STORY INLINE POST
When thinking of typical Mexican alcoholic beverages, most probably tequila and the trendy spirit mezcal are the first to come to mind. And indeed: not only the popularity, but also the production of these agave-based alcohol drinks is impressive. Tequila production stands at 650 million liters annually and mezcal at 8 million litres. Combined, they present a production value of US$3.3 billion.
However, Mexico is more than its emblematic tequila and mezcal. As a matter of fact, Mexicans consider beer as their favorite drink. Their per capita yearly beer consumption equals 65 litres, putting the country into the Top 30 beer-drinking nations worldwide. The never-out-of-fashion hop drink accounts for US$22 billion worth of sales, way ahead of tequila (US$6.6 billion) and other hard drinks. As the fourth-largest producer of beer in the world, Mexico is a true beer giant.
But is that it? No! Mexico in fact also has a long tradition cultivating wine. You didn’t know that? Mexico was among the first countries to plant vines on the American continent in the early 16th century with the arrival of the Spanish conquistadores. Nevertheless, today`s wine consumption in Mexico is comparatively low — 108 million liters and US$1.7 billion in sales per year make Mexican wine an often-forgotten product.
Although the popularity of (domestic) wine is on a steady rise in Mexico, it remains an underdog compared to beer and spirits. Wine is still very much a niche product in Mexico. Although 50,000 hectares are dedicated to grape cultivation in the country, most of the grapes are used to produce raisins; only between 10-13% are used for viticulture.
However, in the last 10 years, the wine industry has grown by more than 50%. Mexico also has a strong wine marketing organization, the Mexican Wine Council (CMV), promoting domestic wine consumption and national brands. Apart from the main wine region in Baja California, 15 other wine-producing entities have been awarded with the title “new wine region” and are currently eligible for investment in wine cultivation. In the last five years, wine consumption in Mexico has increased from 450 to 950 milliliters per capita per year. That is a welcome development for the local wine industry but also an illustration of the long road ahead. In comparison, the average French person consumes more than 50 liters of wine every year.
Golden Years Ahead for (Inter-)National Viticulture?
Demand for and supply of wine in Mexico are growing, but not equally. Domestic production can only satisfy 30% of domestic demand. This leaves a stunning 70% supply potential — a great business opportunity for foreign wine producers.
But entering the Mexican wine market has its cost: Besides recent, volatile, global logistics costs, Mexico currently charges a 26% alcohol tax (IEPS) and an additional 16% value added tax (IVA), resulting in a cumulative 42% tax, plus a 4.5% consumer sales tax on wine. Additionally, average customs tariffs for grape wines of 16.6% apply for countries not covered by a trade agreement with Mexico. Apart from fiscal challenges, there are also a number of registration requirements to be fulfilled in order to import wine into Mexico.
But it is worth the effort. Mexico is the world's fastest-growing wine import market, with 67 million liters and US$277 million worth of wine imports in the first three quarters of 2022, equalling a rise of 45% and 50% respectively. Unsurprisingly, European wineries are profiting from this trend. Within the Top 10 wine-exporting countries to Mexico, five are member states of the European Union (Spain, France, Italy, Germany and Portugal) and four are from the Americas (Chile, Argentina, US and Uruguay).
Wine Consumption Trends
In the centuries following the conquest of the American continent, French grape varieties were the preferred choice for cultivation as well as consumption, so that today's grape varieties are primarily dominated by Chardonnay, Sauvignon Blanc, Cabernet Sauvignon and Grenache. The only non-French variety to join the list of popular grapes is Tempranillo.
The Mexican population is young and the middle and upper classes are growing segments of society that are quite demanding as far as quality is concerned. Mexicans continue to prefer imported wines, partly for cultural reasons and also because of the high prices of local wines, which in many cases put them on par with their imported counterparts. However, in recent years, more affordable wines have been appearing, such as Chilean wines or more accessible ranges of European wines. The trend in recent years has been a fall in the average price of imported wine. In the meantime, the average price for Mexican wine remains high compared to other countries. Lower-priced wines are ranging below MX$200 (US$11), whereas in Argentina and Chile, wines are 20-30% cheaper, for example.
Success Story: How to Occupy a Niche
Analyzing the given situation as well as current trends, it becomes clear that international wines find a highly interesting market in Mexico. However, exporters also need a very strong and reliable partner to tackle the “Mexican market challenge.” Talking about geographic distribution, huge metropolitan areas, such as Mexico City, continue to be by far the most popular areas for wine sales, where a potential partner should have distribution partners. Many fast-growing areas, such as Queretaro, Puebla, regions near the capital, and Guadalajara, a city that is experiencing growth in its gastronomic offerings, require attention. All these cities as well as tourism areas like the Riviera Maya and the Pacific coast with many significant high-end tourism destinations are to be targeted.
The most popular point of sale of wine when it comes to value is unsurprisingly the HORECA channel (short for hotel/restaurant/café or catering) — mainly in restaurants — accounting for two-thirds of total wine sales. However, in terms of volume, 66.5% of wine is purchased within the mass retail channel. Therefore, it is essential to work with an importer that is present in both sales channels.
Interestingly, Mexicans are quite curious and experimental as far as new or unfamiliar tastes are concerned. Small wine producers with a niche offering, such as Austria, can profit from this trend. Being present in few but very well-positioned stores and retail chains, Austria serves as a good example of how to penetrate a profitable, yet difficult market. Keeping in mind the above-mentioned trends, Austrian winemakers managed to occupy a niche within the wine market. Click here to see importers of Austrian wine, potentially suitable for your future wine export business to Mexico:
About Nella Hengstler: Nella is the Commercial Counsellor at ADVANTAGE AUSTRIA – the Commercial Section of the Austrian Embassy. She had been posted to Berlin, New Delhi, Washington, D.C., and Lagos before occupying her current position in Mexico in September 2020. She will be happy to discuss opportunities in the Mexican wine sector and to connect you with Austrian winemakers: email@example.com
About ADVANTAGE AUSTRIA: ADVANTAGE AUSTRIA is the trade promotion agency of Austria. The organization generates international business opportunities by promoting the products and services of Austrian businesses around the world, by helping companies and organizations outside Austria to build strong relationships with Austrian companies and by fostering the exchange of the world’s and Austria’s best minds and innovations.