Food Sector Resists COVID-19: Winners Big and Small

The food sector continues to grow in Mexico despite the enormous contraction of the country’s economy as a result of COVID-19. The oil crisis, the huge drop in tourism, the paralysis of the aerospace industry and the drop in car sales have put Mexico in a difficult situation for 2020. However, the food sector and the rest of its associated value chain have managed to withstand the pandemic. Arca Continental, a Coca-Cola bottler with operations in Mexico, Peru, the US, Argentina and Ecuador, closed 1Q20 with a 5.3 percent increase in sales and 5.8 percent increase in EBITDA, reported the company in a statement. The Monterrey-based company has taken advantage of the situation in the country, which has seen a significant increase in consumption of bottled water and soft drinks as a result of home-confinement. “Despite a complicated first quarter, due to mobility restrictions and temporary closures of customers in the countries where we operate, the good start to the year translated into a 5.3 percent growth in sales and 5.8 percent in EBITDA,” said Arturo Gutiérrez, the company’s CEO.

Gutiérrez said that in order to reach these numbers, the company decided to implement new mechanisms in production and distribution processes, with the aim of mitigating the impact of COVID-19 as much as possible. “We have implemented a comprehensive program aimed primarily at optimizing operating expenses and investments, as well as the rapid adaptation of operating models at each stage of production, distribution and execution at the point of sale,” he said.

Arca Continental is not the only food and retail related company that has reported good numbers after the first weeks of confinement in Mexico. Kimberly Clark, owner of brands such as Kleenex and Huggies, also grew in 1Q20, showing a 6.2 percent increase over the same period last year. Grupo Herdez, one of the most important food groups in Latin America, also showed a good performance at the end of 1Q20. Grupo Herdez increased its sales by 10.4 percent thanks to panic purchases made in Mexico due to COVID-19. In a statement sent to the Mexican Stock Exchange (BMV) the company reported that products like mayonnaise, pasta, tomato sauce and vegetables increased in sales., while frozen products had similar sales growth compared to the same period in 2019.

Small shops and grocery stores have also seen a significant increase in sales since COVID-19 became a reality in Mexico. Cuauhtémoc Rivera, President of the Association of Small Businesses (ANPEC), told Forbes that sales in these establishments grew by 10 percent in the first two weeks of April, after the Mexican government recommended people not to make long trips to buy food. Food and basic necessities are what has driven sales growth in these establishments, which had stagnated in the last months of 2019, according to Rivera. The National Association of Wholesale Grocers (ANAM) also showed good numbers in March. The association noted in a statement sent to the media that in March, grocery stores saw an 18.6 percent increase in sales, led by food, cleaning and homecare products. Despite the optimism, ANAM asked its members to remain vigilant for future sales, innovating in reducing costs and increasing home delivery services, so future numbers do not decrease like they have in similar establishments across Latin America.

The situation is takes a dire turn for the sector’s giants, especially shopping mall owners, a sector in which Mexico is Latin America’s leader and one of the world's major powers. According to the Association of Real Estate Developers (ADI), 200 brands operating at 14,000 stores in the country will not be able to pay the rent for their spaces due to the shortage of cashflow caused by COVID-19. “It is likely that 90 percent of the stores will be forced to close,” ADI said in a statement. If this happens, up to 115,000 jobs related to this sector could be lost, according to the association.

Both large retail businesses and smaller ones have implemented measures to survive the COVID-19 crisis and face the second half of the year with certain guarantee of survival. Digitization and home delivery continue to do well, pending the outcome of the market's response to the COVID-19 expansion curve in Mexico.