/
Analysis

Changing Trends Drive Consumption Of Premium Products

Mon, 04/01/2019 - 11:08

The food and beverages sector is an increasingly relevant segment of the Mexican economy. Agro-industrial exports, including food and beverages, accounted for US$17.78 billion in exports and US$15.2 billion in imports in 2018 for a commercial surplus of US$2.5 billion, according to INEGI. An analysis from ProMéxico in 2017 showed Mexico was the No. 2 supplier of processed food to the US and the third-largest producer of processed foods in the Americas, just behind the US and Brazil. Adding to its clout, nine of the sector’s 10 most important companies are present in the country.  
The surplus in Mexico’s trade balance is mostly driven by the country’s best performing products: beer, tequila, mezcal, bread products, confectionery, chocolates and fruit preserves. The sector also plays a significant role in employment generation. According to ProMéxico, over 792,000 people work in the industry and Jonás Murillo, Director General of CANAINCA, says the sector is among the largest employers in the country. “The 40 companies affiliated with CANAINCA generate 40,000-45,000 direct jobs and the multiplying effect of the industry in terms of employment is above average. For every direct job in the industry, around seven indirect positions are generated, while the average in the country is three indirect jobs per every direct job.” Murillo adds that five out of the seven indirect jobs created are in the farming sector.  
The beverages industry is a major engine for the sector. Beer, tequila and mezcal are Mexico’s top performers in the agro-industrial commercial balance. Maribel Quiroga, CEO of Cerveceros de México, says Mexico is the fourth-largest producer of beer in the world but ranks first in exports. “The Mexican beer industry is positioned above other traditional beer producers like Germany.” In addition to the success that Mexican beer represents, Quiroga believes the beer industry is a perfect example of how the agricultural and agro-industrial sectors can work together. “Grupo Modelo created an initiative called Agricultural Development in Mexico that aims to promote production of barley and improve the quality of life of the country’s producers. Heineken México also developed a technology program focused on sustainability.”
Although exports play a major role in the country’s economic life, the domestic market is also key for the industry. According to Carlos Álvarez, Managing Director of Bacardi Mexico, Mexico is among Bacardi’s Top 10 countries in sales. “The business in Mexico has been growing at a double-digit rate over the past five years.” More importantly, Álvarez says the Mexican consumer is evolving, moving to consumption of beverages from the premium segment. “In Mexico, the premium segment represents 30 percent of the liquor market. This segment has also experienced double-digit growth in recent years and we expect these rates to continue for at least another five years.”
Jaime Costa, Director General of BLN, says that very much like what is happening in other product categories, Mexican consumers are shifting their preferences toward Mexican traditional spirits. “Tequila accounts for approximately 34 percent of the total spirits market.” Costa adds that the market is increasingly welcoming mezcal. “We see many opportunities in the mezcal category,” he says. “It is showing steady growth but it has a very small following. Younger consumers are learning to drink mezcal and it is this demographic that is driving the trend for mezcal and also wine.”
Consumption of mezcal and tequila is also booming abroad, which has led to the acquisition of Mexican brands by international companies. Such is the case of Tequila Patrón, which was acquired by Bacardi to position the rum company in the premium tequila market. “One way to grow and diversify is through the development of existing brands and acquisitions of new ones. Tequila Patrón plays a key role in the premium, super-premium and ultra-premium segments,” says Álvarez. “Foreign companies often have the financial resources to invest in the long-term success of a brand, increasing its ability to expand, to employ even more people in Mexico, contribute to the community and further introduce tequila and the tradition and culture of Mexico across the world.”
Despite the success of the industry, it remains susceptible to the insecurity problems plaguing other sectors, particularly when it comes to logistics. “Security is a key issue. We must transport products from Veracruz to Mexico City. Along the way, we have had to deal with several robberies. This has forced us to use additional security elements for our freight transport, which increases overall costs,” says Álvarez. Costa adds that security issues have gained such relevance that the insurance industry no longer wants to cover the risks associated with transportation. “We are facing a situation where insurance companies no longer want to provide insurance for our shipping.”