""

Required Report - public distribution

**Date:** 11/12/2003

**GAIN Report Number:** GT3021

GT3021

**Guatemala**

**Retail Food Sector**

**Report**

**2003**

**Approved by:**

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

U.S. Embassy

**Prepared by:**

Daniel Orellana, Marketing Specialist

**Report Highlights:**

Guatemala\'s supermarket sector has grown tremendously in the last few
years. Presently there has been some consolidation of the main players
and Royal Ahold, a Dutch company, has purchased the largest supermarket
chain.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Guatemala \[GT1\]

\[GT\]

Table of Contents

[**I. MARKET OVERVIEW 3**](#i.-market-overview)

[A. ECONOMIC CONDITION 3](#a.-economic-condition)

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

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

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

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

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

[III. COMPETITION 12](#iii.-competition)

[IV. BEST PROSPECTS 13](#__RefHeading___Toc54592007)

[V. POST INFORMATION CONTACT AND FURTHER INFORMATION
13](#v.-post-information-contact-and-further-information)

# I. MARKET OVERVIEW

# A. ECONOMIC CONDITION

Guatemala's economy grew at over 4% per year during the 1990\'s.
However, since 2000 the economy has been in the doldrums and has not
been able to grow more than 2.2% a year. Many contribute this to the
GOG's populist government, which allegedly has been involved in huge
corruption scandals. This has diminished the desire of the private
sector to invest. In addition, the GOG has taken on a very anti-business
attitude and has been in constant conflict with the business community.
Guatemala's GDP for 2002 was a little over \$21 billion.

Guatemala is one of the participants in the Free Trade Agreement being
negotiated between the U.S. and Central America. This agreement is to be
signed in December of 2003. This is going to offer U.S. exporters
tremendous opportunities in the near future.

Other issues that have affected the economy are:

-   Low international prices for sugar and coffee, which are major
    exports for Guatemala;

-   Uncertainty created by the GOG constantly changing the rules
    affecting business, and creating a negative environment for
    investment. Many firms are taking a wait and see attitude before
    they invest in any form of production;

-   High interest rates on loans made in local currency.

Despite these negative factors, U.S. agricultural exports to Guatemala
have continued to grow during the last few years.

-   Total U.S. agricultural exports grew from \$237 million in 1997 to
    \$352 million in 2002.

-   Bulk commodities had varied little during 1997-2001, but in 2002
    climbed to a record \$137 million, a 45% increase over the previous
    year. This is mostly a result of higher prices, and not higher
    volumes.

-   Intermediate agricultural products grew from \$82.5 million in 1997
    to a record \$103 million in 2002.

-   Consumer-oriented products increased from \$53.2 in 1997 to \$102
    million in 2002.

## 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. 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. *Source: Ministry of Economy*

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 on food purchases. Realizing where the wealth is,
the supermarkets have expanded first in the metropolitan area, and then
in larger cities, leaving the smaller towns without any units. This also
explains why most distributors only cater to the metropolitan market and
have ignored the interior of the country. However, 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 3.8 million with an annual growth
    rate of 1.6%.

## ![](media/image2.wmf)

*Source: Advertisement Agencies*

-   AB - is the top 4% of the population that can afford anything; the
    only difference between A and B is that 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 \$2500 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 2002:

-   Total food expenditures of more than \$2 billion.

-   Total consumer-oriented and edible fisheries' market estimated at
    \$1 billion.

-   Total agricultural imports were \$897 million.

-   U.S. share of total agricultural imports was 39%.

-   Total consumer-ready imports were \$443 million.

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

Guatemala's economy is the largest in Central America with a GDP of over
\$21 billion.

## D. ADVANTAGES & CHALLENGES

  ----------------------------------- -----------------------------------
  **Advantages**                      **Challenges**

                                      

  Of the 12 million Guatemalans       The economic condition of the
  500,000 are in a position to afford country limits imports, especially
  ***any*** imported goods, and an    the constant weakening of the local
  additional 4 million can afford     currency.
  ***competitive*** U.S. food         
  products.                           

                                      

                                      

  Guatemalans view U.S. products as   There is a lack of brand awareness
  of higher quality and safer than    among importers, retailers and
  national products.                  especially consumers.

                                      

                                      

  The expanding retail industry and   Some imports cost much more than
  the growing demand for new and      nationally produced products, and
  better products by consumers create purchasing power for many consumers
  an exceptional opportunity for new  is lacking.
  imported goods.                     

                                      

  Importers generally favor trading   Imports must go through a
  with U.S.                           complicated

  exporters because of reliability.   bureaucratic process, and there are
                                      high tariffs and quotas on various
                                      items.

                                      

  The growing food processing         There is limited infrastructure and
  industry is looking for new 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 Salvador
  retailers are open to this and will and Chile.
  readily participate.                

