

Chapter 2 The Mexican food and drink market
The Mexican food and drink market is increasing in sales value each year, driven by rising disposable income and greater economic, political and social stability. Staple food crops produced in Mexico include maize, wheat, barley, sorghum, rice, beans and potatoes. Cash crops are coffee, sugarcane, fruits and vegetables. Other important agricultural products include beef, poultry and dairy.

The food and drink industry in Mexico is growing in success on both sides of the Mexican-US border with exports from Mexico appealing to the thousands of Mexicans living in the US.

This chapter looks at the Mexican market in depth, including the issue of food price freezes, imports and exports, government assistance to the country's poorer consumers and provides future forecasts of the Mexican packaged food market from 2008 to 2013.

Chapter 3 Grocery retail market in Mexico
Retail sales per person in Mexico are rising year on year and per capita GDP is also increasing. Grocery retail sales in 2008 reached an estimated US$52.1bn. Supermarkets are the most popular grocery retail format in Mexico with an estimated 42% value share in 2008. This share is falling gradually thanks to the growing success and prevalence of hypermarkets (12% share of total grocery retail value estimated in 2008 versus 10% in 2006). Specialist stores account for 18% of grocery retail sales although their share is decreasing year on year, due to the rising popularity of more modern and larger formats. Discount stores contributed around 3% of values in 2008.

This chapter outlines the grocery retail market landscape and structure, providing grocery retail sales value estimates from 2006 to 2013. The chapter also provides estimated value share of retail formats and reviews the major grocery players in the market.

Chapter 4 Mexican food industry category analysis
Mexico is an increasingly attractive proposition for food and drink investors. Global company PepsiCo, for example, unveiled a US$3bn investment plan for its Mexican business with the aim of building its Sabritas and Gamesa snack operations. Announced in November 2008, PepsiCo confirmed that around two-thirds of the investment would be dedicated to research and development (R&D), manufacturing and distribution, and marketing for its food business over the next five years.

This chapter analyses each of the major branded food category segments in the Mexican market and provides market values from 2001 to 2013 for confectionery, dairy and savoury snacks and offers predictions of future product development in each of the major categories.

Chapter 5 Domestic company focus: Grupo Bimbo
This chapter provides a case study of the featured company, offering the company background, strategic analysis, branding and growth plans, recent M&A activity and just-food's SWOT analysis of the company.

Chapter 6 Trends analysis
Purchasing habits, food culture and shopping patterns vary within each country, particularly for more developing/emerging markets, where rural regions still dominate. Trends reviewed in this chapter include consumer experimentation, brand awareness, convenience, health and wellness, and sustainability/ethical consumerism.