Required Report - public distribution

**Date:** 11/18/2004

**GAIN Report Number:** GT4018

GT4018

**Guatemala**

**Retail Food Sector**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Steve Huete, Ag Counselor

U.S. Embassy

**Prepared by:**

Daniel Orellana, Marketing Specialist

Edith Vasquez, Marketing Assistant

**Report Highlights:**

The Free Trade Agreement between the United States and the Central
American countries (CAFTA) will offer U.S. companies tremendous
opportunities to export products to Guatemala. In addition, changes in
Guatemalans' purchasing habits have increased the demand for
high-quality products in supermarkets.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Guatemala \[GT1\]

\[GT\]

Table of Contents

[I ECONOMIC SITUATION 3](#i-economic-situation)

[A Market Overview 3](#a-market-overview)

[B INCOME DISTRIBUTION 4](#b-income-distribution)

[C MARKET SIZE 5](#c-market-size)

[D ADVANTAGES & CHALLENGES 6](#d-advantages-challenges)

[Advantages 6](#advantages)

[Challenges 6](#challenges)

[E RETAIL MARKET 6](#e-retail-market)

[II ROAD MAP TO ENTRY 7](#ii-road-map-to-entry)

[*Entry strategy* 7](#entry-strategy)

[Trends & Highlights 9](#trends-highlights)

[B. CONVENIENCE STORES 10](#convenience-stores)

[Entry Strategy 10](#entry-strategy-1)

[Distribution Channels 12](#distribution-channels)

[III COMPETITION 12](#iii-competition)

[IV BEST PROSPECTS 13](#iv-best-prospects)

[B PRODUCTS NOT PRESENT DUE TO TRADE BARRIERS
13](#b-products-not-present-due-to-trade-barriers)

[V POST INFORMATION 14](#v-post-information)

# I ECONOMIC SITUATION

# A Market Overview

Guatemala's GDP for 2003 was \$24.9 billion and is expected to grow by
2.6 percent in 2004. It is the largest economy in Central America. Next
closest is Costa Rica with a GDP of \$17 billion. Thanks to the new
Government's pro-business attitude, there is a desire by the private
sector to invest in the country. Unlike the situation with the previous
government in which the private sector and the government were against
each other, this government ia very pro-business. In fact, it has filled
most of the cabinet positions with prominent businessmen. The Bank of
Guatemala estimates that Guatemalan exports could increase by 10%
annually if the U.S.-Central America Free Trade Agreement (CAFTA) is
ratified.

One of the major accomplishments of the new GOG was to eliminate the
trade barriers between Guatemala and the rest of the Central American
countries. From a total of 60 trade barriers, now only one remains to be
eliminated. However, negotiations have started and according to the Vice
Minister of Foreign Relations, the end of 2004 must eliminate this last
barrier. All food products can now be transported freely throughout the
Central American region.

The Guatemalan government is attempting to attract tourism as well as
foreign investment to develop the tourism sector.

Macro economy:

-   Interest rates are at their lowest levels in decades. Loans in local
    currency are at 12% annual interest and in US dollars at 7.5% annual
    interest.

-   Banks have high liquidity. In fact, the Central Bank has had to pick
    up some of the excess liquidity.

-   In 2003 banks had record profits.

-   The local currency has stayed fairly stable in the last four years,
    averaging Q7.9 per \$US 1.00

U.S. agricultural exports to Guatemala have continued to grow during the
last few years.

