BMI View: Between 2015 and 2019, rising total household incomes, falling unemployment and the relative stability of the economy will continue to provide opportunity for foreign investment within the retail sector. The growing affluence of the population is a key driver behind our forecast that sub-sectors comprised largely of non-essentials will experience strong rates of growth, as demand increases, throughout the forecast period.
Total household spending is forecast to experience steady growth rates throughout our period, accelerating slightly towards the end, which will have positive implications on the Mexican retail sector, as well as on the economy as a whole. As the population as a whole become more affluent, the proportion of the population now meeting the middle-class earning criteria is rising, creating difference investment opportunities within the retail sector. Recreation and culture spending, restaurant and hotel spending, personal, insurance and other spending as well as spending on alcohol and tobacco are expect to experience the greatest growth rates between 2015 and 2019. All of these sub-sectors are predominantly comprised of non-essentials which demonstrates that retail spending is moving towards luxury purchases.
Rising incomes and falling unemployment, as well as a rebound in consumer confidence, are driving factors behind this trend. As tax and social contributions are expected to remain steady and the rate of inflation is forecast to rise at a moderate pace, consumers in Mexico will experience a greater amount of disposable income. Whilst development across all sub-sectors of the retail sector is expected throughout the forecast period, the less concentrated, non-essential sub-sectors look set to obtain the highest rates of growth. This is a positive sign for the economy as a whole and opens up further opportunity for investment, particularly for fashion retailers, hotel and restaurant chains, leisure and recreation retailers and high-end retailers across industries.
A variety of international new entrants have entered the market recently, including fashion giant H&M and food retailer Dunkin Donuts , attracted by the countries positive economic outlook and relative ease of business. Government legislation regarding free trade has allowed many international retailers to establish their presence in Mexico with relative ease and extensive Free Trade Agreements have increased the value of investment in Mexico for many. As a result, trade has been boosted and the country can claim to be one of the most economically developed within the region. In turn, this has encouraged more retailers to enter the market, with fashion retailer Abercrombie & Fitch the latest to announce their plans to expand into the market.
Mexico is no exception to the growing trend within the region of a consumer preference towards convenience shopping experience which is dictating the type of retail formats in the country. Local convenience smalls look set to remain popular with existing retailers such as Walmart de Mexico investing greater expenditure in such formats rather than hypermarkets or supermarkets. As around 50% of all grocery sales are still accounted for by tradition local stores, further incentive has encouraged the retailers decision to develop a chain of mini-stores. Department stores also remain popular, particularly with the burgeoning middle-class, as they cater for consumers who are looking for 'retail experience' with various high-end outlets, cafes and bars located in one area. A growing demand for convenience, along with the young and growing population and increase in internet penetration has also caused online retailing to grow. Amazon recently launched online operations in the country and other fashion retailers have followed suit however this form of retailing remains underdeveloped in the country, providing room for further investment.
Dr Pepper Snapple has increased its overall market share (in the carbonated soft drinks market) by 17.1% in 2014, 8% of which has been attributed to growing sales in Mexico.
Clothing retailer Abercrombie & Fitch have entered into a franchise agreement with Grupo Axo to establish retail stores in Mexico. The first is set to open in the Summer of 2015 with more to follow across the country.
Key BMI Forecasts
Between 2015 and 2016 total household spending is forecast to rise from USD261bn to USD281bn.
The food and non-alcoholic drinks sector looks set to remain the largest sub-sector throughout the period. In this area, we forecast an 8.3% year-on-year increase in expenditure in 2016.
We expect the number of households in Mexico to rise from 31.5mn to 33mn between 2015 and 2016.
Those meeting the middle-class criteria of earning of USD10,000+ are expected to make up a greater proportion of the population as a whole, rising from 81% to 86.6% between 2015 and 2019.