""""

Required Report - public distribution

**Date:** 9/3/2003

**GAIN Report Number:** MX3319

MX3319

**Mexico**

**Retail Food Sector**

**Report**

**2003**

**Approved by:**

![](media/image1.wmf)Bruce Zanin

#### ATO Mexico City

**Prepared by:**

John Leonard, Condessa Consulting

**Report Highlights:**

The retail market in Mexico continues to offer excellent opportunities
to U.S. suppliers. Retailers invested about \$1.2 billion in new outlets
and increased floor space in 2002 and are increasingly developing
sophisticated distribution systems. The market posted a six percent
increase in sales from 2001-2002, though success was uneven among the
major retailers.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Mexico ATO \[MX2\]

\[MX\]

**SECTION I. MARKET SUMMARY**

There are approximately 4,255 retail stores in Mexico selling food and
beverages, a figure that includes outlets for major retail chains,
government and convenience stores, but excludes "mom and pop" shops. The
retail market posted a six percent increase in sales from 2001-2002. Net
sales growth in 2002 for the four leading retailers was as follows:
Wal-Mart, 13.1 percent; Comercial Mexicana, --5.9 percent; Gigante, --2
percent; and Soriana 5.8 percent. Despite the sector's growth,
same-store sales growth among the top four retailers dropped to one
percent in 2002 from an average of 3.4 percent in 2000.

Retailers invested approximately US\$1.2 billion in 2002 to establish
new outlets and increase floor space. Soriana plans to spend roughly
US\$240 million in 2003. Wal-Mart expects to invest US\$615 million over
the next 18 months to open 61 new outlets. Comercial Mexicana will also
invest US\$119 million during the same period. Formal retail space
expanded by an average of 7.6 per cent per year between 1998-2001, but
only increased by 5.4 percent in 2002. Morgan Stanley expects that
leading retailers will expand at a nine percent rate in 2003.

The major retailers are developing increasingly sophisticated
distribution systems. Comercial Mexicana recently opened a facility
north of Mexico City that is handling approximately 80 percent of its
dry goods. Wal-Mart launched its newest distribution center in Monterrey
in July 2003 and plans to inaugurate a 2.1 million square foot facility
for frozen goods in 2004. Texas-based HEB has plans to develop a
300,000-square-foot distribution center just north of Monterrey for both
perishable and dry goods. Despite advances in logistics, retail stores
still depend heavily on local distributors for supplying the shelves,
especially for frozen food and perishables. When delivering to a
distribution center, distributors pay a fee of 2.5 to eight percent to
retailers.

Supermarkets and department stores continue to provide U.S. exporters
with the best points of sale. Convenience stores are potentially
excellent venues for U.S. product, though most chains sell relatively
few imported goods. Traditional retail stores (mom and pop stores) serve
a large number of Mexican consumers but offer little potential for
selling imported product.

**Advantages/Challenges for U.S. Exporters Targeting Mexico's Retail
Sector**

  ----------------------------------- -----------------------------------
  Advantages                          Challenges

  Retail stores are modernizing and   Mexican industry offering more
  adding more freezer space to        frozen products competing with
  accommodate frozen foods.           imports.

  Belief among Mexican consumers that Commercial barriers such as
  U.S. products such as red meat,     labeling, phytosanitary
  pork, dairy, poultry and other      regulations, and NOMs (Mexican
  products are of high quality.       quality standards) continue to pose
                                      obstacles for importing some U.S.
                                      products.

  Major retailers are adopting        As Mexico's transportation and
  modern, centralized distribution    distribution infrastructure
  systems that should help U.S.       improves, other countries will be
  suppliers compete with the powerful able to deliver product more
  delivery systems of Mexican         efficiently to the Mexican market.
  producers.                          

  Rising per capita income, more      The traditional "mom and pop"
  women in the workforce, and         stores and street markets make up a
  increasing foreign investment are   large part of Mexico´s retail
  driving the demand for imported     sector, but offer limited market
  foods.                              potential for U.S. exporters.

  Because of NAFTA, U.S. products     The European Union, Chile, and
  have preferential import duties     other Central American and South
  compared to products from many      American countries have free trade
  third countries. As of 2003, most   agreements with Mexico giving them
  U.S. food and agricultural product  preferential duties for some
  exports to Mexico are duty-free.    products.