-   Total U.S. agricultural exports grew from \$289 million in 1998 to
    \$357 million in 2003.

```{=html}
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-   Bulk commodities exports varied very little during 1999-2001, but in
    2002 had an increase of 45% over the previous year. In 2003 U.S.
    bulk commodity exports were \$132 million.

-   Intermediate agricultural products grew from \$99.3 million in 1998
    to \$106 million in 2003.

-   Consumer oriented products exports increased from \$67.6 in 1998 to
    \$111 million in 2003. This sector has shown the most promise.

Guatemala's economy is still very dependent on coffee and sugar and
their low international prices have had some negative affect on the
economy. The recovery has begun, but the last three years have been very
difficult.

It is also important for U.S. firms considering exporting to Guatemala
to understand that the market conditions are strongly affected by income
distribution and that there is a major difference in incomes between the
interior of the country and Guatemala City.

# B INCOME DISTRIBUTION

# 

Guatemalan Household Expenditures

Despite the slower economy, demand for U.S. products continues to grow,
and opportunities exist in many sectors. However, it is important to
understand the income distribution of the country, in order to properly
target markets. Guatemala's income distribution is very unequal. Of a
population of 12 million, income is concentrated in the upper class,
with 63% of income in the hands of the top 20% of the population. The
polarity in income distribution determines a particular pattern of
consumption, where the majority of the population consumes merely for
subsistence. Therefore, luxury goods can only be targeted to a
significantly small portion of society. However, U.S. food products are
very competitively priced and are sought out by both high-income and
middle-income consumers. Many U.S. food products, such as grains,
poultry, dairy and pork are cheaper than domestically produced products.

Guatemalan households spend relatively more money on food than education
and health. Food and non-alcoholic beverages account for 37.1% of the
basic basket. Consequently, Guatemalan consumers are extremely sensitive
to price changes in food items.

There is also a big difference between rural and urban populations. The
urban population spends 31.6% of its income on food purchases, while the
poorer rural population spends 46.9%. Furthermore, looking at Guatemala
City, the picture changes even more. Only 28.8% of expenditures in the
metropolitan area are for food purchases. Realizing where the wealth is,
the supermarkets have expanded first in the metropolitan area, and then
in larger cities. In the past, smaller towns had no supermarket
presence. However, La Fragua, the largest supermarket chain in
Guatemala, plans to open three new units in the interior in towns with a
population as low as 40,000 people. There are ample opportunities in the
interior for U.S. products, especially those products that are priced
for low-income and middle-income markets. Furthermore, the concentration
of urban populations and the increasing middle class offer relative
potential in the interior of the country for U.S. firms interested in
forming alliances with smaller distribution companies that cater to the
markets in the interior of the country, and use route systems to get
products to the "mom & pop" stores in the smaller cities and towns.

-   The urban population is estimated at 4.7 million, with an annual
    growth rate of 3.2%.

-   The middle class is estimated at 5.8 million with an annual growth
    rate of 1.7%.

-   Population growing at a rate of 2.7% annually.

![](media/image2.wmf)

-   AB -- is the top 4% of the population that can afford anything. The
    main difference between A and B is the A's own their own planes.
    They are the jet setters.

-   C+ - is the upscale middle class that can afford most food products.
    They tend to be professionals with family incomes over \$3500 a
    month.

-   C- this is the general middle class that must watch how they spend
    their income. They have some savings ability but very little.

-   D -- this is the lower class that is just surviving. They are
    subsistence buyers, and can only afford the basics.

-   E -- this group eats when it can. it has no purchasing power and is
    below poverty.

# C MARKET SIZE

Guatemala in 2003:

-   Total food expenditures of more than \$3 billion.

-   Total consumer-oriented and edible fisheries' market estimated at
    \$1.3 billion.

-   Total agricultural imports were \$886 million.

-   U.S. share of total agricultural imports was 42%.

-   Total consumer-ready imports were \$443 million

-   U.S. share of consumer-ready imports was 23%

# D ADVANTAGES & CHALLENGES

+-----------------------------------+-----------------------------------+
| # Advantages                      | ### Challenges                    |
+-----------------------------------+-----------------------------------+
| Of the 12 million Guatemalans,    | The economic condition of the     |
| 480,000 are in a position to      | country limits imports.           |
| afford any imported good, and an  |                                   |
