Retailing - Mexico

Retailing - Mexico
Euromonitor International : Country Market Insight February 2011
Retailing
Mexico
List of Contents and Tables

Executive Summary ................................................................................................................................................ 1 A Slower Than Expected Recovery Puts Pressure on Retailing ................................................................................ 1 Chedraui Goes Public and Expands in the North of the Country.............................................................................. 1 Grocery Sales Grow Faster Than Non-grocery Sales ............................................................................................... 1 Price-based Competition Remains the Norm in 2010 ............................................................................................... 1 Real Economic Recovery Expected To Be Delayed Until 2011................................................................................. 1 Key Trends and Developments .............................................................................................................................. 1 Adverse Economic Climate Permeates Retailing in Mexico ..................................................................................... 1 Slow Economic Recovery Affects Newly Created Retailer-owned Banks .................................................................. 3 Internet Retailing Is the Preserve of the Young, Educated and Affluent ................................................................... 4 Chedrauis Ipo To Shape Chained Grocery Retailing .............................................................................................. 6 Large Chained Grocers Expand Into Smaller Cities................................................................................................. 7 Market Indicators ................................................................................................................................................... 8 Table 1 Employment in Retailing 2005-2010................................................................................. 8 Market Data ............................................................................................................................................................ 9 Table 2 Sales in Retailing by Category: Value 2005-2010 ............................................................. 9 Table 3 Sales in Retailing by Category: % Value Growth 2005-2010 ........................................... 9 Table 4 Sales in Retailing by Grocery vs Non-Grocery 2005-2010 ............................................... 9 Table 5 Sales in Store-Based Retailing by Category: Value 2005-2010......................................... 9 Table 6 Sales in Store-Based Retailing by Category: % Value Growth 2005-2010 ....................... 9 Table 7 Sales in Non-Grocery Retailing by Category: Value 2005-2010 ......................................10 Table 8 Sales in Non-Grocery Retailing by Category: % Value Growth 2005-2010.....................10 Table 9 Sales in Non-store Retailing by Category: Value 2005-2010 ...........................................10 Table 10 Sales in Non-store Retailing by Category: % Value Growth 2005-2010 ..........................11 Table 11 Retailing Company Shares: % Value 2006-2010..............................................................11 Table 12 Retailing Brand Shares: % Value 2007-2010 ...................................................................11 Table 13 Store-Based Retailing Company Shares: % Value 2006-2010 .........................................12 Table 14 Store-Based Retailing Brand Shares: % Value 2007-2010 ...............................................13 Table 15 Non-Grocery Retailers Company Shares: % Value 2006-2010 ........................................13 Table 16 Non-Grocery Retailers Brand Shares: % Value 2007-2010..............................................14 Table 17 Non-store Retailing Company Shares: % Value 2006-2010 .............................................15 Table 18 Non-store Retailing Brand Shares: % Value 2007-2010 ..................................................15 Table 19 Forecast Sales in Retailing by Category: Value 2010-2015 .............................................16 Table 20 Forecast Sales in Retailing by Category: % Value Growth 2010-2015 ............................16 Table 21 Forecast Sales in Store-Based Retailing by Category: Value 2010-2015 .........................16 Table 22 Forecast Sales in Store-Based Retailing by Category: % Value Growth 20102015 ..................................................................................................................................16 Table 23 Forecast Sales in Non-Grocery Retailing by Category: Value 2010-2015 .......................17 Table 24 Forecast Sales in Non-Grocery Retailing by Category: % Value Growth 2010-2015.........................................................................................................................17 Table 25 Forecast Sales in Non-store Retailing by Category: Value 2010-2015 .............................17 Table 26 Forecast Sales in Non-store Retailing by Category: % Value Growth 20102015 ..................................................................................................................................18 Appendix .................................................................................................................................................................18 Operating Environment............................................................................................................................................18 Cash-and-carry ........................................................................................................................................................20 Definitions ...............................................................................................................................................................20
Euromonitor International
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Mexico
Summary 1
Research Sources ..............................................................................................................21
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RETAILING IN MEXICO
EXECUTIVE SUMMARY
A Slower Than Expected Recovery Puts Pressure on Retailing
After a disastrous year for the economy in 2009, expectations for a quick recovery hit a wall by the first half of 2010, making highly probable a real recovery until 2011. During 2009 the Mexican economy registered the largest drop in GDP in almost eight decades. Such a poor performance had an immediate effect on nearly every economic parameter and adversely affected consumption at all levels and for all products. High expectations resurfaced during 2010, as GDP grew. However, adverse economic indicators in terms of employment, consumer confidence, credit scores, and manufacturing data and sizeable inflation rates made it very difficult for retailing as a whole to recoup the decline experienced in 2009.
Chedraui Goes Public and Expands in the North of the Country

The formerly private-owned Chedraui (Grupo Comercial Chedraui SA de CV) chain, a top five grocery retailer in the country, successfully entered the Mexican stock market through an Official Public Offering (IPO) at the end of April 2010. Armed with ample financial resources, Chedraui plans to expand in the northern states of the country, an area in which the player had no significant presence. In contrast, the heavily indebted Controladora Comercial Mexicana SA de CV - CCM, another leading grocery retailer in Mexico, recorded just 2% of current growth in 2010, but lost retail value share in 2010.
Grocery Sales Grow Faster Than Non-grocery Sales

According to ANTAD (National Chamber of Retailers which affiliates major retailers) retail value sales of groceries grew at double the rate of non-grocery products in 2009. However, Euromonitor International estimates that within the entire retailing sector that includes independent small stores, grocery sales grew while non-grocery sales decreased in 2009. This suggests a substitution amongst formats in the retailing sector, where the so-called organized formats are outperforming the traditional small stores.
Price-based Competition Remains the Norm in 2010

As in 2009, competition based on price remained the norm during 2010. Consumers are still too cautious about their spending to stimulate sales. Moreover, employment levels have not yet recovered to pre-crisis levels and people are still too concerned about job security to purchase costly durable goods. As a result, retailers continue to try to encourage consumers by offering continuous sales and other price promotions in an attempt to fuel spending. This is a recurrent practice among grocers and non-grocers alike.
Real Economic Recovery Expected To Be Delayed Until 2011

A strong economic recovery that stimulates a pre-crisis level retailing performance will have to wait until 2011, if a double-dip recession does not occur. In 2010 retail value sales have been relatively slow as consumers continue to postpone the purchase of durable goods and sometimes inexpensive non-grocery items such as clothing or personal care products are passed over in about the economic climate, and industry experts concur on a weak and slow economic recovery and the need to avoid a double-dip recession.
KEY TRENDS AND DEVELOPMENTS