  Mexico's domestic production of     U.S. firms must aggressively
  milk powder, poultry, red meat,     solicit new business and establish
  canned fruits, sugar, cereals and   in-country sales and servicing
  pet food cannot meet domestic       infrastructure.
  demand (Source: Bancomext).         

  Geographic proximity to Mexico      Imported products are relatively
  gives U.S. exporters a competitive  more expensive and take longer to
  advantage over third country        arrive.
  suppliers.                          
  ----------------------------------- -----------------------------------

## SECTION II. ROAD MAP FOR MARKET ENTRY

**A. MEGAMARKETS, HYPERMARKETS, SUPERMARKETS, CLUB, AND WAREHOUSE
STORES**

**Entry Strategy**

The best way to simultaneously find a distributor and determine the
viability of your product in the market is to visit Mexico and meet with
prospective representatives. These distributors are constantly visiting
customers and introducing new products; if anyone knows whether a given
food item has possibilities, it is the distributors. Exporters should
also participate in and/or attend Mexican trade shows not only as a way
to contact local distributors/sales agents, buyers and businessmen, but
also to familiarize yourself with the local competition and market
trends. The Agricultural Trade Office (ATO) in Mexico City organizes
participation in Mexican trade shows and can assist in providing
information on distributors and retail contacts.

Once a distributor is established, the U.S. supplier needs to nurture
the relationship. Good communication between the supplier, distributor,
and end-user was cited often by interviewees as one of the most
important components to building a successful distribution network in
Mexico. U.S. suppliers should closely monitor their distributor's
activities by traveling to the market, going on customer calls, and
supporting the distributor's promotional activities.

It is possible to bypass a Mexican distributor and to sell directly to
retail stores. As discussed below, the major retailers are establishing
their own distribution centers and currently import product directly
from the United States. But unless the volume is significant, a U.S.
supplier will still depend on a local representative. Also, the exporter
would need a local distributor to service the remaining retailers that
do not import directly.

If introducing a new product, be prepared to provide support and pay for
in-store and media promotions to create consumer awareness. If possible,
develop product information/promotional pamphlets in Spanish. Food and
beverages packaged for retail consumption in Mexico must be labeled
according to NOM regulations (Mexican Official Norms). Incorrect metric
system designations, imprecise punctuation, or the wrong font size can
be enough to have a label and its accompanying product rejected at the
border.

The availability of private labels depends on the product category.
Comercial Mexicana reported that ten percent of its dry goods carried
private labels and made up roughly four percent of its sales of
non-perishables. Both Carrefour and HEB import their own private labels,
the former from France and South America and the latter from the United
States. A Mexico City distributor of imported brand name pretzels also
sells the same product as a private label. The distributor reported that
he sells six times as much of the brand-name pretzel and the generic
version suggesting that Mexicans may be more brand-loyal than price
sensitive. He also commented that the brand-name pretzel had a 30
percent margin while the private label had a 10 percent margin.

Roughly ten percent of the stock of the top retailers is imported. In
specific categories this number can be much less. Comercial Mexicana
reported that less than four percent of its dry goods are imported.

**Market Structure**

***Store Formats.*** Mexico's large retailers are similar in size and
structure to those in the United States. The following table summarizes
the formats.

######## Retail Store Formats

  ------------- ---------- ---------------------- -------------------------------
  Format        Sq. Feet   Description            Store Names

  Megamarket    more than  Full line of           Wal-Mart Super Center; Casa
                100,000    merchandise and        Ley; Comercial Mexicana;
                           additional services    Carrefour; Chedraui; Soriana
                           such as a pharmacy.    

  Hypermarket   45,000 -   Almost a full line of  Wal-Mart; Aurrera; Gigante;
                100,000    merchandise and        Casa Ley; Comercial Mexicana;
                           additional services.   Comercial V.H.; Carrefour;
                                                  Chedraui; Soriana; San
                                                  Francisco de Asis; HEB

  Supermarket   5000 --    Food items             Superama; Sumesa; Casa Ley;
                45,000     (perishables and dry   Super G; Central Detallista;
                           goods) and limited     Comercial Mexicana; Comercial
                           services, including a  VH; Chedraui; San Francisco de
                           pharmacy.              Asis; HEB

  Warehouse     over       No-frills with         Bodega Aurrera; Bodega Gigante;
                25,000     wholesale discounts.   Bodega Comercial Mexicana
                           Full line of           
                           merchandise.           