                                      
  ----------------------------------- -----------------------------------

##  E. RETAIL MARKET

Over the last seven years the supermarket sector has been growing
rapidly, more than quadrupling in sales from \$128 million in 1995 to
\$650 million in 2002. This increase is due to the increase in the
number of outlets, the changing purchasing habits among consumers, who
now are going to a supermarket more than before, and the increase in
brand awareness. 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 the percentage had increased to 36%.

The number of supermarkets has grown in the last six years. In 1994
there were only 66 units, by 1998 there were 116, and this year there
are 146.

![](media/image3.wmf)

*Source: FAS Analysis*

In September 2001, the second and third largest supermarket chains in
Guatemala merged. La Torre and Econosuper now have 22 units combined.
The reason for their joining forces was to compete better against the La
Fragua group, which dominates the market with their three concepts,
Hiperpaiz, Tiendas Paiz and La Despensa Familiar. Because of the stores'
locations, La Torre will cater to the more affluent consumer, while
Econosuper will service the lower income consumer. Imported products
will make up 30% of La Torre's product mix, while Econosuper will have
less than 15%.

# 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   | 26   | Nation   | Direct,       |
|                  |         |     |      |          | Distributor   |
| Supermarket      | Ahold   |     |      | Wide     |               |
+------------------+---------+-----+------+----------+---------------+
| Despensa         | Local,  | C   | 56   | Nation   | Distributor   |
| Familiar\*       |         |     |      |          |               |
| Supermarket      | Ahold   |     |      | Wide     |               |
+------------------+---------+-----+------+----------+---------------+
| La Torre         | Local   | B   | 12   | Gu       | Direct,       |
|                  |         |     |      | atemala, |               |
| Supermarket      |         |     |      | E        | Distributor   |
|                  |         |     |      | squintla |               |
+------------------+---------+-----+------+----------+---------------+
| Econosuper       | Local   | A   | 10   | G        | Direct,       |
| Supermarket      |         |     |      | uatemala |               |
|                  |         |     |      | City     | Distributor   |
+------------------+---------+-----+------+----------+---------------+
| Price Smart      | Local,  | D   | 2    | G        | Direct,       |
| Warehouse        |         |     |      | uatemala |               |
|                  | U.S.    |     |      | City     | Distributor   |
+------------------+---------+-----+------+----------+---------------+

*\* 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 71% of the market. Price Smart has been able to capture 18%
of the market in three years.

![](media/image4.wmf)

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

-   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.

-   Supermarkets are starting to look at markets in the interior of the
    country and are 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 2002.

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

-   Overall, frozen prepared foods are now accounting 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.

-   Multimart, a four-store chain, went bankrupt in 2002. It had only
    represented 2% of retail sales in 2001.

B.  **CONVENIENCE STORES**

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

**[Entry Strategy]{.underline}**

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]{.underline}**

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

**A** = 5-10 million

**B** = 10 - 20 million

**C** = Over 20 million

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

-   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 Guatemala City limits.

-   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.

-   Total Sector grew 9% in 2002, and 5% of that growth was in prepared
    foods.

-   Growth for 2003 is expected to be only 5-7%, due to the slow
    economy.

-   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.

####### TRADITIONAL MARKETS

**[Entry Strategies]{.underline}**

There are two types of traditional markets in Guatemala. One is the
open-air market. This is 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 this market 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 cup-a-noodle soup.

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

-   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 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/image5.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. U.S. share has
recovered a little from 24% in 2001 to 27% in 2002. Chilean fruits have
been gaining market share, at the expense of the U.S.
[]{#__RefHeading___Toc54592007 .anchor}

# IV. BEST PROSPECTS

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

Recent data show that U.S. exports of processed fruits and vegetables,
meats, and poultry have significantly increased. These products recently
accounted for 55% of the U.S. consumer-oriented exports to Guatemala.
FAS Guatemala believes there will continue to be growth in these
sectors.

Other products with great market potential are:

-   Wheat Flour Baked Snacks and Candies

-   Cheese Frozen Foods

-   Deli Meats Processed fruits and vegetables

Guatemala has completed its tariff reduction commitments. All food
products without tariff rate quotas have a tariff of 0%, 5%, 10%, or
15%.

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 2002 at
[www.fas.usda.gov/scriptsw/attacherep/defaults.asp](http://www.fas.usda.gov/scriptsw/attacherep/defaults.asp).

# V. POST INFORMATION CONTACT AND FURTHER INFORMATION

If you have any questions or comments regarding this report or need
assistance exporting to Guatemala, please contact the U.S. Foreign
Agricultural Affairs office at the address listed below.

Office of Agricultural Affairs, U.S. Embassy

Avenida Reforma 7-01 Zona 10

Guatemala, Ciudad 01010

Tel: (502) 332-4030

Fax: (502) 331-8293

E-mail [AgGuatemala@fas.usda.gov]{.underline}

For more information on exporting U.S. agricultural products to
Guatemala and other countries please visit the Foreign Agricultural
Service home page [http://www.fas.usda.gov](http://www.fas.usda.gov/)