| additional 4 million can afford   |                                   |
| competitive U.S. food products.   |                                   |
+-----------------------------------+-----------------------------------+
| Guatemalans view U.S. products as | There is a lack of brand          |
| of higher quality and safer than  | awareness among importers,        |
| national products.                | retailers and especially          |
|                                   | consumers.                        |
+-----------------------------------+-----------------------------------+
| The expanding retail industry,    | Some imports cost much more than  |
| and the growing demand for new    | nationally produced products, and |
| and better products by consumers, | purchasing power for many         |
| create an exceptional opportunity | consumers is lacking.             |
| for new imported goods.           |                                   |
+-----------------------------------+-----------------------------------+
| Importers generally favor trading | Imports must go through a         |
| with U.S. exporters because of    | complicated bureaucratic approval |
| reliability.                      | process and there are quotas on   |
|                                   | various items.                    |
+-----------------------------------+-----------------------------------+
| The growing food processing       | There is limited infrastructure   |
| industry is looking for new and   | and distribution, especially on   |
| better food ingredients.          | perishable products.              |
+-----------------------------------+-----------------------------------+
| Effective market promotion can    | Regional competition is strong,   |
| overcome price sensitivity, and   | especially from Mexico, El        |
| retailers are open to this and    | Salvador and Chile.               |
| will readily participate.         |                                   |
+-----------------------------------+-----------------------------------+
| CAFTA should be ratified in 2005  | Mexico is a strong competitor as  |
| and U.S. companies will have a    | it continues reinforcing the Free |
| comparative advantage over other  | Trade Agreement it signed a few   |
| countries.                        | years ago.                        |
+-----------------------------------+-----------------------------------+
| The tourism sector is growing and | Distribution of food products in  |
| U.S. raw materials are preferred  | the interior of Guatemala         |
| among visitors because of quality | represents a challenge to         |
| and food safety.                  | importers of U.S. products.       |
+-----------------------------------+-----------------------------------+

# E RETAIL MARKET

Over the last years the supermarket sector has been growing rapidly,
more than quadrupling in sales from \$128 million in 1995 to \$650 in
2003. This increase is due to the higher number of outlets and the
changing purchasing habits among consumers, who now are going to a
supermarket more than before. Retail outlet sales have grown
tremendously in the last few years. In 1994, under 15% of food sales
were at supermarket-type retail outlets; the rest was at traditional wet
markets and corner stores. However, by 2002 this percentage had
increased to 36%.

The number of supermarkets has grown in the last five years as well. In
1994, there were only 66 units, by 1998 there were 116, and this year
there are 150.

La Fragua has dominated the market in Guatemala for many years. It
consists of 108 units and has four formats:

Supermarket

Hypermarket

Club

Discount market

In 2000, Royal Ahold bought a 50% stake in this firm. In September 2001,
the second and third largest supermarket chains in Guatemala merged,
forming one company with 22 units under the names of La Torre and
Econosuper. The reason for their joining forces was to compete better
against the La Fragua group, which dominates the market with their
concepts of Hiperpaiz, Tiendas Paiz, La Despensa Familiar, Maxi Bodegas
and Club Co. Because of the stores' locations, La Torre will cater to
the more affluent consumer, while Econosuper will service the lower
income consumer. A review of the stores showed that imported products
represent no more than 20% of La Torre's product mix, while Econosuper
will have less than 5%.

# II ROAD MAP TO ENTRY

A.  **SUPERMARKETS, HYPER MARTS & WAREHOUSE CLUB OUTLETS**

#### *[Entry strategy]{.underline}*

Success in introducing your product in the market depends on local
representation and personal contact. Selecting a distributor is the
easiest and fastest way to enter the market. In particular, it is best
if this distributor is already supplying the supermarkets, in order to
benefit from their existing customer base. The local representative or
distributor should be able to provide market knowledge and guidance on
business practices and trade related laws, as well as sales contacts. In
many cases the local representative or distributor is also the importer.
The FAS office in Guatemala maintains listings of companies that
represent or distribute U.S. products in Guatemala. The office also has