  Convenience   less than  Limited selection of   OXXO; 7-Eleven; Matador,
  Stores        5000       convenience items sold Comextra; Circle K; Duxy; AM
                           24 hours.              PM; Superette; Del Rio; Super's
                                                  Rapidito Bip Bip

  Club Stores   greater    Full line of           Sam's Club; Costco
                than       merchandise targeted   
                45,000     to other wholesalers   
                           and semi-wholesalers,  
                           business owners and    
                           large families.        

  Department    Over       Full line of luxury    Palacio de Hierro; Liverpool
  Stores        25,000     goods, similar to a    
                           Macy's. Also has       
                           gourmet food section.  
  ------------- ---------- ---------------------- -------------------------------

Source: ANTAD

Consumers from all socioeconomic levels shop at stores in these
categories, although primarily those from middle and upper-income
groups. The exception are the "Club" formats which require members to
pay a yearly fee, effectively excluding lower income consumers. These
consumers more commonly shop in the "bodega" or warehouse stores that
offer bulk items in a no-frills environment.

It is important to note that Club stores in Mexico have become important
sources of supply for small businesses. It is very common for restaurant
owners and distributors to buy U.S. meat and other products in bulk at
Costco and Sam's Club. These stores are effectively competing with the
*Central de Abastos* as a "wholesaler".

More stores are offering ready-to-eat foods, although these are limited.
Superama, for example, prepares Japanese "California rolls" and sells
whole roasted chickens. Wal-Mart and Carrefour serve prepared Mexican
dishes that customers pack themselves into styrofoam containers for
immediate consumption at home. Many retailers have their own in-store
bakeries.

#### 

***Distribution.*** U.S. exporters normally ship their product to
distributors that import, stock, and deliver to the retailer's
distribution center or individual stores. Wal-Mart, Gigante, Soriana,
and Comercial Mexicana, Carrefour, and HEB are capable of direct
purchasing and may deal directly with foreign suppliers. Even the
largest retailers depend heavily on local distributors for imported
product, however.

U.S.

Mexico

Soriana, Gigante, and Comercial Mexicana recently announced they would
cooperate in purchasing and distribution to reduce costs and compete
with the market leader, Wal-Mart. Combined, these chains sell less than
the U.S.-owned giant, which controls 43 percent of the market.