Adverse Economic Climate Permeates Retailing in Mexico
After a disastrous performance in 2009, the Mexican economy forced retailers to redefine their strategies. In 2009 GDP registered its biggest drop in nearly 80 years, decreasing by 7%. This represented a bigger slide than the one registered during the Tequila Effect in 1995. Many economists and analysts hoped for a notable
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rebound of the economy during 2010; however GDP growth of 4.5% was not sufficient to recoup the economic losses of 2009. There are many reasons for the weaker than expected economic recovery: safety issues have adversely affected the inflow of FDI (Foreign Direct Investment), a basic factor in stimulating the economy. During 2009, FDI fell by around 47% compared to 2008 registering only US$12.5 billion, moving Mexico out of the 20 nations that received the highest level of FDI. This indicator recorded important growth to reach around US$17 billion in 2010, but this figure is still far from pre-crisis levels: in 2007 FDI reached an outstanding US$27 billion. Unemployment is also having a major effect on the economy. The level of unemployment in 2009 and 2010 did not drop below 5%. This figure does not take into consideration underemployment or informal employment, which is estimated to account for around a 30% share of the total workforce. Nonetheless, 5% is high, given that the pre-crisis unemployment rate in 2007 and 2008 reached 3% and 4%, respectively. In mid-2010 the federal government announced that 500,000 jobs had been created in the first half of the year, but many analysts and even government institutions such as INEGI or the IMSS question the Ministry of Labours figures. The Ministry of Labour reports that 552,000 jobs were created in the formal economy in January-October 2010. As many analysts point out, a real recovery requires higher formal employment figures. Finally, higher taxes place a high burden on economic recovery by undermining the purchasing power of most of the population. The federal government decided, in the second half of 2009, to raise income tax from 28% to 30% and VAT (value-added tax) from 15% to 16%, alongside other minor tax increases, such as 2-3% for cash deposits in bank accounts that exceed Mx$15,000 per month or a new tax for telecommunication services. Current Impact These economic indicators and other important factors such as growing safety concerns (especially on the northern border) combine to influence the consumer confidence index and consequently their retail behaviour. Throughout 2009 the consumer confidence index registered very low numbers, mostly below 80 from a 100 base, hitting a low of 77 in October 2009. Because of the slower than expected economic recovery, the average during the first half of 2009 was 83.8, well below the 98.3 mark registered in the first half of 2008, immediately before the onset of the economic crisis, and even lower the 104.2 recorded in the second half of 2007. This indicator did not register a notable recovery in 2010. In 2010, 72% of the Mexican consumers considered themselves to be cautious spenders due to the still high degree of economic uncertainty; 54%, consider pricing more important than luxury, leaving behind frivolous consumption. During 2010 only 15% of consumers thought luxury was an important factor in their purchasing decisions, compared to 23% in 2008. The still depressed domestic economy had similar implications for retailing in Mexico in 2009 and 2010. For example, consumers continued to delay the purchase of durable goods in favour of basic groceries. While the plethora of promotions that permeated the whole retailing industry slowed down, retailers still engaged in frequent price-based promotions to lure consumers into the stores. In addition, most large chained grocery retailers continued to aim their expansion efforts at inexpensive formats. This was perhaps the most significant event in 2009-2010, since large chained grocery retailers, led by Walmart (Wal-Mart de Mxico SA de CV), looked to grow their discount (bodegas) businesses, which did not previously serve small urban areas. Outlook There is little reason to expect anything more than a modest economic recovery in the short-to-medium term. There are some signs of improvement, such as the, albeit slow, recovery of the US economy (which accounts for around 90% of Mexicos exports) and a small rise in employment, although underemployment and informal employment remain high. Likewise, FDI improved during 2010 and it is expected to reach over US$20 billion in 2011. These factors will have an impact on GDP and on improving conditions in most industries, including retailing. However, high economic uncertainty remains, with a double-dip recession threatening the country. Furthermore, the recent increase in taxes has weakened the purchasing power of consumers and there is a reasonable possibility that the federal government will continue to raise taxes. The state oil company, Pemex, which contributes up to 40% of the governments budget, is quickly running out of oil. This is leaving the government
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with little choice other than to increase taxes or to force large numbers of informal workers to contribute to the treasury. Future Impact The modest economic recovery expected in the short-to-medium could see a gradual improvement in the performance of retailing, yet high uncertainty surrounds this issue. In the forecast period, retailers are expected to continue to rely on price-based promotions, while reducing this activity as the economy stabilises. Nongrocery retailers are expected to refrain from investing in huge or ambitious expansion plans as long as the economic climate remains depressed. Chained grocery retailers are likely to continue to expand the discount format (bodegas), which target the large low-income population due to their weak purchasing power. The reluctance of retailers to expanding in 2009-2010 will remain a key factor. Only Walmart and OXXO (Cadena Comercial OXXO SA de CV) maintained their ambitious expansion plans during the economic crisis, due to the perceived high potential for discounters in small population areas and convenience stores in largeand medium-sized urban areas. As the economy moves out of recession other formats such as supermarkets and hypermarkets will get more attention from retailers. In non-store retailing, vending, direct selling and homeshopping are expected to register good growth in retail value sales over the forecast period. Meanwhile, internet retailing is predicted to grow dynamically, by a 30% constant value CAGR, due to the recent expansion of internet access and usage and, most of all, due to the very low level of internet retailing in the review period. However, the strong performances of these channels will not have a detrimental impact on the regular performance of traditional store-based retailing. In fact, the recent notable growth in internet access and usage, hitherto the privilege of young and affluent consumers, will be readily adapted by most brick-and-mortar businesses across the country as a powerful tool to increase sales.
Slow Economic Recovery Affects Newly Created Retailer-owned Banks

In 2007 the CNBV (Comision Nacional Bancaria y de Valores) authorised large retailers to open their own financial institutions (mostly banks and insurance companies) to help them capture and better serve their target audiences: middle- and low-income populations across the country. In the same year, Wal-Mart, Coppel SA de CV and Chedraui followed in the footsteps of Grupo Elektra SA de CV, which had earlier opened its own bank to offer financial services to its customers. These companies inaugurated their own banks with understandably high expectations since a large proportion of the population was not served by traditional commercial banks. Thus, these retailers assumed that they could cover a need that had been largely ignored for many years. The first year of operation for banks owned by large retailers seemed promising, but Mexico was hit by the worst economic crisis in 80 years and circumstances began to change drastically. One of the many effects of this economic crisis was an increase in unemployment, which reached 6% in 2009, the highest rate for decades. However, the rate of unemployment has been underestimated, according to many analysts, since it does not take into consideration the huge underemployment factor. After the loss of an estimated 441,000 formal jobs in 2009, a large number of consumers started to default on credit payments with large commercial banks and banks owned by large retailers. Current Impact According to an article in Expansion, the abovementioned retailer-owned banks witnessed a default on payments of 20-28% on all credit accounts, while major commercial banks such as Citibank (Banamex) (10% default) or BBVA-Bancomer (13%) experienced lower rates of non-performing loans. The situation is worse still, if we consider that interest rates charged by retailers banks (either though store cards or credit cards) are considerably higher, reaching 69% for BanCoppel and 66% for Wal-Mart, according to company websites. This places an enormous burden on low-income consumers, the typical target for retailer-owned banks. It would be easy to blame this situation on the economic crisis, but such problems began as soon as the large retailers opened their banks in 2007. The new banks were convinced that the large low-income population was being starved of credit, as they were not covered by conventional commercial banks. Traditional commercial banks were not interested in low-income consumers, labelling them high-risk customers as many individuals lacked even a formal credit score. According to Expansions article, retailer-owned banks engaged in a frenzy of credit approvals in 2007-2009. According to press sources, BanCoppel issued over 500,000 credit cards in one
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year, while Banco Ahorro Famsa issued over 100,000 credit cards in two years. Most of these credit cards were issued without a thorough analysis of the applicants credit rating: income statements were not usually required, with retailer-owned banks considering the payment history of the customer in their stores but not credit scores in other financial institutions, etc. The seriousness of the situation is reflected by the fact that 80% of all revenues by large variety and department stores such as Famsa, Coppel and Elektra are made through sales on credit, mostly issued by the retailers own bank. Such a high figure causes a significant threat during adverse economic conditions as any consumers fail to make regular repayments. In this scenario, these large retailers are the most affected since the proportion of sales on credit normally stands at 50% in the case of high-end luxury department stores such as El Palacio de Hierro and Liverpool, which issue store cards and might be even more affected by credit constraints due to economic difficulties. A different situation is presented by large grocery retailers such as Walmart or Chedraui, as the proportion of sales on credit only represents less than 10% of total sales. Outlook The evolution of credit will go hand-in-hand with the performance of the economy. As soon as the economy recovers so will credit and defaulting on payments will be less common, reaching more acceptable levels over time (around 10%). The recent economic crisis was so severe that even high-income consumers such as regular customers of high-end department stores such as El Palacio de Hierro experienced poor credit score ratings in terms of defaulting on debt payments. It is important to note that this situation has not affected credit issues at traditional large commercial banking institutions. The six largest commercial banks accounted for over 95% of all credit cards issued, and nonperforming loans failed to reach 15% in most of them, according to press sources. These traditional commercial banks plan to keep expanding; this time through retailing: At the end of 2009 it was announced that the 10 largest commercial banks (including Banamex, BBVA-Bancomer, American Express, Banorte, and HSBC) will offer basic banking services in retail chains such as OXXO convenience stores, Farmacias Benavides, and even retail chains with their own banking institutions such as Wal-Mart or Chedraui. These services will be offered under corresponsales bancarios: retailers approved to perform as an extension of banks and financial institutions for some operations like receiving credit card payments and services such as electricity and telephone bills. OXXO is a particular good example of a corresponsal bancario. Future Impact Retailer-owned banks will be forced to absorb losses caused by issuing credit. As a result of the ongoing domestic economic downturn, large retailers have modified their credit issuing policies: a thorough analysis of the credit prospects of applicants is required, collection practices have been reinforced and some retailers, including Chedraui, have totally suspended the issue of new credit cards while others like Famsa have closed some in-store banking outlets. It is expected that these corrective measures will reduce credit issues in the forecast period and retailers' banks will suffer fewer bad credit scores. Retailers banks are expected to continue issuing credit, but with sounder policies in place. Offering credit to lower-income customers will remain a core practice for a number of retailers which can afford to take calculated risks, such as Sanborns (Grupo Sanborns SA de CV) variety stores. As part of the Grupo Carso industrial and commercial conglomerate, which owns a private bank, Inbursa, Sanborns plans to follow in the footsteps of retailers by opening 40 Inbursa facilities in the most popular Sanborns stores. Inbursa is considered the financial arm of Grupo Carso and the Telmex telecommunications company. This development is expected to create a synergy between Sanborns and the Inbursa banking business. In short, the development of banking services offered in and by retailing institutions is far from over, despite recent negative experiences. Similar activity is expected in the short-to-medium term, as long as retailing companies implement such services with sounder financial and lending policies and practices.
Internet Retailing Is the Preserve of the Young, Educated and Affluent