ongoing activities that provide opportunities to meet the Guatemalan
trade.

In order to improve the odds of success in entering the market, U.S.
suppliers should provide labeling or re-labeling services, competitive
pricing, credit, catalogs, printed material and samples to
importers/distributors. Firms should also consider providing support to
importers in order to develop sales, by way of shared advertising costs
of new brands, as well as training programs for sales personnel.

# 

**[Distribution Channels]{.underline}**

-   Normally, an importer or agent, who may also be the wholesaler
    and/or the distributor, imports products.

-   Products represented by agents tend to be better promoted.

-   Most major supermarkets directly import some of their products.

-   Most importers work directly with brokers out of Miami.

**[Company Profiles]{.underline}**

***Yearly Food Sales in U.S. Dollars***

**A** = Under 5 million **B** = 5-20 million

**C** = 21- 50 million **D** = Over 50 million

+------------------+---------+-----+------+----------+---------------+
| **Retailer**     | **Owne  | **S | **O  | **Lo     | **Purchase    |
|                  | rship** | ale | utle | cation** | Type**        |
|                  |         | s** | ts** |          |               |
+------------------+---------+-----+------+----------+---------------+
| Hiperpaiz \*     | Local   | D   | 6    | G        | Direct        |
|                  |         |     |      | uatemala |               |
| Hypermart        | Ahold   |     |      | City     | Distributor   |
+------------------+---------+-----+------+----------+---------------+
| Paiz \*          | Local   | D   | 27   | Na       | Direct        |
|                  |         |     |      | tionwide | Distributor   |
| Supermarket      | Ahold   |     |      |          |               |
+------------------+---------+-----+------+----------+---------------+
| Despensa         | Local   | C   | 72   | Na       | Distributor   |
| Familiar\*       |         |     |      | tionwide |               |
| Supermarket      | Ahold   |     |      |          |               |
+------------------+---------+-----+------+----------+---------------+
| La Torre         | Local   | B   | 12   | G        | Direct        |
|                  |         |     |      | uatemala |               |
| Supermarket      |         |     |      | E        | Distributor   |
|                  |         |     |      | scuintla |               |
+------------------+---------+-----+------+----------+---------------+
| Econosuper       | Local   | A   | 10   | G        | Direct        |
| Supermarket      |         |     |      | uatemala |               |
|                  |         |     |      | City     | Distributor   |
+------------------+---------+-----+------+----------+---------------+
| Price Smart      | Local   | D   | 2    | G        | Direct        |
| Warehouse        |         |     |      | uatemala |               |
|                  | U.S.    |     |      | City     | Distributor   |
+------------------+---------+-----+------+----------+---------------+
| Maxi Bodega      | Local   | B   | 2    | G        | Direct        |
|                  |         |     |      | uatemala |               |
|                  | Ahold   |     |      | City     | Distributor   |
+------------------+---------+-----+------+----------+---------------+
| Club Co          | Local   | D   | 1    | G        | Direct        |
|                  |         |     |      | uatemala |               |
|                  | Ahold   |     |      |          | Distributor   |
|                  |         |     |      | City     |               |
+------------------+---------+-----+------+----------+---------------+

\* These stores are all part of the La Fragua Group, and the Dutch firm
Royal Ahold owns 50% of the stock.

La Fragua, which had 90% of the market during the 1990\'s, now only
represents 67% of the market. Price Smart has been able to capture 12%
of the market in four years.

![](media/image3.wmf)

##### Trends & Highlights

-   There has been a consolidation process among supermarket chains, not
    just in Guatemala, but also in El Salvador and Honduras. La Fragua
    has added 26 units in El Salvador in the last three years and opened
    the first HiperPaiz in 2002 in El Salvador and one in Honduras in
    2004.

-   Supermarkets are starting to look at markets in the interior of the
    country and expanding in that direction. Most of the units added in
    the last three years have been in the interior.

-   Supermarket sales continue to grow and take sales away from wet
    markets.

-   Imported products are capturing a larger share of the shelf space,
    going from 38% in 1999, to 45% in 2003.

-   Convenience and partially prepared foods are gaining ground as
    consumers try to lower time spent preparing foods at home.

-   Overall, frozen prepared foods now account for 6% of imported food
    sales, up from 2% in 1999.

-   The membership discount club and bulk purchase concept has gained
    acceptance among consumers, as many find wholesale clubs much more
    suited for one-stop shopping.

-   Food sales account for 20-25% of gross sales at wholesale clubs.