######## Major Retailers 

+------------------------+------+------+------+------------+-----------+
| Retailer Name          | Ow   | S    | Nu   | Locations  | P         |
|                        | ner- | ales | mber | C          | urchasing |
| and Outlet Type        | ship | US\$ | of   | ity/Region | Agent     |
|                        |      | Mill | Out  |            | Type      |
|                        |      | ions | lets |            |           |
+------------------------+------+------+------+------------+-----------+
| Wal-Mart de México, SA | W    | 8    | 285  | All major  | Direct,   |
| de CV \[Supercenters   | al-M | ,530 |      | cities     | local     |
| (75), Supermarkets     | art, |      |      |            | dist      |
| (44), Clubs (50),      | 62%  |      |      |            | ributors; |
| Warehouses (116)\]     |      |      |      |            | importers |
+------------------------+------+------+------+------------+-----------+
| Grupo Gigante, SA de   | L    | 2    | 268  | All major  | Direct,   |
| CV \[Hypermarkets      | ocal | ,854 |      | cities     | local     |
| (84), Supermarkets     |      |      |      |            | dist      |
| (112); Clubs (18);     |      |      |      |            | ributors; |
| Warehouses (54)\]      |      |      |      |            | importers |
+------------------------+------+------+------+------------+-----------+
| Controladora Comercial | L    | 3    | 171  | Mexico     | Direct,   |
| Mexicana SA de CV      | ocal | ,185 |      | City and   | local     |
| \[Hypermarkets (70),   |      |      |      | Central    | dist      |
| Megamarkets (27),      |      |      |      | Mexico     | ributors; |
| Supermarkets (20),     |      |      |      |            | importers |
| Warehouses (33), Club  |      |      |      |            |           |
| (21)\]                 |      |      |      |            |           |
+------------------------+------+------+------+------------+-----------+
| Organización Soriana,  | L    | 2    | 116  | All major  | Direct,   |
| SA de CV               | ocal | ,767 |      | cities     | local     |
| \[Hypermarkets, (110), |      |      |      | (except    | dist      |
| Megamarkets (6)\]      |      |      |      | Mexico DF  | ributors; |
|                        |      |      |      | and State  | importers |
|                        |      |      |      | of Mex.)   |           |
+------------------------+------+------+------+------------+-----------+
| Grupo Comercial        | L    | 1    | 79   | Major      | Direct    |
| Chedraui, SA de CV.    | ocal | ,001 |      | cities in  | and local |
| \[Hypermarkets (70),   |      |      |      | Southern   | dis       |
| Megamarkets (2),       |      |      |      | and        | tributors |
| Supermarkets (7)\]     |      |      |      | Central    |           |
|                        |      |      |      | Mexico     |           |
+------------------------+------+------+------+------------+-----------+
| Grandes Superficies de | Fr   | 810  | 19   | All major  | Direct,   |
| México, SA de CV       | ench |      |      | cities     | local     |
| ("Carrefour")          | o    |      |      |            | dist      |
| \[Hypermarkets (5),    | wned |      |      |            | ributors; |
| Megamarkets (14)\]     |      |      |      |            | importers |
+------------------------+------+------+------+------------+-----------+
| Supermercados          | US   | N/A  | 19   | Northern   | Direct,   |
| Internacionales HEB,   | o    |      |      | Mexico     | local     |
| SA de CV               | wned |      |      |            | dis       |
| \[Hypermarkets (8),    |      |      |      |            | tributors |
| Supermarkets (11)\]    |      |      |      |            |           |
+------------------------+------+------+------+------------+-----------+
| Central Detallista, S. | L    | N/A  | 42   | North      | Direct,   |
| A. de C.V ("Calimax")  | ocal |      |      | Western    | dis       |
| \[Supermarkets (42)\]  |      |      |      | Mexico     | tributors |
|                        |      |      |      | (Baja Cal. |           |
|                        |      |      |      | and        |           |
|                        |      |      |      | Sonora)    |           |
+------------------------+------+------+------+------------+-----------+
| Casa Ley               | Saf  | N/A  | 99   | Western    | Local     |
| \[Hypermarkets (52),   | eway |      |      | Mexico     | dis       |
| Megamarkets (6),       | 49%  |      |      |            | tributors |
| Supermarkets (41)\]    |      |      |      |            |           |
+------------------------+------+------+------+------------+-----------+
| Comercial VH           | L    | N/A  | 41   |            | Direct,   |
| \[Hypermarkets (5),    | ocal |      |      |            | local     |
| Supermarket (36)\]     |      |      |      |            | dis       |
|                        |      |      |      |            | tributors |
+------------------------+------+------+------+------------+-----------+
| Super San Francisco de | L    | N/A  | 35   | Southern   | Direct,   |
| Asis, S.A. de C.V.     | ocal |      |      | Mexico     | and local |
| \[Hypermarkets (2),    |      |      |      |            | dis       |
| Supermarkets (33)\]    |      |      |      |            | tributors |
+------------------------+------+------+------+------------+-----------+

Source: Expansion, ANTAD, company annual reports, and telephone
interviews.

The top retail food chains are increasingly supplying their stores via
centralized distribution centers (DCs). In this respect, Wal-Mart is
well ahead of the competition in terms of percentage of goods that are
delivered to stores on Wal-Mart vehicles. Most frozen food distributors
report that they still deliver directly to stores, while dry goods
suppliers claim that they are making far more deliveries to DCs.
Suppliers report paying a 2.5 to eight percent fee to the retailers for
shipments delivered to the DCs, an amount that they believe is justified
since they no longer have to deliver to each store.

Comercial Mexicana recently opened a facility north of Mexico City that
is handling approximately 80 percent of its dry goods. Wal-Mart launched
its newest distribution center in Monterrey in July 2003 and plans to
inaugurate a 2.4 million square foot facility for frozen goods in 2004.
Wal-Mart DCs offer state-of-the-art logistics technology featuring a
system called "retail link" that informs suppliers on how their product
is selling and when re-stocking is required. Texas-based HEB plans to
develop a 300,000-square-foot DC just north of Monterrey for both
perishable and dry goods.