Internet access enjoyed notable growth in the 2000s, but in Mexico it remains largely the privilege of young, educated and affluent consumers. During 2009 Mexico achieved internet connectivity for 31 million inhabitants (6-years-old-and-over), a notable jump from close to 26 million in 2008. However, there is a high concentration
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of internet users in high-income groups (A, B and C+), which account for around 20% of the total population compared to close to 40% of all internet users. Meanwhile, one of the lower-income groups (D), which represents around 37% of the total population, did not register any increase in the number of internet users in 2008-2009. The economic crisis of 2009, which saw at least five million middle-class consumers fall into lowincome groups, worsened this situation. Indeed, the availability of a home computer among lower-income groups (D and E) fell by three percentage points in 2008-2009 to reach 12%. The concentration of internet access and usage is not simply due to economic factors. Close to 70% of 12-19year-old consumers enjoyed internet access (at home, school, public libraries, small internet cafs, etc), but this figure decreases notably as in older age groups: only 38% of 25-34-year-old and 12% of 55-64-year-old consumers had access to the internet in 2009. Overall, 35-year-old-or-under consumers account for a 77% share of internet users in Mexico. Another factor that signals the close relationship between higher internet penetration and higher-income consumers is education: three quarters of all net surfers have at least a bachelors degree or college education while only 10% of people with basic education accessed the net. Current Impact Mexico has enjoyed an internet retailing boom in recent years. Internet retailing recorded a 31% retail value CAGR over the review period, and a 20% increase in 2009-2010 to reach Mx$12.2 billion. Nonetheless, the fact that internet access and usage remain so strongly related to an elite defined by income, age and education has some negative connotations for internet retailing in Mexico. Moreover, tourism-related products and services (air tickets, hotel nights, holiday plans etc) account for a huge portion of internet sales; at least 3-times higher than retail internet sales. Despite the boom in internet retailing it accounted for less than a 1% share of overall value sales in retailing. The concentration of internet access and usage suggests that the boom responds to a relatively new retail format that quickly became popular among a small part of the population but will encounter major difficulties in terms of reaching the bulk of the population. Internet retailing requires a number of components that are not accessible to the majority of the population. Firstly, it requires a PC and only 37% of Mexican households own a computer. An internet connection is also necessary, and only a 33% share of the 6-year-old-and-over population had access to the internet. Home access to the internet is concentrated among high-income groups, while lower-income consumers can gain access at work, school or via the many internet cafs in the country. Finally, internet retailing requires access to credit cards and technologically savvy people, which limits online sales. Owning a computer and paying for internet access excludes at least one half of the population from internet usage at home; these consumers are relegated to internet access at work or school or via internet cafs. But perhaps the largest obstacles to the spread of the internet as a retailing tool is the lack of trust in online payment procedures and the necessity of holding a credit card; the preferred method of payment in three quarters of all internet transactions. Mexico has a severe problem with credit card cloning, and two thirds of internet users purchases take place on perceived reputable websites, while one half of users never make purchases on a public computer terminal. Moreover, one quarter use only a credit card with a limited balance. Only slightly more than one half of internet purchasers have high confidence in the online payment system. During 2009, fraud via cloned credit cards grew by 15%. According to the ABM (Association Mexicana de Bancs) the value of this type of fraud reached over US$60 million in the same year. Credit card membership is still a minority issue in the country: as of 2009 there were only 26 million credit cards, which covers much less than one quarter of the total population, since many affluent consumers hold more than one card. This places another obstacle to the popularisation of internet retailing, since 68% of the Mexican economy has a cash base. Money lending via credit cards is low for a number of reasons: large segments of the population are engaged in informal economic activities; low penetration of banking services in small- and medium-sized urban areas, and a banking system that obtains a much higher income via services instead of lending, etc. Outlook The severe economic crisis in 2009 did not help middle- and low-income consumers to gain internet access. Many of the economic and social conditions that have made internet retailing a privilege of mostly higherincome groups are likely to remain in place in Mexico for the foreseeable future: Latin America is known to have the largest inequalities in terms of income than any other region in the world, and Mexico is one of the most representative countries in this regard. A high level of social inequality weakens the potential expansion of
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the internet and Mexicos slow economic recovery hinders middle- and low-income consumers from engaging in internet retailing. Furthermore, internet services in the country are underdeveloped and this situation shows little sign of improving dramatically in the short term. Mexico has only 7.2 broadband subscribers per 100 inhabitants, a lower rate than in many Latin American countries. Also, a comparative study conducted in 2009 among OECD countries showed that telecommunication providers in Mexico offer the slowest internet connections. Mexico had the most expensive low velocity connection (256kbps to 2mb) and the fourth most expensive in terms of mid-range speed (over 2.5mb), while connections with a speed of over 10mb are not available. The internet service in the country is a virtual duopoly, with only two large communications companies, Telmex and Cablevision, offering nationwide coverage. Meanwhile, some minor players such as Nextel and Maxcom provide local services. As a result of the lack of competition, internet fares are very expensive, on average 5times higher than in the US. Future Impact All economic and social factors point to a large expansion of internet access and internet retailing activities in the forecast periods. However, this will remain highly concentrated among high-income, computer literate consumers with access to credit cards. Middle- and low-income consumers will gain access to internet retailing once computer prices and internet and credit access become more competitive. However, this is likely to develop only in the longer term given the slow recovery of the economy, the reluctance of banking institutions to offer credit and the duopoly that controls internet access. Furthermore, for internet retailing to spread, it is also important that people have higher confidence in presenting their personal and credit card details online. This will be difficult given the high growth in online criminal activity and credit card cloning in the country. In short, despite the notable growth in internet retailing, it is expected that internet sales will remain the privilege of a small proportion of the population in the forecast period. Thus internet retailing will continue to account for very small retail value shares in retailing as whole.
Chedrauis Ipo To Shape Chained Grocery Retailing

Of the four major chained grocery retailers, only Grupo Comercial Chedraui SA de CV was a privately-held company and family-run business which did not disclose financial information. This situation changed at the end of April 2010 when the company launched its much awaited IPO and became a public company, listed on the Mexican Stock Exchange under the CHDRAUI symbol. The IPO of the company, which had been delayed for years, finally became effective on 30 April 2010. The company offered over 154 million shares, representing around 16% of total equity, for a combined value of Mx$5.2 billion. The domestic institutions handling the IPO were Casa de Bolsa Acciones, Valores Banamex and Casa de Bolsa BBVA Bancomer, while the international underwriters were Citigroup and Credit Suisse. The issuing price of the stock was Mx$34.00 per share while the closing price on the first day rose to Mx$36.00. Grupo Comercial Chedraui SA de CV was founded in 1920 in the southern state of Veracruz by the Chedraui family, and it has always been in the grocery retailing business. The company grew organically in subsequent decades to reach 54 outlets by 2004. In 2005, Chedraui made headlines by acquiring the 29 supermarkets owned by the giant retailer Carrefour in the country. With this single move, Chedraui expanded from the south of the country into the most profitable retailing area of the country, the central region and home of Mexico City. Current Impact The most immediate impact of Chedrauis IPO is an increase in market capitalisation, which will allow the company to continue expanding through the country. It is well-known that Chedraui had little presence in the northern states of the country, with the sole exception of Tamaulipas, but expansion will allow the company to become a truly nationwide player in a short time. However, Chedrauis ambitions do not end there. The grocery retailer, like its main competitors, has a low presence in small cities (25,000-50,000 inhabitants). Following in Wal-Marts footsteps, which penetrates smaller urban areas through its bodega format, Chedraui plans to compete in small cities with its smallest and most flexible format, Super Che. Chedrauis management has expressed the possibility of managing its expansion plans via the acquisitions of independent small grocers. The company realises the need to expand its distribution and improve logistics capabilities to accomplish its scheme.
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While Chedraui prepares to embark on an ambitious expansion plan, Comercial Mexicana, another leading chained grocery retailer, struggled to avoid bankruptcy in 2009-2010. This retailer entered deep financial trouble in the last quarter of 2008, when bad investments in derivatives and a huge slump in the financial markets left it with huge debts, estimated at close to US$2 billion. Due to huge indebtedness levels and its compromising of profits to pay-off the debt, Comercial Mexicana recorded slower retail value sales growth, while increasing the number of its outlets from 189 to 191 in 2008-2010. By comparison, Wal-Mart opened around 300 new outlets in 2010 alone. This situation is important since there is huge speculation that a coincidence of events (Chedraui expanding and Comercial Mexicana failing) could easily result in the acquisition of a number of Comercial Mexicanas assets by Chedraui. Outlook It is almost guaranteed that the huge indebtedness levels being supported by Comercial Mexicana will condemn the company to zero growth for much of the forecast period, perhaps longer, and the possibility of a bankruptcy is a constant threat. In fact, the company has already been declared bankrupt in the US. In mid-July 2010 Comercial Mexicana was forced to file for bankruptcy in the US under Chapter 15 of the bankruptcy Code (cross border insolvency or foreign companies with debts within the US). Comercial Mexicana wants to avoid US creditors suing the company in the US; therefore it plans to settle debts of US$1.5 billion by 2018. Comercial Mexicanas difficulties and Chedrauis ambitious expansion plans paid-off in 2010 to see the companies change places as the third and fourth largest grocery retailers, respectively. Chedrauis potential competitors, chained grocers such as Supermercados Internacionales HEB SA de CV, Casa Ley SA de CV or Almacenes Zaragoza SA de CV, have very limited operations that do not cover a whole region, sometimes only 1-2 states. These players are a long way from launching IPOs that might interest investors in the country. Future Impact The emergence of Chedraui as the fourth largest grocery chain in Mexico will have a significant impact on Organizacin Soriana SA de CV and also in Comercial Mexicana. However, it will have much less of an impact on Wal-Mart, the leading company in grocery retailing in the country. The retail value sales of Wal-Mart are around 30% higher than those of Organizacin Soriana, Comercial Mexicana and Chedraui combined. Moreover, Wal-Mart had 1,200 grocery outlets in 2010, slightly higher than the combined total of these three competitors. These figures clearly indicate the superiority of Wal-Mart in terms of profits and sales per outlet. Thus, the emergence of Chedraui as a stronger player in grocery retailing and the potential bankruptcy of Comercial Mexicana will not pose a major threat to Wal-Marts leading position or its role as a trend setter. Rather, these developments will mostly cause other chained grocery retailers to make adjustments.
Large Chained Grocers Expand Into Smaller Cities