-   There is a new trend to eat healthy food low in calories and
    cholesterol. Most supermarkets have a diversity of dry, frozen and
    ready-to-eat products. Also, sugar-free products are expanding their
    shelf share and grow every year. These products include candy, jams,
    cookies, crackers, etc.

-   Supermarkets now offer the "food solution" concept. This is where
    the supermarket sells already prepared foods, from typical food to a
    roasted turkey. Most products are already cooked and served inside
    the supermarket.

# 

# CONVENIENCE STORES

Since their purchasing power is smaller, most convenience stores rely on
agents, importers and/or distributors for their product. The same
companies that supply the supermarkets also supply the convenience
stores, with few exceptions.

##### Entry Strategy

Entry is very similar to the supermarkets, hypermarkets and clubs.
Please refer to page five of this report. However, there is one
important difference that must be considered. The selected partner must
have national distribution, or he won't be able to service all the
convenience stores spread out all over the country.

**[Distribution Channels]{.underline}**

-   Normally, an importer or agent, who may also be the wholesaler
    and/or the distributor, imports products.

-   Importers can sell to convenience stores through their central
    distribution centers; however, this is not preferred by the chains
    and may limit sales.

Direct distribution to the units is the preferred method of distribution
and the best way to maximize sales. This allows the distributor/agent to
monitor store inventories more closely, and make sure units are never
out of product.

####### Company Profiles

###### Annual Food Sales in Millions of U.S. Dollars

A = 5-10 million

B = 10 - 20 million

C = Over 20 million

  -------------- --------------- ----------- ------------- -------------- ----------------
  **RETAILER**   **OWNERSHIP**   **SALES**   **OUTLETS**   **LOCATION**   **PURCHASE
                                                                          TYPE**

  Essomart       Local & US      C           34            National       Distributors

  Star Mart      Local & US      C           13            National       Distributors

  Super 24       Local           C           19            National       Distributors

  Select         Local & US      B           13            National       Distributors

  Express        Local           A           12            National       Distributors
  -------------- --------------- ----------- ------------- -------------- ----------------

**Trends & Highlights**

-   The convenience stores are the only business that offers 24-hour
    service, besides pharmacies.

-   Most convenience stores are found along main boulevards and busy
    avenues, as well as on the three national roads.

-   They are also found in some of the major cities; however, the
    majority of the stores are located within the Guatemala City
    metropolitan area.

-   More than 70% of the products in the convenience stores are
    imported, with most from the U.S. In fact, many of the POS materials
    are written in English.

-   30% of their sales are prepared foods, which include hot dogs,
    sandwiches, soups, fried chicken and pizza.

-   Over 90% of their non-gasoline sales are food items, including beer
    and liquor.

-   Average sales per unit are roughly \$1 million a year.

-   Food sales have dropped some due to a new and stricter drinking law.
    In the past consumers almost always bought food when they bought
    liquor. However, the new law restricts liquor purchases at
    convenience stores.

-   The main players are Essomart, Tigermart, Starmart Select and
    Super 24. All of them, except Super 24, also sell gasoline, and are
    operated by gasoline companies. All stores sell fast food, mostly
    hot dogs and sandwiches.

-   Esso operates Essomart and Tigermart.

-   Texaco operates Starmart.

-   Shell operates Select and Express.

-   The country's largest conglomerate, the Castillo Hermanos group,
    which also owns the national beer company, operates Super 24.

**C. TRADITIONAL MARKETS**

######### Entry Strategies

# 

> There are two types of traditional markets in Guatemala. One is the
> open-air market, where the local farmers sell their products. It is
> set up similar to a farmer's market. Each person has a stand and sells
> their product every day, and at the end of the day takes home whatever
> is left. These markets sell a lot of fresh produce. The second are the
> corner stores, which are "mom and pop" operations. The number of these
> corner stores is too large to count. It is estimated that there are
> two of these per every city block in Guatemala City alone. They are
> very small, on average 30 square feet, and carry an inventory on
> average of \$500. Again, the way to enter these markets is through
> importers, distributors, and wholesalers. Most of the companies that
> supply this sector are the same that supply the other two. This sector
> accounts for very little of the imported food sales. The only imported
> product from the U.S. that sells well in this sector is instant noodle
> soup.

