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Mexican Consumption Patterns

admin by admin
August 19, 2012
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Written by Jillian Friesen, GEI Associate

Econintersect: In McKinsey & Company’s most recently published journal entry the interesting issue of Mexican consumer behavior is addressed. In this report, Mexican consumers’ purchasing habits are compared directly with their American counterparts.

During the recent recession and the weak recovery, American consumers have drastically changed their purchasing habits. They have preferred to  switch to cheaper inferior brands rather than cutting back on buying things. This is due to many economic, financial and psychological factors. Our Mexican counterparts on the other hand, have responded in quite a different manner, preferring to cut back on the number of things bought rather than making the switch to inferior brands.  According to the study, this could have many ramifications for consumer packaged goods (CPG’s) and retailers. The results of this study are extremely interesting and give us more insight into the consumer psychology of other nations.

In its report, McKinsey & Company found one of the most interesting behaviors in the food category. Mexican consumers have preferred to stick with their preferred and time tested brands. These brands are usually of a higher quality. The products range from carbonated beverages to canned vegetables. Roughly 25% of the Mexican consumers surveyed said they would rather cut back on food purchases than make the switch to an inferior brand.

Click for a larger image

Image Source: McKinsey & Company

This does not mean however, that Mexican consumers will not trade down at all. This is highlighted in an excerpt from the report:

The relatively low percentage of private-label business highlights two aspects of the Mexican retail landscape. First, consumers typically have relatively few options. Second, housewives generally have limited disposable income and are risk averse when making purchases, since they cannot afford to buy something to replace a product they do not like or that does not do the job. Faced with such choices, consumers tend to stay with what they know—a phenomenon also reflected in the Mexican consumer’s preference for staying with trusted brands but reducing the level of purchases.1

Mexico’s economy is export-oriented with both modern and old industries. The private sector is progressively beginning to dominate Mexico. In its report McKinsey & Company mentioned the need for Mexican as well as foreign consumer packaged goods companies to use this to their advantage as there is still a fairly low amount of private label brands in Mexico.

Some other interesting finds in the study include:

  • 15% of Mexican consumers surveyed noted they prefer cheaper prices and will most likely change where they shop. This could hurt traditional family owned businesses
  • Mexican consumers usually do not prefer to trade down. However those who did usually find the new brand to be “better than they expected” and they stick to it
  • The majority of Mexicans prefer their time tested brands. However, those who enjoyed testing cheaper substitutes may represent a threat to the more expensive brands in the future.
  • Americans on the other hand, did not enjoy their cheaper substitutes as much when they downgraded
  • Around 46% of Mexican consumers say they will not trade up when the economy improves
  • Private label brands in Mexico represent a small but growing market in the grocery industry as well as others.
  • As of now, private label brands represent only 5% of retail in Mexico, compared to 43% in Britain and 17% in the U.S.
  • Mexican consumers are shifting from “mom and pop” shops to modern retail stores. The opposite pattern is appearing in the U.S.

The McKinsey Report not only issued facts about Mexican consumers, they set out three goals private companies catering to Mexican consumers should focus on in order to gain customers and remain strong.

1. Mexican consumers, with their more conservative takes should be offered the chance to work with complaints departments as well as be offered better guarentees by the private CPG’s and retailers.

2. The sense of strong brand loyalty is encompassed in the consumers. Private companies and retailers should make sure to utilize this asset as well as be cautious of overpricing, since Mexican consumers may have the tendancy to switch to a cheaper brand if the need arises.

3.  Companies should embrace rather than fear the private label industry in Mexico. It is an industry in its beginning stages. Breaking through will most likely not be easy but may represent huge payoffs in the future.

Read also my analysis of how Canada, Mexico and the U.S. have faired coming out of the Great Recesion.

Sources

  • McKinsey & Company: Understanding Mexico’s Evolving Consumers
  • CIA: The World Factbook
  • World Bank: Public Data
  • Trading Economics: U.S. GDP Growth Rate
  • Trading Economics: Mexico GDP Growth Rate

 

Citations

1. McKinsey & Company: Understanding Mexico’s Evolving Consumers (6th paragraph)

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