Traditionally, large grocery retailers have placed their outlets in large- and medium-sized urban areas, mostly ignoring small towns of 50,000 or fewer inhabitants. Companies understandably made their best efforts to cover first more densely populated cities, where people typically have larger disposable income. However, the fierce rivalry amongst large chained retailers combined with strong competition from independent small grocers and convenience stores have become constant in large- and medium-sized cities, which are approaching saturation in terms of retailing. As a result, large chained grocers started to turn towards small urban populations of up to 50,000, which account for more than 17 million people in Mexico, according to CONAPO. These populations are served mainly by independent small grocers. Current Impact The expansion of large chained grocers into small urban areas is a relatively recent phenomenon. This trend started to gain momentum around 2007 with the creation of new discount bodega formats by Wal-Mart. Mi Bodega Express and Bodega Aurrera Express joined the companys more established Bodega Aurrera discounter operation. During 2008 and 2009 the growth of these discounters was dynamic: Bodega Aurrera Express, the most flexible format (smaller, and more focused on groceries), moved from four outlets in 2007 to 67 in 2008 and 247 in 2009 and 433 outlets in 2010. Mi Bodega Express also recorded notable growth, increasing its number of outlets from 96 in 2008 to 167 by 2010. In 2009, discounters accounted for around an 80% share of all new retailing outlets opened by Wal-Mart, and 2010 continued the trend. More importantly, in
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2009 Wal-Mart initiated operations in 41 urban locations, mostly with populations of no more than 50,000, in which the company had no presence. Wal-Mart has been a trend setter over many years, and other large retailers are quickly following in its footsteps. In mid-2009, Organizacin Soriana reported that it had identified 100 small cities in which to open its newly created Soriana Express format. The company also targeted populations of 50,000 or lower. Clearly, Organizacin Soriana created this new format to openly compete with Wal-Marts Bodega Aurrera Express, opening a small, adaptable store with only 7,000 SKUs in 1,500 sq m at the beginning of 2010. Importantly, Organizacin Soriana had managed the Mercado Soriana discounter which used to compete directly with the Bodega Aurrera format. However, these large discounters with over 3,000 sq of selling space were located in low-income areas in large cities. The new express discounters are mostly located in small cities and they are much smaller in size. At the end of 2009, Chedraui announced that it would join this trend by adapting Super Che discounters to the requirements of small populations. Comercial Mexicana will not profit from this trend, since its severe financial problems seriously weakened its performance in 2009 and 2010. Moreover, the company is expected to experience zero growth in the short-to-medium term. Outlook The severe economic downturn in 2009 made small discounters the ideal store format to expand into small urban areas, many of which are populated by low-income consumers. The slower than expected economic recovery, reflected in economic indicators such as high unemployment and underemployments levels, low FDI, and slow GDP growth, virtually guarantees that most people in these smaller areas will remain in the lowincome bracket. These small and flexible hard discounters have a very basic product range and they are likely to proliferate due to ongoing economic difficulties in the forecast period. Future Impact Wal-Mart is expected to be the winner as a result of this trend, which it did much to initiate. With 433 Bodega Aurrera Express stores in 2010, it easily outnumbers the newly created Soriana Express (19 stores), and Super Che, which has 34 stores, mostly located in large- and middle-sized urban areas. Moreover, these figures do not take into account the 167 Mi Bodega Express outlets, many of which can easily cover small cities with populations of 25,000-50,000. This trend has a strong growth potential, since it is estimated that Mexico has over 300 cities with populations of 25,000-50,000 not served by the largest grocery chains. On the other hand, this trend will put a lot of pressure on traditional independent small grocers, which have been serving these populations for many years. Not being used to facing tough competition from large, experienced grocers with ample financial means to match any promotion, many independent small grocers will suffer and be driven out of the market, once this trend gains full force in the medium-to-long term.
MARKET INDICATORS
Table 1 Employment in Retailing 2005-2010 2005 Total employment ('000 people) Employment in retailing ('000 people) Employment in retailing (%) (% of total employment)
Source:
2006 43,931.0 8,756.8 19.9
2007 44,655.3 8,713.2 19.5
2008 45,597.1 8,615.7 18.9
2009 45,333.2 8,569.4 18.9
2010 44,876.2 8,695.2 19.4
42,458.3 8,704.6 20.5
Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews
Page
Retailing
Mexico
MARKET DATA
Table 2 MX$ million 2005 Store-based Retailing Non-Store Retailing Retailing
Source:
Sales in Retailing by Category: Value 2005-2010
2006 2,043,24 8.5 96,705.5 2,139,95 4.0
2007 2,139,82 6.1 111,361.9 2,251,18 8.0
2008 2,211,55 4.6 131,115.7 2,342,67 0.2
2009 2,213,08 9.1 147,216.8 2,360,30 5.9
2010 2,348,21 6.7 153,671.6 2,501,88 8.3
1,867,45 6.7 86,065.4 1,953,52 2.1
Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources
Table 3
Sales in Retailing by Category: % Value Growth 2005-2010
% current value growth 2009/10 Store-based Retailing Non-Store Retailing Retailing

Source:
2005-10 CAGR 4.7 12.3 5.1
2005/10 TOTAL 25.7 78.6 28.1
6.1 4.4 6.0
Table 4
Sales in Retailing by Grocery vs Non-Grocery 2005-2010
% retail value rsp excl sales tax 2005 Grocery Non-Grocery Total
Source:
2006 51.3 48.7 100.0
2007 52.0 48.0 100.0
2008 52.5 47.5 100.0
2009 53.0 47.0 100.0
2010 -
51.3 48.8 100.0
Table 5 MX$ bn
Sales in Store-Based Retailing by Category: Value 2005-2010
2005 Grocery Retailers Non-Grocery Retailers Store-based Retailing

Source:
2006 1,008.7 1,034.5 2,043.2
2007 1,056.6 1,083.2 2,139.8
2008 1,103.9 1,107.7 2,211.6
2009 1,100.2 1,112.9 2,213.1
2010 1,186.1 1,162.2 2,348.2
910.8 956.7 1,867.5
Table 6
Sales in Store-Based Retailing by Category: % Value Growth 2005-2010
% current value growth 2009/10 Grocery Retailers Non-Grocery Retailers Store-based Retailing 7.8 4.4 6.1 2005-10 CAGR 5.4 4.0 4.7 2005/10 TOTAL 30.2 21.5 25.7
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Retailing
Mexico
Source:
Table 7 MX$ bn
Sales in Non-Grocery Retailing by Category: Value 2005-2010
2005 Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers
Source:
2006 90.1 66.1
2007 94.0 68.5
2008 97.5 67.5
2009 92.1 66.1
2010 95.1 67.9
86.9 60.5
127.5 213.1 85.8
140.5 225.3 86.2
136.0 237.6 88.6
141.4 237.5 87.0
146.7 248.7 82.7
153.6 258.1 83.0
182.0 200.9 956.7
216.8 209.5 1,034.5
241.3 217.2 1,083.2
255.8 221.0 1,107.7
268.4 208.1 1,112.9
290.0 214.5 1,162.2
Table 8
Sales in Non-Grocery Retailing by Category: % Value Growth 2005-2010
% current value growth 2009/10 Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers
Source:
2005-10 CAGR 1.8 2.3 3.8 3.9 -0.7 9.8 1.3 4.0
2005/10 TOTAL 9.3 12.2 20.5 21.1 -3.3 59.4 6.8 21.5
3.2 2.7 4.7 3.8 0.4 8.0 3.0 4.4
Table 9 MX$ bn
Sales in Non-store Retailing by Category: Value 2005-2010
2005 Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing

Source:
2006 82.8 6.2 4.9 2.9 96.7
2007 93.9 7.2 7.0 3.2 111.4
2008 109.5 8.0 9.9 3.7 131.1
2009 124.9 8.3 10.2 3.8 147.2
2010 128.5 8.9 12.2 4.1 153.7
75.1 5.4 3.1 2.5 86.1
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Retailing
Mexico
Table 10
Sales in Non-store Retailing by Category: % Value Growth 2005-2010
% current value growth 2009/10 Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing
Source:
2005-10 CAGR 11.4 10.5 31.4 10.3 12.3
2005/10 TOTAL 71.2 64.5 291.2 63.1 78.6
2.9 6.7 19.8 6.8 4.4
Table 11
Retailing Company Shares: % Value 2006-2010
% retail value rsp excl sales tax Company Wal-Mart de Mxico SA de CV Organizacin Soriana SA de CV Cadena Comercial OXXO SA de CV El Puerto de Liverpool SA de CV Coppel SA de CV Comercial Chedraui SA de CV, Grupo Controladora Comercial Mexicana SA de CV - CCM Sanborns SA de CV, Grupo Casa Ley SA de CV Elektra SA de CV, Grupo Corporativo Fragua SA de CV Tiendas 3B SA de CV Palacio de Hierro SA de CV, Grupo Home Depot Mxico S de RL de CV Costco de Mxico SA de CV Famsa - Fabricantes Muebleros SA de CV Farmacias Similares SA de CV 7-Eleven Mxico SA de CV Farmacias Benavides SA de CV Avon Cosmetics SA de CV Others Total
Source:
2006 9.0 2.8 1.9 1.6 1.2 1.0 1.6 1.4 0.8 0.9 0.5 0.5 0.5 0.5 0.4 0.4 0.2 0.3 0.4 74.0 100.0
2007 9.7 2.8 1.9 1.7 1.3 1.4 1.7 1.5 0.8 0.9 0.6 0.6 0.5 0.5 0.5 0.4 0.2 0.4 0.4 72.3 100.0
2008 10.2 3.9 2.0 1.7 1.4 1.6 1.7 1.3 0.8 0.9 0.7 0.1 0.6 0.5 0.5 0.5 0.4 0.3 0.4 0.4 70.0 100.0
2009 11.2 3.8 2.3 1.8 1.6 1.7 1.7 1.3 1.0 0.8 0.8 0.3 0.6 0.5 0.5 0.5 0.4 0.4 0.4 0.4 67.9 100.0
2010 12.4 3.6 2.5 1.8 1.8 1.7 1.7 1.3 1.0 0.8 0.8 0.6 0.6 0.6 0.5 0.5 0.4 0.4 0.4 0.4 66.2 100.0
Table 12
Retailing Brand Shares: % Value 2007-2010
% retail value rsp excl sales tax Brand Company Walmart Wal-Mart de Mxico SA de CV
2007 2.8
2008 2.9
2009 3.2
2010 3.4
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Retailing
Mexico
Sam's Club Bodega Aurrera OXXO Hipermercado Soriana Coppel Chedraui Liverpool Mi Bodega Express Mega Comercial Mexicana Casa Ley Farmacias Guadalajara Bodega Aurrera Express Mercado Soriana Sears Elektra Tiendas 3B Superama Home Depot Costco Gigante Others Total
Source:
Wal-Mart de Mxico SA de CV Wal-Mart de Mxico SA de CV Cadena Comercial OXXO SA de CV Organizacin Soriana SA de CV Coppel SA de CV Comercial Chedraui SA de CV, Grupo El Puerto de Liverpool SA de CV Wal-Mart de Mxico SA de CV Controladora Comercial Mexicana SA de CV - CCM Casa Ley SA de CV Corporativo Fragua SA de CV Wal-Mart de Mxico SA de CV Organizacin Soriana SA de CV Sanborns SA de CV, Grupo Elektra SA de CV, Grupo Tiendas 3B SA de CV Wal-Mart de Mxico SA de CV Home Depot Mxico S de RL de CV Costco de Mxico SA de CV Gigante SA de CV, Grupo
2.7 3.3 1.9 2.0 1.3 1.3 1.2 0.8 0.8 0.6 0.0 0.6 0.7 0.7 0.5 0.5 0.5 0.6 77.3 100.0
2.8 2.5 2.0 2.4 1.4 1.4 1.2 0.9 0.9 0.8 0.7 0.2 0.8 0.7 0.7 0.1 0.5 0.5 0.5 75.9 100.0
3.0 2.5 2.3 2.3 1.6 1.5 1.3 1.1 0.9 0.8 0.8 0.5 0.8 0.7 0.7 0.3 0.6 0.5 0.5 74.0 100.0
3.2 2.7 2.5 2.2 1.8 1.5 1.3 1.3 0.9 0.8 0.8 0.8 0.8 0.7 0.7 0.6 0.6 0.6 0.5 72.3 100.0
Table 13
Store-Based Retailing Company Shares: % Value 2006-2010
% retail value rsp excl sales tax Company Wal-Mart de Mxico SA de CV Organizacin Soriana SA de CV Cadena Comercial OXXO SA de CV El Puerto de Liverpool SA de CV Coppel SA de CV Comercial Chedraui SA de CV, Grupo Controladora Comercial Mexicana SA de CV - CCM Sanborns SA de CV, Grupo Casa Ley SA de CV Elektra SA de CV, Grupo Corporativo Fragua SA de CV Tiendas 3B SA de CV Home Depot Mxico S de RL de CV
2006 9.4 2.9 2.0 1.7 1.3 1.1 1.7 1.4 0.8 0.9 0.6 0.5
2007 10.2 3.0 2.0 1.8 1.4 1.5 1.8 1.5 0.9 0.9 0.7 0.5
2008 10.8 4.2 2.2 1.8 1.5 1.7 1.8 1.4 0.8 0.9 0.8 0.1 0.6
2009 11.9 4.0 2.4 1.9 1.7 1.8 1.8 1.4 1.0 0.9 0.9 0.3 0.6
2010 13.2 3.8 2.7 1.9 1.9 1.8 1.8 1.3 1.1 0.9 0.9 0.7 0.6
Page
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Retailing
Mexico
Costco de Mxico SA de CV Palacio de Hierro SA de CV, Grupo Famsa - Fabricantes Muebleros SA de CV Farmacias Similares SA de CV 7-Eleven Mxico SA de CV Farmacias Benavides SA de CV Gigante SA de CV, Grupo Others Total
Source:
0.5 0.5 0.5 0.4 0.2 0.4 1.4 71.8 100.0
0.5 0.6 0.5 0.4 0.2 0.4 1.5 69.8 100.0
0.5 0.6 0.5 0.4 0.3 0.4 0.3 68.4 100.0
0.6 0.6 0.5 0.5 0.4 0.5 0.3 66.0 100.0
0.6 0.6 0.5 0.5 0.5 0.4 0.3 64.2 100.0
Table 14
Store-Based Retailing Brand Shares: % Value 2007-2010
% retail value rsp excl sales tax Company Wal-Mart de Mxico SA de CV Organizacin Soriana SA de CV Cadena Comercial OXXO SA de CV El Puerto de Liverpool SA de CV Coppel SA de CV Comercial Chedraui SA de CV, Grupo Controladora Comercial Mexicana SA de CV - CCM Sanborns SA de CV, Grupo Casa Ley SA de CV Elektra SA de CV, Grupo Corporativo Fragua SA de CV Tiendas 3B SA de CV Home Depot Mxico S de RL de CV Costco de Mxico SA de CV Palacio de Hierro SA de CV, Grupo Famsa - Fabricantes Muebleros SA de CV Farmacias Similares SA de CV 7-Eleven Mxico SA de CV Farmacias Benavides SA de CV Gigante SA de CV, Grupo Others Total
Source:
2007 10.2 3.0 2.0 1.8 1.4 1.5 1.8 1.5 0.9 0.9 0.7 0.5 0.5 0.6 0.5 0.4 0.2 0.4 1.5 69.8 100.0
2008 10.8 4.2 2.2 1.8 1.5 1.7 1.8 1.4 0.8 0.9 0.8 0.1 0.6 0.5 0.6 0.5 0.4 0.3 0.4 0.3 68.4 100.0
2009 11.9 4.0 2.4 1.9 1.7 1.8 1.8 1.4 1.0 0.9 0.9 0.3 0.6 0.6 0.6 0.5 0.5 0.4 0.5 0.3 66.0 100.0
2010 13.2 3.8 2.7 1.9 1.9 1.8 1.8 1.3 1.1 0.9 0.9 0.7 0.6 0.6 0.6 0.5 0.5 0.5 0.4 0.3 64.2 100.0
Table 15
Non-Grocery Retailers Company Shares: % Value 2006-2010
% retail value rsp excl sales tax Company Wal-Mart de Mxico SA de CV El Puerto de Liverpool SA de CV Coppel SA de CV Sanborns SA de CV, Grupo Elektra SA de CV, Grupo Corporativo Fragua SA
2006 6.2 3.4 2.5 2.8 1.8 1.1
2007 6.4 3.5 2.7 3.0 1.8 1.3
2008 6.8 3.6 3.0 2.8 1.8 1.5
2009 7.2 3.8 3.4 2.8 1.8 1.7
2010 7.7 3.8 3.7 2.7 1.8 1.8
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Retailing
Mexico
de CV Home Depot Mxico S de RL de CV Costco de Mxico SA de CV Palacio de Hierro SA de CV, Grupo Famsa - Fabricantes Muebleros SA de CV Farmacias Similares SA de CV Farmacias Benavides SA de CV Comercializadora Farmacetica de Chiapas SA de CV Organizacin Soriana SA de CV Gigante SA de CV, Grupo Controladora Milano SA de CV C&A Mxico S de RL de CV Casa Ley SA de CV Farmacias GI SA de CV Waldo's Mart SA de CV Others Total
Source:
1.0 0.9 1.1 0.9 0.9 0.7 0.5
1.0 1.0 1.1 1.0 0.8 0.8 0.5
1.1 1.1 1.2 1.0 0.8 0.9 0.6
1.2 1.1 1.2 1.0 0.9 0.9 0.6
1.2 1.2 1.2 1.0 0.9 0.9 0.6
0.6 0.5 0.3 0.4 0.3 0.2 74.0 100.0
0.6 0.5 0.4 0.5 0.2 0.2 72.5 100.0
0.6 0.6 0.4 0.5 0.3 0.2 71.3 100.0
0.6 0.5 0.4 0.4 0.3 0.3 0.2 69.7 100.0
0.6 0.5 0.4 0.4 0.3 0.3 0.2 68.7 100.0
Table 16
Non-Grocery Retailers Brand Shares: % Value 2007-2010
% retail value rsp excl sales tax Brand Company Sam's Club Coppel Liverpool Farmacias Guadalajara Sears Elektra Home Depot Costco El Palacio de Hierro Fabricas de Francia Famsa Farmacias de Similares Farmacias Benavides Sanborns Suburbia Farmacias del Ahorro Wal-Mart de Mxico SA de CV Coppel SA de CV El Puerto de Liverpool SA de CV Corporativo Fragua SA de CV Sanborns SA de CV, Grupo Elektra SA de CV, Grupo Home Depot Mxico S de RL de CV Costco de Mxico SA de CV Palacio de Hierro SA de CV, Grupo El Puerto de Liverpool SA de CV Famsa - Fabricantes Muebleros SA de CV Farmacias Similares SA de CV Farmacias Benavides SA de CV Sanborns SA de CV, Grupo Wal-Mart de Mxico SA de CV Comercializadora Farmacetica de Chiapas SA de CV Organizacin Soriana SA de CV
2007 5.5 2.7 2.5 1.3 1.4 1.4 1.0 1.0 1.1 1.0 1.0 0.8 0.8 1.2 0.9 0.5
2008 6.0 3.0 2.6 1.5 1.4 1.5 1.1 1.1 1.2 1.1 1.0 0.8 0.9 0.9 0.8 0.6
2009 6.4 3.4 2.7 1.7 1.6 1.4 1.2 1.1 1.2 1.1 1.0 0.9 0.9 0.9 0.8 0.6
2010 6.9 3.7 2.7 1.8 1.5 1.5 1.2 1.2 1.2 1.1 1.0 0.9 0.9 0.9 0.8 0.6
City Club
0.6
0.6
0.6
0.6
Page
14
Retailing
Mexico
Office Depot Milano C&A Others Total

