Rules of the road: What to know before entering Mexico
Mexico, a NAFTA member since 1994, is not the distant neighbor it once was. Present political posturing aside, it’s long been a challenging relationship. After all, it was more than 100 years ago that Mexican President Porfirio Diaz famously (or perhaps “infamously”) stated, “Poor Mexico, so far from God and so close to the United States. …” Wars have been fought with territory changing hands.
Today’s Mexico is a great consumer market. Many multi-national manufacturers and marketers are firmly established. The traditional trade also is firmly entrenched. Walmart is a powerhouse. Other channels have dominant players and, for those in the OTC world, Walgreens Boots Alliance will be waiting, given their acquisition of Farmacias Benavides in May 2014. E-commerce is developing as Amazon launched a full site in the summer of 2015, including beauty and personal care items. Even Alibaba is present.
Mexico also is a rollercoaster. Darwinian thought is reconfirmed in Mexico; it’s not the strongest or the most intelligent that survive, but the most adaptable. The Mexican peso has a long history of sudden and steep devaluations and forces adaptability. And, given recent pressures put on the peso from the Chinese yuan, it’s likely that the presently weakening peso will continue on its current trajectory.
The global economy has a quicker cause-and-effect cycle than ever before. This causes havoc for all Mexican market participants as consumer behavior dramatically and suddenly changes in the face of overnight lower purchasing power. Rapid reaction is not an option — it’s required. If you can’t, won’t or are challenged to revamp your go-to-market value chain in a matter of days, someone else will take your hard-won market share. The trade will expect rapid trade promotion reaction. You will have the opportunity to hit the “reset button,” but as you do, it’s not easy to know exactly what to do if you’re not close to the subtle realities of the market.
A few rules of the road may help:
Understand your consumer proposition in terms of affordability. When the inevitable devaluation occurs, be prepared to act QUICKLY and focus on affordability. As a general rule, when possible migrate to a peso-based expense and cost of goods framework. This will lessen the shock. Affordability is measured in two ways: absolute price point and cost per measured unit. Don’t underestimate the need to hit a certain retail selling-price.
Given the currency challenge, you will be given the opportunity to hit the “reset button” with the trade. Be prepared.
Mexico’s purchasing power is concentrated in three major metro areas: Mexico City, Guadalajara and Monterrey. While you have to focus on several fully national retail chains, your consumer messaging can be a bit more localized/focused in nature.
The Mexican trade is highly developed and has dominant players in every channel: Wal-Mart, OXXO, Soriana, etc., can and will drive a hard bargain. Don’t be surprised by long, drawn-out payment terms — 120 days is not uncommon. While e-commerce is still in its development phase, don’t underestimate its potential. Amazon had a fully launched e-commerce platform there as of summer 2015. Smartphone penetration will drive e-commerce.
Mexico and the United States are close to each other, and hopefully both can benefit from that geographic fact. Many companies already are.
Ed Rowland, founder and owner of Rowland Global LLC, is providing DSN a series of 2016 blogs focusing on non-U.S. markets. Rowland Global assists companies in their global growth strategies, tactics and execution. He thanks his Mexican Alliance Partner Jaime Cases of Sinax S.A. de C.V. for his helpful suggestions in preparing this blog.