Wal-Mart’s Growing Influence in Mexico
Wal-Mart’s Growing Influence in Mexico
By Chad Russell, USMEF Regional Director, Mexico and Dominican Republic
The landscape of Mexico’s supermarket sector is rapidly changing with the growing presence of the global powerhouse, Wal-Mart, and this change is creating promising new opportunities for the U.S. red meat industry. USMEF is working closely with Wal-Mart to ensure that the U.S. beef and pork industries maintain and enhance their positions in that country’s meat cases.
Since its purchase of Mexico’s Aurrera chain in the early 1990s, Wal-Mart has grown at a rate that is alarming to its home-grown competitors. The juggernaut is keeping up the pressure in 2008 with an aggressive expansion plan to add 205 retail units to its industry-leading total of more than 1,000 stores. And in recent discussions with USMEF-Mexico, Wal-Mart indicated a desire to increase the ratio of U.S. beef in its central region and to jointly develop campaigns to promote pork as an affordable, safe and delicious alternative to poultry, which accounts for 43 percent of meat consumption in Mexico.
Wal-Mart/Mexico plans to invest $1.2 billion and bring its total number of retail stores up to 1,256 units by year’s end. The investment is expected to create 21,000 new employment positions and a new presence in Mexico’s small convenience outlets sector (7-Eleven-type stores). The 2008 investment is 12 percent more than in 2006, and 20 percent more than in 2005. Wal-Mart’s mix of retail stores in December 2008 will be:
New Stores
Name of Company
No. of Stores in Dec. 2008
79
Bodegas Aurrera (low-end warehouse)
394
17
Wal-Mart Supercenters
154
5
SAM’s Club
88
6
Superamas (high-end supermarket)
70
8
Suburbias (department stores)
84
30
VIPs and Porton Restaurants
406
60
Mi Bodega Express (small convenience)
60
Total: 205
Total: 1,256
Through its aggressive pricing practices, strong growth and efficiencies of operation, Wal-Mart is forcing consolidation within Mexico’s retail sector, including the supermarket industry. Wal-Mart already accounts for over half the sales of ANTAD, the Mexican association of department and supermarket stores. Wal-Mart’s same store sales rose 8.4 percent in February from a year earlier and total revenue increased 15 percent to $1.6 billion.
Wal-Mart’s Competitors in Mexico
After Chedraui, a regional Mexican supermarket chain, purchased 27 Carrefour supermarkets in 2005, it has devoted its attention to integrating this acquisition into its operations. In December 2007, Soriana, Wal-Mart’s closest rival, purchased 205 Gigante supermarkets for $1.75 billion in an effort to give Wal-Mart a run for its money. It is estimated that the combined Soriana and Gigante sales for 2008 will reach $10.4 billion, less than one-half of estimated Wal-Mart sales.
Comercial Mexicana , Mexico third-largest supermarket chain, is reported to be exploring merger or acquisition possibilities with a Chilean supermarket chain, either Santa Isabel or Unimarc-Multiahorro. Market analysts have recommended a buy for Comercial Mexicana shares in anticipation of a deal. Continued consolidation is likely to continue in the supermarket sector, particularly since retail sales at the close of 2007 were less than satisfactory, as ANTAD reported an increase of only 0.8 percent.
Further consolidation and increased efficiencies related to economies of scale in the Mexican marketplace should create new opportunities for U.S. red meats. Costs will be squeezed out of the supply chain as supermarket chains get bigger and directly import increasing quantities of red meat from suppliers – savings which could be passed onto consumers. Food safety and meat presentation will improve through future modernization. This transition will further expedite the shift of meat sales away from traditional wet markets (which still account for an estimated 65 percent of beef and pork sales) to modern supermarkets.
During this process, USMEF is building a deeper relationship with Wal-Mart. In recent meetings, Wal-Mart officials expressed interest in many USMEF initiatives, including:
(a) USMEF’s butcher certification program; (b) Training for meat case personnel (c) Differentiation of U.S. red meats within the meat case (d) Use of redesigned point of sale (POS) materials and other marketing tactics in its supermarkets; and (e) Buyer trips to the United States to learn more about the red meat industry and meet potential new suppliers
USMEF will take Wal-Mart meat buyers to the United States to visit meat plants and the USMEF product showcase in Las Vegas . A few weeks ago USMEF took Wal-Mart’s pork buyer to Nebraska to participate in a Pork 101 course.
Wal-Mart has indicated an interest in expanding sales of beef in its central region, which includes Mexico City. Wal-Mart sources all of its pork from Mexican suppliers, but some of these suppliers import pork from the United States. Wal-Mart hopes to increase the share of pork as a percentage of its total meat sales. USMEF is working with Wal-Mart to reach these two objectives.
U.S. Beef and Pork Exports to Mexico
Mexico currently imports about 16 percent of its beef, and the United States provides about 80 percent of the total of imported beef – about 792.4 million pounds in 2007. Mexico is the largest market for U.S. beef exports. The USDA recently projected that Mexico’s beef imports will increase 91 percent over the coming 10 years, adding about 804.6 million pounds per year by 2017.
The United States also dominates the pork export market to Mexico, supplying roughly 85 percent of the imported pork – equal to about 609 million pounds annually. Mexico is the No. 2 destination for U.S. pork exports behind Japan. In 2008, Mexico is expected to be 79 percent self-sufficient in its pork industry. Over the next 10 years, the USDA projects that the Mexican pork market will increase by 30 percent or an additional 288.8 million pounds per year by 2017.
As the landscape of Mexico’s supermarket sector continues its transition from many small, family-owned companies to fewer, larger and more efficient firms, USMEF’s relationships with the survivors will help leverage new opportunities for the U.S. red meat industry well into the future.