Source:
Gigante SA de CV, Grupo Controladora Milano SA de CV C&A Mxico S de RL de CV
0.4 0.4 0.5 73.9 100.0
0.5 0.4 0.5 72.7 100.0
0.5 0.4 0.4 71.2 100.0
0.5 0.4 0.4 70.2 100.0
Table 17
Non-store Retailing Company Shares: % Value 2006-2010
% retail value rsp excl sales tax Company Avon Cosmetics SA de CV Jafra Cosmetics International SA de CV Herbalife Internacional de Mxico SA de CV House of Fuller SA de CV Mary Kay Cosmticos de Mxico SA de CV Omnilife SA de CV, Grupo Telfonos de Mxico SAB de CV Arabela SA de CV Coca-Cola FEMSA SA de CV Transbel SA de CV Zermat Internacional SA de CV Grupo Bimbo SAB de CV Dart SA de CV El Puerto de Liverpool SA de CV Palacio de Hierro SA de CV, Grupo Oriflame de Mxico SA Amway de Mxico SA de CV Pepsi-Cola Mexicana SA de CV CV Directo SA de CV USANA Mxico SA de CV Others Total
Source:
2006 8.7 5.7 6.2 3.4 2.9 2.9 1.5 2.1 1.2 0.8 0.9 0.6 0.7 0.4 0.4 0.2 0.4 0.3 0.3 0.2 60.3 100.0
2007 7.6 5.5 5.4 3.3 2.9 2.8 1.8 2.0 1.3 0.8 0.8 0.6 0.7 0.4 0.4 0.3 0.4 0.3 0.3 0.3 62.3 100.0
2008 7.0 5.3 4.3 3.0 2.8 2.6 1.9 1.9 1.3 0.8 0.7 0.6 0.6 0.4 0.4 0.3 0.4 0.3 0.3 0.2 64.9 100.0
2009 6.5 4.9 3.5 2.8 2.5 2.4 1.9 1.7 1.2 0.7 0.6 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.2 0.2 68.0 100.0
2010 6.5 4.9 4.3 2.8 2.5 2.4 2.0 1.7 1.3 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.3 0.2 0.2 0.2 67.0 100.0
Table 18
Non-store Retailing Brand Shares: % Value 2007-2010
% retail value rsp excl sales tax Brand Company Avon Jafra Herbalife House of Fuller Mary Kay Omnilife TELMEX Avon Cosmetics SA de CV Jafra Cosmetics International SA de CV Herbalife Internacional de Mxico SA de CV House of Fuller SA de CV Mary Kay Cosmticos de Mxico SA de CV Omnilife SA de CV, Grupo Telfonos de Mxico SAB
2007 7.6 5.5 5.4 3.3 2.9 2.8 1.8
2008 7.0 5.3 4.3 3.0 2.8 2.6 1.9
2009 6.5 4.9 3.5 2.8 2.5 2.4 1.9
2010 6.5 4.9 4.3 2.8 2.5 2.4 2.0
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Retailing
Mexico
Arabela Coca-Cola L'Bel Zermat Autovend Dart Liverpool Palacio de Hierro Oriflame Amway Pepsi CV Directo USANA Others Total
Source:
de CV Arabela SA de CV Coca-Cola FEMSA SA de CV Transbel SA de CV Zermat Internacional SA de CV Grupo Bimbo SAB de CV Dart SA de CV El Puerto de Liverpool SA de CV Palacio de Hierro SA de CV, Grupo Oriflame de Mxico SA Amway de Mxico SA de CV Pepsi-Cola Mexicana SA de CV CV Directo SA de CV USANA Mxico SA de CV
2.0 1.3 0.8 0.8 0.6 0.7 0.4 0.4 0.3 0.4 0.3 0.3 0.3 62.3 100.0
1.9 1.3 0.8 0.7 0.6 0.6 0.4 0.4 0.3 0.4 0.3 0.3 0.2 64.9 100.0
1.7 1.2 0.7 0.6 0.5 0.5 0.4 0.4 0.4 0.3 0.2 0.2 0.2 68.0 100.0
1.7 1.3 0.7 0.6 0.6 0.5 0.5 0.5 0.4 0.3 0.2 0.2 0.2 67.0 100.0
Table 19 MX$ bn
Forecast Sales in Retailing by Category: Value 2010-2015
2010 Store-based Retailing Non-Store Retailing Retailing

Source:
2011 2,429.7 163.8 2,593.5
2012 2,515.5 175.4 2,690.9
2013 2,608.7 189.2 2,797.8
2014 2,697.3 206.3 2,903.6
2015 2,788.7 228.2 3,016.9
2,348.2 153.7 2,501.9
Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources
Table 20
Forecast Sales in Retailing by Category: % Value Growth 2010-2015
% constant value growth 2010-15 CAGR Store-based Retailing Non-Store Retailing Retailing
Source:
2010/15 TOTAL 18.8 48.5 20.6
3.5 8.2 3.8
Table 21 MX$ bn
Forecast Sales in Store-Based Retailing by Category: Value 2010-2015
2010 Grocery Retailers Non-Grocery Retailers Store-based Retailing