The large retail stores continue to grow, with much of the expansion
occurring outside of Mexico City. According to Morgan Stanley, Wal-Mart
plans to increase its retail space by ten percent in 2003; Soriana has
an aggressive goal to increase by 15 percent; Carrefour expects to
expand by 23 percent; and in the north, HEB plans to add two to four
stores per year.

######## B. CONVENIENCE STORES, GAS MARTS, KIOSKS

**Entry Strategy**

The entry strategy for supplying these store formats is essentially
identical to supplying the large retail stores: U.S. suppliers will most
likely need to work through a local distributor. It is also important to
note that convenience stores in Mexico offer a limited number of
products, and brand selection is equally small. Thus, frozen foods,
gourmet items, wines, and other up-scale products will have limited
prospects.

Demand for competitively priced imported products at convenience stores,
gas marts and kiosks is growing moderately. Typical imported products
include: snacks, candies, pet food, cookies, alcoholic beverages, beer,
prepared dinners and cake mixes. Portion control products are gaining
popularity, and sales of high energy soft drinks are brisk.

**Market Structure**

Convenience stores are those selling a limited number of convenience
items 24 hours a day. Retail space is less than 500 meters, but OXXO's
average store is only 1200 square feet. Although the stores appear
similar to their U.S. counterparts, a closer inspection reveals that the
product selection is less extensive. The refrigerated section offers a
limited number of soft drinks, juices, yogurts, cheese, and sandwiches.
The frozen section is usually one small freezer with only ice cream
bars. They typically also offer hot dogs, sandwiches and microwaveable
products.

Convenience stores are located in major and medium-sized cities, usually
in middle and upper class neighborhoods. In general, convenience stores
normally source their products with agents/distributors, although some
chains like 7-Eleven have purchased directly from the exporter.

OXXO is the leading chain in the industry with 2,400 stores. The company
also operates 584 outlets under the name "Matador" which are smaller in
size and carry lower priced products. 7-Eleven has 366 outlets and
Comextra (Extra) has 280.

Convenience stores are the fastest-growing store format in Mexico. OXXO
tripled its number of outlets in just five years. 7-Eleven doubled the
number of stores in the same time period. This growth may be coming at
the expense of the "traditional" stores: according to Mexico's Small
Business Chamber of Commerce (Canacope), for every convenience store
that opens, five "mom and pop" shops close.

It is interesting to note that OXXO is owned by Grupo Femsa (the holding
company for Coca-Cola and Cerverceria Cuauhtemoc) and Comextra/Extra is
owned by Grupo Modelo. OXXO does not sell products competitive to the
brands of the parent company (i.e., does not stock Pepsi or Corona
beer). Similarly, Extra does not sell Cuauhtemoc beer (such as Sol and
Dos Equis) but does sell imported beers from Anheuser-Busch, a major
investor in Modelo.

Purchasing decisions at OXXO are generally made at the national level
and 76 percent of the products are delivered directly to the stores by
OXXO or FEMSA subsidiary vehicles. Products with longer shelf lives are
distributed to stores via five regional OXXO warehouses located
throughout the country.

"Kiosks" can be found on highways (usually near toll booths) and other
high traffic areas. One chain, Duxy, has 51 locations nationwide. These
outlets can vary from permanent small stores to mobile trucks. They
offer soft drinks, hot beverages, snacks and confectionery products.

Pemex, the state-owned oil company, now allows private operation of its
service stations. Virtually all of Mexico's 5,564 Pemex service stations
are privately owned and operated as franchises. Many of these have
chosen to install convenience stores on the premises. OXXO is one of the
leaders in number of stores. Hydrosina, one of the largest franchise
operators, has an agreement with Extra for developing new stores.

