5 Reasons for Cautious Optimism on the Mexican Consumer Landscape

Is the darkest hour just before dawn in Mexico? The answer, apparently, is yes, according to Mexican consumers who, after a challenging 2022 marked by sluggish GDP growth and a long COVID hangover, are now showcasing surprising confidence about 2023. Although inflation and additional potential crises are still on the mind of consumers – and should not be overlooked – there is room to be cautiously positive about the near-term outlook. BCG conducted a representative survey of Mexican consumers in 4Q22 (N=1,225), focused on their outlook and propensity to spend across various categories. 

Based on their responses, here are five reasons to be cautiously optimistic about the outlook for Mexico in 2023.

1. Resilience and positivity across certain cohorts of the Mexican population 

Fifty-nine percent of the Mexican population is optimistic about its personal situation toward the future, with nearly two-thirds of those under 35 years old confident that their economic situation will improve in 2023. Although the return to “normal” life post-COVID is a clear driver for optimism (57% surveyed consider the situation is back to “normal”), Mexican consumers remain positive regarding their personal situation even if most (53% of respondents) anticipate a recession in 2023. While the possibility of a recession cannot be ruled out, continued positive consumer sentiment could help buoy overall discretionary consumption in 2023. This will be especially relevant in times of high inflation (January 2023 inflation was already the highest in 20 years at 7.94%) as consumers’ purchasing power will be challenged, especially for lower socio-economic levels (SEL) and consumers in their prime productive years (ages 35-54), who are generally the least optimistic about their personal outlook. Despite the fact inflation doesn’t appear to be receding as quickly as in the US or Europe – the overall positive consumer sentiment is encouraging.   

2. Some sectors will benefit disproportionately from optimism

Many sectors that could benefit from Mexicans’ optimism are focused on out-of-home consumption. Travel and tourism ranks highest. Eagerness to travel, even after most restrictions were lifted in 2021 and early 2022, is still high heading into 2023, especially among higher SELs. This is a tremendous growth avenue for airlines to seize, especially for low-cost players, given half of the Mexican population does not yet purchase plane tickets and 50% of customers are trying to save money/spend less when buying flights. Additionally, cinema and out-of-home entertainment are seeing increased expectations for spend (the percent of consumers who expect to spend less on these categories has more than halved since COVID, returning to 2019 levels), which is very much aligned with broader post-COVID trends.

Other sectors are likely to benefit from current optimism, including insurance and personal care products – likely benefiting from a continued focus on health and ensuring financial security in the case of illness. Of non-food categories, on average, consumers expect to increase expenditures most in personal care and insurance.

However, not all sectors will be impacted in the same manner. Many in-home categories could be hit by stagnation or decreases in consumption. Furniture and home appliances, as well as clothing, are the two categories where respondents report the largest expected decrease in spend in 2023 versus 2022. Additionally, food and alcohol categories are likely to be impacted given inflation, with 72% and 70% of consumers, respectively, expecting prices to rise at the same or faster rates in 2023 versus 2022.

3.  Digitalization is still a significant opportunity 

Digitalization of consumer experiences will once again be a focus for companies in 2023. After the boom of e-commerce in 2020, it is expected that higher SELs will at least maintain online spend, with 34% claiming they will increase online spend. Nevertheless, continued efforts are required to engage lower socio-economic levels, who have yet to be fully convinced about the value of digital consumer experiences. Beyond purchase experience, omnichannel journeys are expected to be even more pervasive, with 60% of Mexican consumers claiming they will look for prices online before their purchases. Ensuring a seamless journey – especially leveraging the tendency to bargain hunt online prior to purchasing in-store – will be critical for retailers to engage with customers and convert eyeballs into purchases and, then, repeat customers.

Given consumers with lower SELs still need to be convinced about the value of digital experiences (and are less likely to participate in them),it is important to segment consumers to best address their needs. And in this case, continued investment in physical, brick and mortar infrastructure, especially for companies catering to lower SELs or involved in selling daily necessities, will be relevant. Further digitalization of everyday experiences will create opportunities for companies to expand their offering and pivot to providing services through omnichannel offerings – but investment must be executed strategically.

4. Reported growth in adoption of formal banking products creates new opportunities

A knock-on effect of increasing digitalization is being seen directly in rates of reported consumption of financial products. Seventy-three percent of Mexicans now claim to have at least one formal banking product, +9 percentage point versus early 2020. Consumers have witnessed a boom in new fintech products (Nubank, Spin by OXXO, etc.) over the past three years, and this access to digital banking is a powerful lever toward a progressive formalization of the Mexican economy. Companies must take advantage of these changes and adapt payment options, rethink channel strategy, and look to grow share of wallet as more customers gain access to credit. Though fintechs have suffered severe adjustments in their valuations over the past 12 months, the fast adoption in Mexico of digital (largely mobile) banking in recent years – combined with significant runway for further formalization – should inspire banks and other financial institutions.

5. Greater consciousness – and intention – for sustainable consumption

Sustainable consumption is becoming more top of mind for Mexican consumers. Sixty-four percent of those surveyed claim they are willing to buy more socially responsible products, with a growing focus on products’ freshness, health, and well-being attributes. This shift in mentality is also reflected in consumers’ trade-offs, as 56% of Mexican consumers assert that they will now prioritize buying fewer products but of better quality. Additionally, aligned with sustainability trends, is the preference for locally and/or nationally made products, with two-thirds of consumers claiming they are looking to buy locally produced products with local branding. The key for companies will be to translate intention into changes in consumption for this trend to have relevance and staying power in the long-term.

Cautious Optimism Should Drive Action

As Mexico continues to face significant uncertainty – it will be even more important to invest in what really matters for Mexican consumers. Two clear no-regret moves for companies in Mexico: (1) investing to improve/enable digital customer experiences and exploit the tremendous implicit value of data and (2) helping consumers move from intention to action regarding sustainable ways of consuming, to be at the forefront of sustainability trends. 2023 may be just as volatile as 2022 but companies operating in Mexico should feel (cautiously) bullish about the opportunities that lie ahead and take advantage of relatively positive consumer sentiment. 

In collaboration with Joel Muniz, Managing Director and Senior Partner at BCG