##### Distribution Channels

-   The distributor is the same who supplies supermarkets and
    convenience stores.

-   The main difference is the inclusion of at least one wholesaler,
    sometimes more than one for products sold in the interior of the
    country.

-   This wholesaler gets the product to his customer base by route
    system, going store to store on a daily basis.

-   They do not work on the basis of a purchase order, but carry
    sufficient inventory to supply the entire route.

> **[Trends & Highlights]{.underline}**

-   Products entering the open-air markets should be low cost and
    handled through a wholesaler.

-   Products entering the mom-and-pop stores must be relatively
    non-perishable and low-cost items.

-   Traditional markets pull much of their product from farmers and
    small wholesalers.

-   Guatemala's underdeveloped infrastructure limits the size of these
    wholesalers.

-   About 64% of retail food sales are still made through traditional
    markets.

-   There has been a move away from open-air markets due to their
    unsanitary practices.

Small corner stores have a higher price per unit than supermarkets.

# III COMPETITION

## 

The Central American countries, Mexico and Chile are the main
competitors for the U.S. for the Guatemalan import food market. The
existence of a free trade agreement between the Central American
countries provides a great opportunity for constant exchange of
products. Mexico has been expanding into the Guatemalan market and
recently signed a free trade agreement with the northern triad of
Central America. This new agreement has helped Mexico expand its market
size, and become a more serious competitor of the U.S. Mexico already
has a large presence in the bread, snacks, fresh produce and other
consumer-oriented markets. Chile has also been gaining ground and is
also negotiating a free trade agreement. Chile is very prominent in the
fruit and wine markets

![](media/image4.wmf)

El Salvador has traditionally been Guatemala's main trading partner and
still continues to be an important partner, increasing its share of the
Guatemalan market from 19.4% in 1999, to 24% in 2002.

Chilean fruits have been gaining market share, at the expense of the
U.S. If Guatemala ratifies the free trade agreement with Chile before
CAFTA is finished, the loss of market share could be very significant.

For 2005, Central America will begin negotiations for a free trade
agreement with the European Union. This will allow CA to have more trade
opportunities and better prices for high-value products to offer to
European visitors. During 2004, a total of four European cruise ships
landed in Puerto Santo Tomas de Castilla and for 2005 the number of
these ships will increase, stimulating demand for these types of
products.

## 

# IV BEST PROSPECTS

**A PRODUCTS PRESENT IN THE MARKET WITH GOOD SALES POTENTIAL**

+--------------+-------------+-------------+------------+-------------+
| **Prod       | **Total**   | **Imports** | **U.S.     | **          |
| uct/Sector** |             |             | Market**   | Projected** |
|              | **          | **from      |            |             |
|              | Imports\*** | U.S.\***    | **Share**  | **Growth**  |
+--------------+-------------+-------------+------------+-------------+
| Meat         | \$28.40     | \$13.00     | 46%        | 20%         |
+--------------+-------------+-------------+------------+-------------+
| Cheese       | \$8.80      | \$1.40      | 16%        | 6%          |
+--------------+-------------+-------------+------------+-------------+
| Processed    | \$14.20     | \$9.10      | 64%        | 9%          |
| Fruits &     |             |             |            |             |
| Veg.         |             |             |            |             |
+--------------+-------------+-------------+------------+-------------+
| Poultry      | \$32.90     | \$32.90     | 100%       | 15%         |
+--------------+-------------+-------------+------------+-------------+
| Fruit        | \$26.00     | \$7.40      | 28%        | 20%         |
+--------------+-------------+-------------+------------+-------------+

*In Millions of \$US*

***Source:** United Nations Trade Statistics & US Trade Data*

# 

# B PRODUCTS NOT PRESENT DUE TO TRADE BARRIERS

There are no products that are banned in the market. There are quotas on
many items, including wheat, corn, rice, and apples. For a complete
explanation and a review of how to export food products to Guatemala,
please read this office's Exporter Guide 2004 at
[www.fas.usda.gov/scriptsw/attacherep/defaults.asp](http://www.fas.usda.gov/scriptsw/attacherep/defaults.asp).

## V POST INFORMATION

If you have any questions or comments regarding this report or need
assistance exporting to Guatemala, please contact the U.S. Agricultural
Affairs Office at the following address:

Office of Agricultural U.S. Embassy

Avenida Reforma 7-01, Zona 10

Guatemala, Ciudad 01010

Tel: (502) 2332-4030

Fax: (502) 2331-8293

email: [AgGuatemala@fas.usda.gov]{.underline}

For more information on exporting U.S. agricultural products to other
countries, please visit the Foreign Agricultural Service home page:
[http://www.fas.usda.gov]{.underline}

##