Source:
2011 1,232.0 1,197.7 2,429.7
2012 1,274.3 1,241.1 2,515.5
2013 1,316.9 1,291.8 2,608.7
2014 1,352.3 1,345.0 2,697.3
2015 1,383.1 1,405.6 2,788.7
1,186.1 1,162.2 2,348.2
Table 22
Forecast Sales in Store-Based Retailing by Category: % Value Growth 2010-2015
% constant value growth
Page
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Retailing
Mexico
2010-15 CAGR Grocery Retailers Non-Grocery Retailers Store-based Retailing

Source:
2010/15 TOTAL 16.6 20.9 18.8
3.1 3.9 3.5
Table 23 MX$ bn
Forecast Sales in Non-Grocery Retailing by Category: Value 2010-2015
2010 Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers
Source:
2011 97.2 68.8
2012 99.9 69.8
2013 103.1 71.0
2014 107.0 72.4
2015 111.3 74.1
95.1 67.9
153.6 258.1 83.0
159.1 262.9 83.8
165.5 268.5 84.9
172.6 275.9 86.7
179.2 282.6 88.9
186.4 291.6 91.5
290.0 214.5 1,162.2
310.8 215.3 1,197.7
333.9 218.7 1,241.1
359.9 222.6 1,291.8
387.8 227.1 1,345.0
417.9 232.9 1,405.6
Table 24
Forecast Sales in Non-Grocery Retailing by Category: % Value Growth 2010-2015
% constant value growth 2010-15 CAGR Clothing and Footwear Specialist Retailers Electronics and Appliance Specialist Retailers Health and Beauty Specialist Retailers Home and Garden Specialist Retailers Leisure and Personal Goods Specialist Retailers Mixed Retailers Other Non-Grocery Retailers Non-Grocery Retailers
Source:
2010/15 TOTAL 17.1 9.1 21.3 13.0 10.2 44.1 8.6 20.9
3.2 1.8 3.9 2.5 2.0 7.6 1.7 3.9
Table 25 MX$ bn
Forecast Sales in Non-store Retailing by Category: Value 2010-2015
2010 Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing

Source:
2011 134.8 9.6 15.1 4.4 163.8
2012 141.4 10.4 18.9 4.7 175.4
2013 147.8 11.5 24.7 5.2 189.2
2014 154.9 12.7 32.9 5.7 206.3
2015 162.4 14.3 45.1 6.4 228.2
128.5 8.9 12.2 4.1 153.7
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Retailing
Mexico
Table 26
Forecast Sales in Non-store Retailing by Category: % Value Growth 2010-2015
% constant value growth 2010-15 CAGR Direct Selling Homeshopping Internet Retailing Vending Non-Store Retailing
Source:
2010/15 TOTAL 26.3 60.7 270.4 57.0 48.5
4.8 10.0 29.9 9.4 8.2
APPENDIX
Operating Environment
Foreign Direct Investment in Retail In Mexico, foreign direct investment (FDI) is regulated by the Ley de Inversin Extranjera (Law of Foreign Investment). This law, which came into force at the end of 1993, consists of 39 articles and the most recent amendment was made in mid-2001. The law clearly states which industrial areas are prohibited from FDI, such as the oil and energy industries. Retailing is not among the prohibited industries. The Codigo de Comercio (Law of Commerce) regulates all retailing activities and articles 13, 14 and 15 allow foreigners to trade in Mexico. Codigo de Comercio, which dates back to 1889, has around 1,500 articles. International retailers are welcomed by the Mexican authorities as long as they comply with Mexican law. A large number of international retailers have successfully established strong brands in Mexico, for example Home Depot, Best Buy, Radio Shack and Office Max. This trend is reflected by Wal-Mart becoming by far the most powerful retailer in the country (after its association with, and later acquisition of Grupo Cifra in 1991). The notorious failure of some international retailers such as Carrefour SA is attributed mainly to consumer preferences. Entry barriers largely depend on the retailing category in which the new player is entering. However, the main general barriers are: powerful and well-established competitors, the need for large initial investment; and an understanding of the domestic culture and local consumers preferences. The most visible unofficial challenge is safety, forcing most retailers to make substantial investments to prevent crime in large cities and in the north of the country.
Informal Retailing As of August 2010, INEGI (National Institute of Statistics, Geography and Informatics) estimated that an all-time high of around 13 million people (or 29% of the total workforce of 45 million) worked in the informal economy. This official estimation is believed to be underestimated by many analysts, which estimate that there are 20 million informal workers, while some believe the figure is even higher. Furthermore, these numbers do not include open unemployment (people with no job at all) which INEGI estimated at 5% of the workforce in mid-2010. The value of goods and services related to the informal labour market is also not accurately determined, since there are no definitive statistics on the informal economy due by to very nature of these businesses. Estimations of the retail value of the informal economy are estimated at between 13% and 35% of GDP. It should be noted that not all of the people involved in the informal economy are active in retailing. Informal retailing has a relationship with unemployment and underemployment levels in the country. As in 2009 a large number of jobs were lost and new entrants to the workforce found no openings, it is logical to assume that the informal economy grew at higher rates than any formal division of the economy. Moreover, illegal immigration to the US, estimated at 400,000 people per year at its peak, suddenly lost steam due to the lack of jobs and anti-illegal immigration measures in the US in 2009-2010.
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It has been noted for some years that the product types least affected by pirate, illegal or counterfeit items are ones that are ingested or act in the body, such as medicines (estimated 5% of informal activity), tobacco (around 8%) and alcoholic drinks (less than 10%). The product types most affected are ones that are quick and easy to copy such as software, DVDs, CDs and video games; the level of illegal copies for these product types ranges from 75-90%. Other key product types in the informal economy, although not to the same extent as the abovementioned ones, include clothing and footwear (50% of all products are illegal), books (25%), and car components, jewellery, and fragrances. The problem is so prevalent in the Mexican economy that up to 25% of the population buys such products frequently. The problem is not limited to lower-income consumers, since middle-income consumers also engage in this practice quite regularly. Informal retailing does not affect of the established retail channels, since it takes place mostly via small street stalls, many of which are simple metallic stalls, semi-fixed to the ground. Other vendors prefer mobility and they travel around metro stations and on other public transportation offering their products. Since 2007, the federal government encouraged informal retailers in large cities to vacate the streets (especially away from historical areas and city centres) and move into improvised plazas or public spaces. This initiative produced mixed results. Middle-income consumers are known to regularly engage in the purchase of illegal products, especially media and software goods (CDs, DVDs, software, video games). These tend to be acceptable quality products which cost about 10% of the original price. High-income segments also purchase pirate copies of media products, albeit to a lesser degree. Illegal products that are visibly low in quality (clothing, footwear, fragrances, medicines etc) attract almost exclusively lower-income consumers. The Mexican authorities, together with retailing associations (especially ANTAD) and chambers of commerce, have taken joint actions, albeit insufficient, to stop the increase in illegal imports and the expansion of street markets and pirated products. The scale of the informal channel and low resources provided by the government hinder definitive action by the authorities to stop informal retailing. It will take substantial government intervention and drastic measures to halt the growth of the informal market, let alone eradicate it. Rising unemployment levels and lack of job creation make it even more difficult to fight this institutionalised problem.
Opening Hours Retail opening hours depend on the region and location of stores. In large cities, the standard working hours for most retailers are 9.00-21.00hrs. In large resort areas, such as Cancun and Acapulco, stores may close at 23.00hrs. In smaller cities and towns, food specialists and small independent grocers close in the middle of the day for 1-2 hours, allowing store owners to have a meal at home. Department stores typically open from 11.00-21.00hrs and outlets located in large shopping malls may close at 20.00hrs. Outlets selling alcoholic beverages must follow regulatory issues on the sale of such drinks. In some cases, the section of the store where alcoholic drinks are sold close, although the outlet remains open for the purchase of other items. This practice is common on political election days and it is known as ley seca or dry law. There are no legal restrictions in terms of the opening of stores throughout the year. However, all retailers except chemists/pharmacies and parapharmacies/drugstores close on special dates that are mandated by law: 1 May (Labour Day), 15 September (Independence Day) and 25 December (Christmas Day) and 1 January (New Years Day). 24-hour retailing exists only in the convenience store, forecourt retailing and parapharmacy formats. On limited occasions, such as in the evening prior to Da de los Reyes Magos (Wise Mens Day) on 6 January, some large supermarkets and hypermarkets in the big cities may offer 24-hour opening to allow parents to purchase toys for their children. There is no sign that this practice is to change in the foreseeable future. All large retailers open on Sundays, but small independent grocers usually close for business on that day to allow owners and employees to observe religious practices, spend time with the family or simply take a break from work. Sunday closing is really an independent choice since there is no law prohibiting working a 7-day week.
Retail Landscape A remarkable shift in retailing is taking place in the country. While the first shopping malls were built to meet the needs of high- and middle-income consumers, new developments are helping to meet the needs of middle- and low-income groups. Given the large middle- and low-income population in the country, new malls are being located in areas populated by these consumers, using discounters, supermarkets and
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hypermarkets as anchor stores, instead of high-end department stores. Many of these new shopping malls are situated in medium-sized cities where malls were previously lacking. Mexico has notable potential for shopping mall expansion, at only 1.2 sq ft per capita, lower than other similarly development countries. However, the economic crisis of 2009 placed a high burden on shopping malls in Mexico, cutting the construction of such sites by around 50% and limiting the opening of some known chains that prefer this type of retail location. The shopping malls that were built during 2009 were mostly smaller in size than is usual and situated in medium-sized cities. It is expected that the construction of shopping malls will return to a pre-crisis level by the second half of 2011. Large stand-alone warehouse brands such as Office Depot, Office Max, Home Depot, Sams Club, and Costco and many other chained retailers are usually placed in suburban zones where land is more affordable. However, in big cities, most notably Mexico City, these stores are also located within the city, given the high demand in large urban areas. Affluent consumers are concentrated mainly in the largest cities in Mexico and the main tourist destinations, and luxury retailers, such as designer boutiques, gourmet supermarkets and upscale department stores, follow these consumers. Discounters, however, are located in areas populated by lowincome consumers, usually in large- and medium-sized cities since rural areas still attract few chained retailers.
Cash-and-carry
Cash-and-carry does not exist in Mexico. The retail format closest to cash-and-carry is warehouse clubs.
DEFINITIONS
This report analyses the market for Retailing in Mexico. For the purposes of the study, the market has been defined as follows: Store-based retailing Grocery retailers Hypermarkets Supermarkets Discounters Small grocery retailers Convenience stores Forecourt retailers Chained forecourt retailers Independent forecourt retailers Independent small grocers Food/drink/tobacco specialists Other grocery retailers Non-grocery retailers Mixed retailers Department stores Variety stores Mass merchandisers Warehouse clubs Health and beauty specialist retailers Chemists/pharmacies Parapharmacies/drugstores Beauty specialist retailers Other healthcare specialist retailers
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Clothing and footwear specialist retailers Home and garden specialist retailers Furniture and furnishings stores DIY, home improvement and garden centres Electronics and appliance specialist retailers Leisure and personal goods specialist retailers Booksellers and stationers Audio-visual stores Toys and games stores Sports goods stores Pet shops and superstores Other leisure and personal goods specialist retailers Other non-grocery retailers
Non-store retailing Vending Homeshopping Internet retailing Direct selling
Sources used during research include the following:

Summary 1 Official Sources Research Sources AMF - Asociacion Mexicana de Franquicias Bolsa Mexicana de Valores INEGI PROFECO - Procuradura Federal del Consumidor US Commercial Service USDA - Foreign Agricultural Service Mexico Trade Associations AMIPCI - Asociacin Mexicana de Internet AMMD - Asociacin Mexicana de Mercadotecnia Directa AMVD - Asociacion Mexicana de Ventas Directas ANTAD - Asociacion Nacional de Tiendas de Autoservicio y Departamentales ANTAD - Asociacion Nacional de Tiendas de Autoservicio y Departamentales AC Asoc Nal de Tiendas de Autoservicio y Departamentales, AC Asociacion Mexicana de Internet (AMIPCI) Asociacion Mexicana de Ventas Directas (AMVD) Asociacin Nacional de Farmacias de Mxico (Anafarmex) Cmara Nacional de la Industria de Perfumera, Cosmtica & Artculos de Tocador e Higiene (Canipec) Canadian Agri-Food Trade Commission
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CIMM - Centro de Informacin de Mercadotecnia Mexicana International Council of Shopping Centers ONEXPO - Organizacin Nacional de Expendedores de Petrleo Trade Press Advertising Age Mexico Alto Nivel CNN Expansin Crain's de Mxico Cronica de Hoy El Economista El Financiero El Semanario El Universal Entrepreneur eSemanal Etceter Expansion Marketing-Up Merca2.0 Mkt-Up Mundo Ejecutivo Numerous Observatec Reforma Revista Expansion, SA de CV Wall Street Journal
Source: Euromonitor International
Official annual reports from the largest retailing companies: Wal-Mart de Mxico SA de CV Controladora Comercial Mexicana SA de CV - CCM Organizacin Soriana SA de CV Grupo Comercial Chedraui SA de CV Farmacias Benavides SA de CV Cadena Comercial OXXO SA de CV Corporativo Fragua SA de CV Grupo Gigante SA de CV Grupo Carso SA de CV Grupo Palacio de Hierro SA de CV El Puerto de Liverpool SA de CV
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Trade press from a number of publications, most notably: Reforma CNN-Expansin El Semanario El Universal El Economista La Jornada
Trade interviews with: El Palacio de Hierro Tiendas 3B AMVD (Asociacin Mexicana de Tiendas Directas)
Official sources such as: ANTAD (Asociacin Nacional de Autoservicio y Departamentales) INEGI (Instituto Nacional de Estadstica, Geografa e Informtica) CONAPO (Consejo Nacional de Poblacin) AMIPCI (Asociacin Mexicana de Internet)
Explanations of words and/or terminology used in this report are as follows: Vinaterias: stores specialising in, but not limited to, alcoholic drinks Totillerias: small stores specialising in selling tortillas, a flat and circular corn base food Dia de Muertos: or Day of the Dead which is the traditional celebration of the deceased taking place on 2 November each year Ley seca: specific days where the sale of alcohol is prohibited in retail and foodservice establishments
Other terminology: GBO refers to Global Brand Owner, which is the ultimate owner of a brand. NBO refers to National Brand Owner, which is the company licensed to distribute a brand on behalf of a GBO. The NBO may be a subsidiary of a GBO or it may be a completely separate company. Share tables at both GBO and at NBO level are provided in the report. Reference to shares in the report analysis is at NBO level.
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Retailing - Mexico

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Retailing - Mexico

Euromonitor International : Country Market Insight February 2011

List of Contents and Tables

Research Sources ..............................................................................................................21

Chedraui Goes Public and Expands in the North of the Country

Grocery Sales Grow Faster Than Non-grocery Sales

Price-based Competition Remains the Norm in 2010

Real Economic Recovery Expected To Be Delayed Until 2011

KEY TRENDS AND DEVELOPMENTS

Slow Economic Recovery Affects Newly Created Retailer-owned Banks

Internet Retailing Is the Preserve of the Young, Educated and Affluent

Chedrauis Ipo To Shape Chained Grocery Retailing

Large Chained Grocers Expand Into Smaller Cities

2006 43,931.0 8,756.8 19.9

2007 44,655.3 8,713.2 19.5

2008 45,597.1 8,615.7 18.9

2009 45,333.2 8,569.4 18.9

2010 44,876.2 8,695.2 19.4

42,458.3 8,704.6 20.5

Sales in Retailing by Category: Value 2005-2010

2006 2,043,24 8.5 96,705.5 2,139,95 4.0

2007 2,139,82 6.1 111,361.9 2,251,18 8.0

2008 2,211,55 4.6 131,115.7 2,342,67 0.2

2009 2,213,08 9.1 147,216.8 2,360,30 5.9

2010 2,348,21 6.7 153,671.6 2,501,88 8.3

1,867,45 6.7 86,065.4 1,953,52 2.1

Sales in Retailing by Category: % Value Growth 2005-2010

% current value growth 2009/10 Store-based Retailing Non-Store Retailing Retailing

2005-10 CAGR 4.7 12.3 5.1

2005/10 TOTAL 25.7 78.6 28.1

6.1 4.4 6.0

Sales in Retailing by Grocery vs Non-Grocery 2005-2010

2006 51.3 48.7 100.0

2007 52.0 48.0 100.0

2008 52.5 47.5 100.0

2009 53.0 47.0 100.0

51.3 48.8 100.0

Sales in Store-Based Retailing by Category: Value 2005-2010

2005 Grocery Retailers Non-Grocery Retailers Store-based Retailing

2006 1,008.7 1,034.5 2,043.2

2007 1,056.6 1,083.2 2,139.8

2008 1,103.9 1,107.7 2,211.6

2009 1,100.2 1,112.9 2,213.1

2010 1,186.1 1,162.2 2,348.2

910.8 956.7 1,867.5

Sales in Store-Based Retailing by Category: % Value Growth 2005-2010

Sales in Non-Grocery Retailing by Category: Value 2005-2010

2006 90.1 66.1

2007 94.0 68.5

2008 97.5 67.5

2009 92.1 66.1

2010 95.1 67.9

127.5 213.1 85.8

140.5 225.3 86.2

136.0 237.6 88.6

141.4 237.5 87.0

146.7 248.7 82.7

153.6 258.1 83.0

182.0 200.9 956.7

216.8 209.5 1,034.5

241.3 217.2 1,083.2

255.8 221.0 1,107.7

268.4 208.1 1,112.9