## 

## 

## 

## Major Convenience Store Chains

+--------------+-------------+---------+-------+----------+----------+
| Retailer     | Ownership   | 2002    | N     | L        | Pu       |
| Name         |             | Sales   | umber | ocations | rchasing |
|              |             | US\$    | of    | Cit      | Agent    |
| and Outlet   |             | M       | Ou    | y/Region | Type     |
| Type         |             | illions | tlets |          |          |
+--------------+-------------+---------+-------+----------+----------+
| Cadena       | Subsidiary  | NA      | 2,399 | Major    | Direct   |
| Comercial    | of          |         |       | cities   | Purchase |
| OXXO, SA de  | FEMSA       |         |       | and      | and      |
| CV           | /Cerveceria |         |       | regions  | local    |
|              | Cuauhtemoc  |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| Matador      | Part of     | NA      | 584   | Major    | Direct   |
|              | OXXO        |         |       | cities   | Purchase |
|              |             |         |       |          | and      |
|              |             |         |       |          | local    |
|              |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| 7-Eleven     | Joint       | NA      | 366   | Major    | Direct   |
| México, SA   | venture     |         |       | cities   | purchase |
| de CV        | with local  |         |       |          | and      |
|              | ownership   |         |       |          | local    |
|              |             |         |       |          |          |
|              |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| Comextra     | Subsidiary  | NA      | 280   | Major    | Direct   |
| (Extra)      | of Grupo    |         |       | cities   | purchase |
|              | Modelo      |         |       |          | and      |
|              |             |         |       |          | local    |
|              |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| Circle K     | Local       | NA      | 45    | Major    | Direct   |
|              | ownership   |         |       | cities   | purchase |
|              |             |         |       |          | and      |
|              |             |         |       |          | local    |
|              |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| Duxy         | Local       | NA      | 51    | Major    | Direct   |
|              | ownership   |         |       | toll     | purchase |
|              |             |         |       | highways | and      |
|              |             |         |       |          | local    |
|              |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| Comercial    | Local       | NA      | 69    | Cd.      | Direct   |
| Nortena      | ownership   |         |       | Juarez   | purchase |
| (Super's     |             |         |       |          | and      |
| Rapidito Bip |             |         |       |          | local    |
| Bip)         |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+
| Almacenes    | Local       | NA      | 120   | C        | Direct   |
| Di           | ownership   |         |       | hihuahua | purchase |
| stribuidores |             |         |       |          | and      |
| de la        |             |         |       |          | local    |
| Frontera     |             |         |       |          | dist     |
| (Superettes; |             |         |       |          | ributors |
| Del Rio)     |             |         |       |          |          |
+--------------+-------------+---------+-------+----------+----------+
| AM PM        | NA          | NA      | 34    | Tijuana  | Direct   |
|              |             |         |       |          | purchase |
|              |             |         |       |          | and      |
|              |             |         |       |          | local    |
|              |             |         |       |          | dist     |
|              |             |         |       |          | ributors |
+--------------+-------------+---------+-------+----------+----------+

Source: ANTAD, annual reports, and telephone interviews.

**C. TRADITIONAL MARKETS \-- SMALL INDEPENDENT GROCERY STORES, \"MOM AND
POP\" SHOPS, WET MARKETS, AND HIGH-END SPECIALTY STORES**

## Entry Strategy

Given the fact that most products are supplied out of central markets or
Club stores, U.S. exporters should contact local large wholesalers and
*Centrales de Abastos,* which deliver or serve these stores. Given the
limited number of products sold in this format, only inexpensive,
non-perishable dry goods are appropriate.

Distributing to high-end specialty stores is similar to selling to other
major retailers. This will almost certainly be accomplished through a
local distributor.

######## 

######## Market Structure

There are four types of retail channels in this category.

1.  The independent "small grocer" that has a cash register and check
    out counter and up to ten stores operated by the same owner.

2.  The small grocery store ("tienda de abarrotes") that sells a line of
    dry goods, canned goods or non-food items plus some perishable
    items.

3.  The wet market, which is an informal open air and/or roofed market.

4.  High-end specialty stores that carry mostly imported products.

Morgan Stanley estimates that only 55 percent of the food and general
merchandise spending occurs in formal retail channels. Thus, these
small, family-owned stores and markets are important sales points for
food products. Unfortunately, because they cater to mostly low-income
customers and quick convenience purchases, the prospects for selling
higher value-added products is very small. The "wet" market offers no
sales opportunities to U.S. exporters. On the other hand, *Centrales de
Abastos*, giant food distribution markets, have imported products
offered through importers and wholesalers.

Store owners are supplied by wholesalers or the large food and beverage
processors with staples such as bread, dairy products and snack foods.
Purchases of candy, alcoholic beverages, dry goods and fruits and
vegetables are also made directly at hyper-markets such as Wal-Mart,
Club stores like Sam's Club, and *Centrales de Abastos*.

