Moving through Mexico's a-maze-ing food market

Get ready! Get set! Stop! Don't start exporting yet. If you want to sell food products in Mexico, export professionals advise you to take time and learn about the country's food distribution system -- which could be a confusing maze if you aren't familiar with the markets. The amount of time you spend to educate yourself about Mexico's vast markets, and how to get food products there, could be well worth the investment.

There's a lot to learn about Mexico. The biggest market for imported foods is the Mexico City area, with 20 million residents and a large concentration of supermarkets and fast food outlets. These things make it an attractive market for the sale of U.S. food products. Aside from being the seat of government, it is also the center of business with most of the major food processors being headquartered there as well.

The second largest city is Monterrey, with a population of 3.5 million. Located only 90 minutes by modern highway from the biggest inland port along the border, Laredo, Texas, Monterrey's orientation in business is more toward the United States than that of Mexico City.

Another major market is Guadalajara, in the west-central portion of Mexico, which has 3.3 million residents and is rapidly growing. Because of its proximity to the main agricultural growing areas, one can find an abundance of fresh fruits and vegetables for sale there. The availability of imported food products is smaller than that of the other major markets. However, this is changing.

The main cities that line the U.S.-Mexico border are also good markets for U.S. food products. These include Tijuana (800,000 people), Mexicali (600,000), Juarez (1.4 million) and Reynosa (400,000). Since these cities are close to the United States, their inhabitants have a greater U.S. orientation.

The border cities are a distance from major Mexican food production regions and must get most of their food from the United States. It is believed that a high percentage of some U.S. food exports to Mexico, especially perishable items which cannot travel a great distance, end up there. Moreover, some selected products, such as fresh potatoes, are permitted to be sold only there for phytosanitary reasons.

Resorts are also good bets for exports of U.S. food products. The main Mexican resorts are Acapulco, Puerto Vallarta and Mazatlan on the Pacific Coast, and Cancun and Cozumel on the Caribbean Coast. These collectively represent an important market for U.S. food products, especially high-value ones.

Caribbean resorts in Mexico are close to major U.S. Gulf Coast ports, like New Orleans and Houston, and the transportation from these is easier. These resorts are designated as free port zones, so food products enter free of normal restrictions as long as they are consumed within the zone. Selling in these markets can be competitive, as they have been served by U.S. suppliers for years.

Other markets lack the population, affluence or infrastructure to warrant being a direct focus of U.S. sales efforts. Most of these smaller markets are served from the principal cities mentioned above.

The Transportation Maze

Mexico's major markets, with the exception of resort and border cities, are located in the interior. Thus, overland transport is generally the best option.

Unfortunately, most of Mexico's highways -- mostly two-lane roads -- are inadequate and in poor condition. About one-third of the roads are paved. However, this is beginning to change. Mexico has given concessions to private entrepreneurs to build a network of toll roads. Where completed, this has resulted in vastly improved roads, but because of high tolls, has made ground transportation fairly expensive.

The average transit time by road between southern California and Mexico City is five days. This includes two days of traveling within the United States to one of the border crossings in Texas, such as Laredo or El Paso/Juarez, and three days (including border logistics) from those points to Mexico City, which is about 740 miles south of Laredo.

A problem with the trucking of U.S. exports is that the driver and cab must be switched at the border and a Mexican firm and driver must take over. The trailer does not need to be changed. Under NAFTA this will change and eventually U.S. and Mexican trucking companies will be allowed to cross the border -- at first only within specific regions and limited distances from the border.

The state-owned railroad system, Ferrocarriles Nacional de Mexico (FNM), plagued by a shortage of freight cars and long delays, is being reorganized and modernized. Foreign rates have been cut, delays at border crossings reduced and U.S. and Mexican lines have integrated their through service. Despite these improvements, rail transport only makes sense for non-perishable products with a long shelf life.

Air freight capacity for handling highly perishable items, such as chilled beef and fresh seafood, is expanding. Some of the major airlines providing freight services include Aero Mexico, Mexicana, American, Continental, Delta and United.

The Distribution Maze

Mexico's distribution system is in its infancy and food products can be costly and difficult to distribute.

Distributors and importers are the key to the success of any imported product, since only some of the major retail and few of the major food service chains import directly. Retail buyers cite inadequate distribution -- the inability to provide supply continuity and on-time delivery -- as the major obstacle to success for new-to-market U.S. products.

For any U.S. company exporting to Mexico, it is important to have an agent or reliable distributor who can maintain regular contact with buyers, interface with the government on customs, regulatory and phytosanitary issues, and ensure that service is maintained to clients.

There are only a few national distributors handling food products, so it is common for a U.S. exporter to have multiple distributors to supply the major regional markets.

It is unlikely that a new-to-market U.S. exporter will have sufficient sales volume to maintain its own exclusive distributor. It is probably best to tap into a distribution network which is already handling complementary products. A general food products distributor or a Mexican food processor may be best.

U.S. companies trying to build a brand reputation in Mexico should be careful when selling through brokers in the United States or Mexico. It is impossible to control where a product sold through brokers ends up and in what condition it arrives. If you want to maintain your reputation, it is best to sell directly through distributors or wholesalers.

For fresh and horticultural products, each city has a central wholesale market, known as the Central de Abastos. Virtually all of Mexico's horticultural production and imports move through these markets. Christmas trees, dry beans, peas, lentils, spices, polished rice, bird seed, dried fruit and nuts are sold there as well.

