MEXICAN RETAIL MARKET

This page offers information on the retail market that would help the various stakeholders, from their respective spheres of responsibility, to make decisions that favor the economic dynamics in the sector, promote innovation and benefit consumers.

The purchasing power of retail chains could benefit consumers. For one thing, it offsets the market power of big players in the food and beverage industry. Next, retailers get the best prices, the discounts of which they can then pass on to consumers. Ultimately, the individual product standards and the consistent quality and safety-related norms...

This article identifies regulatory barriers to entry or expansion in the modern retail channel in Mexico, based on the OECD methodology, which consists of identifying whether the selected regulations at the state and municipal levels have any of the following effects on the competition: 1) limit the number of competitors; 2) restrict the capacity...

The remarkable expansion of food and beverage marketing through the modern channel has raised some concerns about competition. The United Nations (2016) has noted that, in most countries, retail markets are concentrated in a few supermarket chains that could have considerable market power, in addition to the presence of significant economic,...

The food and beverage retail trade is made up of economic agents dedicated, totally or partially, to the sale without transformation of food and beverages to final consumers. It does not include restaurants, inns, lunch shops, and other establishments that prepare food and beverage products in Mexico.

The expansion of the so-called 'banking correspondents', has become an important bet of financial institutions to reach more Mexicans. It is also a strategy that goes hand in hand with the program to boost the financial sector proposed by President Andrés Manuel López Obrador (AMLO).

The expansion and development of the modern retail channel have been one of the most important transformations in the food and beverage retail trade. The technological innovation associated mainly with the development of logistics networks is generating efficiencies in this channel that could eventually be transferred as benefits to consumers.

However, there is a high concentration in some local markets, which, together with regulations that sometimes unjustifiably hinder the entry of new stores in the modern retail channel, may prevent technological innovations in the modern channel from being fully reflected in lower prices for consumers.

In the first place, some stores of large retail chains do not face sufficient competitive pressure in low-density urban areas and in some areas of the Mexico City Valley Metropolitan Area, mainly. In fact, in 10% and 15% of the areas of influence of large retail formats, they are monopolistic and there are only two competitors, respectively. This situation is due to a combination of factors such as the economic and technological characteristics of the modern canal, the local regulation of trade, and the scarcity of land.

Second, the modernization of distribution systems in distribution centers has increased efficiency in the modern channel, but may be discouraging the entry of new participants. Economies of scale, density, and scope explain, in part, why this channel is characterized by oligopolistic market structures with few national chains competing with regional chains.

Third, while some state and municipal regulations may be justified in terms of the public interest, others unjustifiably hinder the entry of new players, favoring the concentration of local markets. Large chains have the greatest economic capacity to overcome the regulatory obstacles they face, so these regulations are more difficult to overcome for regional chains seeking to expand and the emergence of new chains.

There is a regulatory bias against larger-scale formats, which could be affecting the productivity and efficiency of the chains by opting for smaller than their optimal size. This is despite the fact that some of these formats are being developed by some chains to attract lower-income consumers.

Finally, large chains have purchasing power due to their asymmetrical relationship with small suppliers, which can harm consumers to the extent that it promotes lower levels of investment and innovation in their suppliers. This asymmetrical relationship translates into advantageous terms and conditions for the chains that the suppliers must comply with, in addition to differences in product delivery and returns, as well as payment. In Mexico, as in other countries, a code of conduct was adopted to solve these problems. However, the code is little known and used by small suppliers.

For all the above reasons, it is necessary to strengthen the conditions of competition in the modern food and beverage retail channel, for which it is important to design and implement public and regulatory policies in this regard. For example, the need to improve regulation and eliminate obstacles at the state and local levels, or to strengthen schemes to promote good business practices among suppliers and retailers.