######## Sub-Sector Profile

Small grocery stores are usually found in smaller urban centers
throughout the country and/or in residential neighborhoods. They are
visited on a regular schedule by wholesalers who may recommend new
product lines that might include imported products. Most small grocery
store retailers purchase their products at the city\'s *Centrales de
Abastos*.

The smallest stores, "tiendas de abarrotes" (supply stores), are located
on practically every block in Mexico's cities and towns. Their clients
are commonly neighborhood residents, who tend to make smaller buys and
have access to short term credit. It is estimated that there are
approximately 400,000 stores of this type across the country. A store
may measure as little as 100 square feet and carry a limited variety of
products and a small inventory. Refrigeration space is limited.

"Wet markets" are either fixed or roving markets that mainly offer fresh
fruits, vegetables, and meats. These are not a sales point for imported
products.

There are a few small chains of specialty stores or independent
operators that deal in fine foods and alcoholic beverages. These import
directly and also use the services of domestic distributors of local and
foreign goods. Located primarily in the Mexico's three largest cities,
these stores cater to the high end of the food and beverage market. In
addition to offering retail sales, these stores also distribute directly
to bars and restaurants. The oldest and most prestigious of these
high-end specialty stores is La Europea, which has 25 stores in Mexico
City, Guadalajara, and Queretaro. While offering an extensive list of
wines and spirits, the Europea also carries a broad selection of
imported canned seafood, pastas, preserves and specialty foods. A source
at this company noted that most of its foreign suppliers are European or
Chilean.

## High-End Specialty Stores

  ------------------- ------------ --------- ------------- ------------------------
  Retailer Name and   Owner-ship   Number of Locations     Purchasing Agent Type
  Outlet Type                      Outlets   City/Region   

  Vinos, Licores      Local        99        Major cities  Importer and local
  Naucalpan, SA de CV                                      distributor
  ("La Divina")                                            

  La Europea México,  Local        25        Major cities  Import through
  SA de CV ("La                                            Subsidiary:
  Europea")                                                Importaciones Colombres,
                                                           SA de CV

  Vinoteca México, SA Local        13        Monterrey and Importer and local
  de CV.                                     major cities  distributor

  La Castellana       Local        6         Major cities  Importer and local
                                                           distributor
  ------------------- ------------ --------- ------------- ------------------------

######## SECTION III. COMPETITION

Local producers are the main suppliers of consumer ready products.
Mexico has a relatively strong food processing industry and leading
Mexican brands have well-developed national distribution networks, are
well-positioned in the market and enjoy high brand awareness with
consumers. Some of these companies include Grupo Industrial Bimbo (bread
products) considered to have one of the country´s best distribution
systems, Nestle (food products in general), Herdez (food products in
general), Sabritas (snack foods) Grupo Industrial Lala (dairy products),
Jugos del Valle (canned fruit juices), Grupo Bafar (red meats),
Productos del Monte (preserves), Pastelerias El Globo (baked goods),
among others.

There are also several American and multinational producers/importers in
Mexico, including: Campbell's, Bacardi, General Mills, Gerber,
Kellog\'s, Kraft Foods, Procter & Gamble, Frito Lay-Pepsico, Pilgrim\'s
Pride, Purina, and Tyson.

Competition among importers depends on the category. Competition from
Europe has increased as a result of the Mexico-European Union Free Trade
Agreement, although meat and dairy products were excluded from the
treaty. Canada, Australia and New Zealand export notable amounts of meat
and dairy products to Mexico. New Zealand butter, for instance, is
well-positioned in Mexico City retailers.

Following is a summary of the main foreign competitors in their
respective categories:

-   ***Meat.*** Top suppliers of imports: United States (81 percent),
    Canada (12 percent), Australia (3 percent).

-   ***Dairy.*** Top suppliers of imports: United States (36 percent),
    New Zealand (25 percent), Canada (eight percent).

-   ***Confection.*** Top suppliers of sugar imports: United States (77
    percent), Ecuador (four percent), Spain (three percent).

-   **Baked Goods.** Top suppliers of imports: United States (56
    percent), Ireland (nine percent), Netherlands (six percent).

-   ***Snack Foods.*** Imports are still dominated by the United States,
    although they dropped by 52 percent in 2002.

-   ***Beverages.*** Top suppliers of imports: United States (46
    percent), Spain (15 percent), France (eight percent).