Wal-Mart’s Growing Influence in Mexico
By Chad Russell, USMEF Regional Director, Mexico and Dominican Republic
The landscape of Mexico’s supermarket sector is rapidly changing with the growing presence of the global powerhouse, Wal-Mart, and this change is creating promising new opportunities for the U.S. red meat industry. USMEF is working closely with Wal-Mart to ensure that the U.S. beef and pork industries maintain and enhance their positions in that country’s meat cases.
Since its purchase of Mexico’s Aurrera chain in the early 1990s, Wal-Mart has grown at a rate that is alarming to its home-grown competitors. The juggernaut is keeping up the pressure in 2008 with an aggressive expansion plan to add 205 retail units to its industry-leading total of more than 1,000 stores. And in recent discussions with USMEF-Mexico, Wal-Mart indicated a desire to increase the ratio of U.S. beef in its central region and to jointly develop campaigns to promote pork as an affordable, safe and delicious alternative to poultry, which accounts for 43 percent of meat consumption in Mexico.
Wal-Mart/Mexico plans to invest $1.2 billion and bring its total number of retail stores up to 1,256 units by year’s end. The investment is expected to create 21,000 new employment positions and a new presence in Mexico’s small convenience outlets sector (7-Eleven-type stores). The 2008 investment is 12 percent more than in 2006, and 20 percent more than in 2005. Wal-Mart’s mix of retail stores in December 2008 will be:
New Stores
Name of Company
No. of Stores in Dec. 2008
79
Bodegas Aurrera (low-end warehouse)
394
17
Wal-Mart Supercenters
154
5
SAM’s Club
88
6
Superamas (high-end supermarket)
70
8
Suburbias (department stores)
84
30
VIPs and Porton Restaurants
406
60
Mi Bodega Express (small convenience)
60
Total: 205
Total: 1,256
Through its aggressive pricing practices, strong growth and efficiencies of operation, Wal-Mart is forcing consolidation within Mexico’s retail sector, including the supermarket industry. Wal-Mart already accounts for over half the sales of ANTAD, the Mexican association of department and supermarket stores. Wal-Mart’s same store sales rose 8.4 percent in February from a year earlier and total revenue increased 15 percent to $1.6 billion.
Wal-Mart’s Competitors in Mexico
After Chedraui, a regional Mexican supermarket chain, purchased 27 Carrefour supermarkets in 2005, it has devoted its attention to integrating this acquisition into its operations. In December 2007, Soriana, Wal-Mart’s closest rival, purchased 205 Gigante supermarkets for $1.75 billion in an effort to give Wal-Mart a run for its money. It is estimated that the combined Soriana and Gigante sales for 2008 will reach $10.4 billion, less than one-half of estimated Wal-Mart sales.
Comercial Mexicana , Mexico third-largest supermarket chain, is reported to be exploring merger or acquisition possibilities with a Chilean supermarket chain, either Santa Isabel or Unimarc-Multiahorro. Market analysts have recommended a buy for Comercial Mexicana shares in anticipation of a deal. Continued consolidation is likely to continue in the supermarket sector, particularly since retail sales at the close of 2007 were less than satisfactory, as ANTAD reported an increase of only 0.8 percent.
Further consolidation and increased efficiencies related to economies of scale in the Mexican marketplace should create new opportunities for U.S. red meats. Costs will be squeezed out of the supply chain as supermarket chains get bigger and directly import increasing quantities of red meat from suppliers – savings which could be passed onto consumers. Food safety and meat presentation will improve through future modernization. This transition will further expedite the shift of meat sales away from traditional wet markets (which still account for an estimated 65 percent of beef and pork sales) to modern supermarkets.
During this process, USMEF is building a deeper relationship with Wal-Mart. In recent meetings, Wal-Mart officials expressed interest in many USMEF initiatives, including:
(a) USMEF’s butcher certification program; (b) Training for meat case personnel (c) Differentiation of U.S. red meats within the meat case (d) Use of redesigned point of sale (POS) materials and other marketing tactics in its supermarkets; and (e) Buyer trips to the United States to learn more about the red meat industry and meet potential new suppliers
USMEF will take Wal-Mart meat buyers to the United States to visit meat plants and the USMEF product showcase in Las Vegas . A few weeks ago USMEF took Wal-Mart’s pork buyer to Nebraska to participate in a Pork 101 course.
Wal-Mart has indicated an interest in expanding sales of beef in its central region, which includes Mexico City. Wal-Mart sources all of its pork from Mexican suppliers, but some of these suppliers import pork from the United States. Wal-Mart hopes to increase the share of pork as a percentage of its total meat sales. USMEF is working with Wal-Mart to reach these two objectives.
U.S. Beef and Pork Exports to Mexico
Mexico currently imports about 16 percent of its beef, and the United States provides about 80 percent of the total of imported beef – about 792.4 million pounds in 2007. Mexico is the largest market for U.S. beef exports. The USDA recently projected that Mexico’s beef imports will increase 91 percent over the coming 10 years, adding about 804.6 million pounds per year by 2017.
The United States also dominates the pork export market to Mexico, supplying roughly 85 percent of the imported pork – equal to about 609 million pounds annually. Mexico is the No. 2 destination for U.S. pork exports behind Japan. In 2008, Mexico is expected to be 79 percent self-sufficient in its pork industry. Over the next 10 years, the USDA projects that the Mexican pork market will increase by 30 percent or an additional 288.8 million pounds per year by 2017.
As the landscape of Mexico’s supermarket sector continues its transition from many small, family-owned companies to fewer, larger and more efficient firms, USMEF’s relationships with the survivors will help leverage new opportunities for the U.S. red meat industry well into the future.