The major retailers buy their produce there as do smaller wholesalers, who in turn supply mom-and-pop grocery stores (known as abarrotes) and restaurants. Consumers can and do purchase here, but this is believed to account for a small share of sales.

The largest of these wholesale markets -- reportedly the largest in the world -- is in Mexico City. A visit to this market is essential for anyone interested in understanding Mexico's food distribution system for the products they handle. Little, if any, frozen product is distributed in this market. If you want to see it in full swing, visit between 6 a.m. and 9 a.m. If you want to have meetings with the trade, go after 10 a.m. Because it is a bit of a maze and overcrowded with cars and trucks, it can be hard to get around.

The Food Service Maze

Mexico's growing food service sector includes three main components: restaurant chains, fast food chains, and hotels and upscale restaurants.

A number of restaurant chains cater mainly to the business lunch crowd. The major chains, all of which are Mexicanowned, use imported products bought through local distributors.

Fast food restaurants are the most rapidly expanding component of the food service sector. There are at least 250 fast food chain outlets throughout Mexico. The majority of these are located in Mexico City, Monterrey and Guadalajara. However, there may be limits to this industry's growth in the short term, as fast food is not cheap by Mexican standards.

Mexicans have the option to eat more traditional Mexican foods, such as tortillas and beans with a little meat, for considerably less money in the prevalent small storefront and temporary stall taquerias.

Due to the affiliation of most fast food chains with U.S. companies, they are more likely to handle their importing through their own warehouses located on the U.S. side of the U.S.-Mexican border, normally at Laredo or McAllen, Texas.

The major five-star hotels and upscale restaurants are also concentrated in Mexico City, Guadalajara, Monterrey and the major resort areas, including Acapulco and Cancun. These are collectively big users of imported food products, but they purchase individually through Mexican-based wholesalers specializing in this sector.

The institutional sector is large and has great potential for U.S. exports. The government has an extensive school lunch program, most factories provide meals to their workers and many office buildings have commissaries. There are only a few large institutional food providers and the rest is decentralized. As is the case with hotels and better restaurants, buyers purchase from suppliers based in Mexico with little direct importing from the United States.

The Retail Maze

The retail sector caters primarily to consumers from the higher socioeconomic classes. The recent introduction of discount warehouse stores is making shopping at supermarkets more accessible. Supermarkets are concentrated in the three major cities and there are outlets in secondary cities, like Morelia, Queretaro, Veracruz, Merida, Los Mochis and Hermosillo. In fact, capital cities of Mexico's states are being aggressively targeted by chains.

The most upscale supermarkets in Mexico are as modern as any stores in the United States. However, shelf space for frozen food items is still limited and in some areas of the country nonexistent. Nonetheless, the frozen food sector is the fastest growing section in the supermarkets.

Retail chains, for the most part, are not set up to import directly, especially perishable products. Though this is expected to change over the next few years, virtually all imported perishable food items are currently purchased through Mexican-based distributors. These distributors, to be competitive, must almost daily, or at least weekly, provide deliveries to each of the retailer's outlets. This enables the chains to keep inventories at a minimum, avoid investment in large centralized storage and bypass the hassles of importing.

The major national chains -- Gigante, Comercial Mexicana and Grupo Cifra -- are all headquartered in Mexico City. There are two regional chains based in the north: Soriana and Casa Ley; and one in the south (Veracruz): Chedraui.

Gigante is the largest chain, with 151 stores. It has recently affiliated with Fleming, a U.S. wholesaler. Its stores are primarily hypermarkets, selling a broad range of food and non-food items.

Grupo Cifra comprises a group of 110 stores. The group has five main components: up-market (Superama, 36 outlets); mass market (Aurrera, 35); hypermarket (Gran Bazaar, 3); budget (Bodega, 28); and warehouse (Club Aurrera/Sam's, 6 and wal-Mart Superstores, 2). It has entered into a partnership with Wal-Mart to open outlets and warehouse stores outside of Mexico City.

Comercial Mexicana has 113 stores nationally: 77 under the Comercial Mexicana name; 18 called Sumesas; and 18 named Bodegas. This chain also has several Price Club warehouse stores, which are affiliated with Price Club, USA.

In addition, Mexico also has an expanding U.S.-style convenience store sector. Shelf space is limited and the usual assortment of consumer-ready items are stocked. The leader is the Monterrey-based Oxxo, with 615 outlets nationwide. 7-Eleven, based in Mexico City, is the second largest chain with around 300 stores. Both chains are expanding in urban areas.

The majority of consumers continue to purchase their grocery items from small mom-and-pop stores (abarrotes). There are about 20,000 of these stores nationwide. In towns outside of the major cities, these are the primary outlets for groceries. Refrigeration in these stores is extremely limited and sometimes nonexistent. These stores are expected to diminish in importance as supermarkets and convenience stores move into secondary cities and towns.

Diconsas, or government-owned stores frequented primarily by poorer consumers, also import some U.S. food products. There are 20,000 of these small retail stores scattered throughout rural Mexico. In many communities they represent the only retail food outlet. There are also 5,000 diconsas on the outskirts of the major cities. Mostly bulk commodities, such as beans, rice and corn flour, are sold there. All imports are purchased by the central office in Mexico City or by CONASUPO, a government corporation.

The majority of consumers continue to purchase their food fresh from local, traditional markets. But as is the trend worldwide, these are being replaced by the expansion of the modern retail sector.

COPYRIGHT 1994 U.S. Department of Agriculture
COPYRIGHT 2004 Gale Group