-   ***Fruits, vegetables and grains.*** Almost all of the yellow corn
    consumed in Mexico originates from the United States while white
    corn is nearly entirely domestic. Corn importers must obtain a
    permit to buy yellow corn. Top suppliers of imports: United States
    (56 percent), Spain (27 percent).

-   **Pet Food.** Top suppliers of imports: United States (95 percent),
    Canada (4.7 percent).

#### SECTION IV. BEST PRODUCT PROSPECTS

**A. Products Present in the Market that have Good Sales Potential**

  ----------------------------------- -----------------------------------
  Apples                              Bread, pastry, cake, biscuits, etc.

  Canned corn                         Candies

  Cheese and curds                    Chocolate and preparations
                                      containing chocolate

  Fresh and frozen meat cuts of beef  Fresh and fruit juices and
  and pork.                           concentrates

  Fresh vegetables in dinner          Frozen chicken parts
  presentations                       

  Frozen dinners                      Frozen french fries

  Frozen turkey parts                 Further processed dark meat poultry
                                      products (precooked and fully
                                      cooked)

  Frozen desserts                     Frozen pastries and breakfast
                                      products

  Fruits, nuts and edible plant       Frozen vegetables
  preparations                        

  Ice cream                           Jumbo frankfurters

  Jams                                Kosher food

  Mesquite smoked turkey breasts      Pears

  Pork                                Prepared foods from cereal

  Pizzas                              Raw dark meat cuts of poultry and
                                      turkey

  Salad dressings                     Sauces and preparations

  Seafood                             Smoked sausage

  Smoked turkey                       Snacks, corn chips, potato chips

  Soups, broths and other similar     
  preparations                        
  ----------------------------------- -----------------------------------

**B. Products Not Present in Significant Quantities but Which Have Good
Sales Potential**

  ----------------------------------- -----------------------------------
  Mixed nut assortments, beer nuts    Peanuts with and without shell

  Peanut butter                       Popcorn

  Specialty beer                      Cranberries

  Apricots                            Blueberries

  Cherries                            Dehydrated vegetables
  ----------------------------------- -----------------------------------

**C. Products Not Present Because They Face Significant Barriers**

Most U.S. food and agricultural products became duty free on January 1,
2003 when the ten-year implementation period for the North America Free
Trade Agreement (NAFTA) came to an end. However, the potential increase
in imports associated with this opening resulted in negotiations to
contain U.S. exports of certain products. Thus, some products still face
quotas or other barriers: fresh poultry, beef carcasses, bone-in meat,
boneless beef cuts, prime beef cuts, fresh potatoes, sugar, cocoa and
cacao, white corn and high fructose corn syrup, among others.

**SECTION V. POST CONTACTS AND FURTHER INFORMATION**[^1]

If you have any questions or comments regarding this report or need
assistance exporting processed food products to Mexico, please contact
the U.S. Agricultural Trade Office in Mexico City at the following
address:

The U.S. Agricultural Trade Office, Mexico City

Jaime Balmes No. 8-201

Col. Los Morales Polanco

11510 Mexico, DF

Tel: (52 55)-5280-5291

Fax: (52 55)-5281-6093

atomonterrey@usda.gov; www.fas.usda.gov

U.S. Agricultural Trade Office -- Monterrey

Dan Martinez; Director

Blvd. Diaz Ordaz No. 140 Torre II Piso 7

Col. Santa Maria

64650 Monterrey, N.L.

Tel 52 (81) 8333 5289; Fax 52 (81) 8333 1248;

atomonterrey@usda.gov; www.fas.usda.gov

[^1]: This report is for informational purposes only to assist exporters
    of U.S. produced food and agricultural products in their sales and
    promotional efforts in Mexico. The data in this report were
    collected from local trade and government sources and are not
    necessarily official U.S. Department of Agriculture (USDA) data.
    While every effort has been made to provide an accurate list of
    contacts, telephone and fax numbers change frequently in Mexico.
    Also, there may be other qualified firms in Mexico and the United
    States, and their exclusion from any lists or directories is
    unintentional. Neither the U.S. Agricultural Trade Office (ATO) or
    the USDA endorse any firm contained herein. U.S. exporters should
    take normal commercial precautions when dealing with any potential
    importer, including checking references.