mexico’s changing marketing

Mexico’s Changing Marketing System for Fresh Produce:

Emerging Markets, Practices, Trends, and Issues

By

Debra Tropp, Agricultural Marketing ServiceDr. David Skully, Economic Research Service

John Link, Economic Research Service U.S. Department of Agriculture

And

Dr. Jaime Málaga, Texas Tech University,formerly with the Texas Agricultural Market Research Center,

Texas A&M University

ii

Foreword

Changes in marketing practices and the structureof marketing channels have been taking place inMexico since the mid-1980s when Mexico began toopen its economy. These changes have acceleratedsince 1994 when the North American Free TradeAgreement was implemented. One of the key marketsectors affected by the expansion of trade and foreigninvestment in Mexico in recent years has been thefresh produce sector, where the rapid expansion ofnational and international supermarket chains hasforced significant change in traditional distributionpractices. Nonetheless, the adoption of modern han-dling and transportation practices for perishable fruitsand vegetables in Mexico continues to be inhibited bythe absence of well-defined quality standards, poorsupply chain management, and inadequate physicalinfrastructure. This report looks in detail at the supplyside and demand side changes that have taken placein Mexico’s fresh produce distribution system inrecent years, the challenges that continue to under-mine efficient distribution of fresh fruits and vegeta-bles, and the implications of these changes and chal-lenges for U.S. fresh produce growers and shippers.

Acknowledgments

The authors wish to thank the AgriculturalMarketing Service, the Economic Research Service,and Texas A&M University for their willingness toundertake this study and to the Foreign AgriculturalServices’s Emerging Markets Office for funding thestudy. Special thanks goes to the Foreign AgriculturalServices’s Office of Agricultural Affairs in Mexico Cityand Monterrey and Mexico’s Secretaría de Agricultura,Ganadería, Desarrollo Rural, Pesca, y Alimentación(SAGARPA) for helping arrange contacts, appoint-ments, travel, and information and data on the proj-ect. And a very special thanks also goes to the manygovernment officials, farmers, food merchants, andretail store managers who generously shared theirinformation, data, insight, and general knowledge ofMexican markets with us. Without their cooperation,this project could never have taken place.

The authors also wish to recognize the valuablecontributions of Bill Kost of the Economic ResearchService, who provided many useful editorial sugges-tions and helped improve the quality of this report,and to thank Juanita Butler of the Economic ResearchService’s Information Services Division for her assis-tance with word processing.

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ContentsForeword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iiAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iiExecutive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii

Chapter 1: The Economic Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Growth Fundamentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Income, Diet, and Food Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Supermarkets Transforming Produce Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Produce Trade Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Chapter 2: Preferences and Habits of the Mexican Produce Consumer and Their Impact on the Local Retail Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Diversity of Retail Marketing Channels in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Why Mexican Consumers Shop More Frequently Than U.S. Consumers for Perishables . . . . . . . . . . . . . . . . .13Differences in Merchandising Strategies Between Traditional and Modern Food Markets . . . . . . . . . . . . . . . .14Traditional Distribution Channels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Merchandising Practices at Traditional Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23Highlights of Field Visits to Public Markets and Tianguis in Guadalajara, Jalisco,

and Mexico City, D.F., December 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Self-Service Supermarkets and Chain Stores Finding Niche in Mexican Food Marketplace . . . . . . . . . . . . . . .27Market Share of Mexican Chain Store Food Retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29Reasons for Growing Popularity of Self-Service Stores in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29Prepackaged Food Product Labeling Tightly Controlled in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33Primary Characteristics of the Mexican Chain Store Shopper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Observations from Supermarket and Mass-Merchandise Chain Store Field Visits, December 1998 . . . . . . . . .39Highlights of Supermarket/Chain Store Field Visits in Guadalajara, Jalisco . . . . . . . . . . . . . . . . . . . . . . . . . .40Highlights of Supermarket/Chain Store Field Visits in Mexico City, D.F . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Highlights of Supermarket/Chain Store Field Visits in Nuevo Laredo, Tamaulipas . . . . . . . . . . . . . . . . . . . . .45Highlights of Supermarket/Chain Store Field Visits in Veracruz and Boca del Rio, Veracruz . . . . . . . . . . . . . .47Highlights of Supermarket/Chain Store Field Visits in Villahermosa, Tabasco . . . . . . . . . . . . . . . . . . . . . . . . .48Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

Chapter 3: The Changing Role of Wholesale Markets in Mexican Produce Distribution . . . . . . . . . . . .51Current Function of Intermediaries in the Distribution of Mexican Produce . . . . . . . . . . . . . . . . . . . . . . . . .51Drawbacks of Wholesale Market Dependence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53Barriers to Direct Linkages Between Produce Growers and Retailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61The Mexican Farm-Retail Price Spread for Fresh Produce and Its Implications for the

Efficiency of Produce Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .77Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

Chapter 4: Long-Term Prospects for Opportunities Associated with the Expansion of Supermarkets/Mass-Merchandise Chain Stores in Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81

Dynamic Changes in the Mexican Economic Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81Effects of Changes on Fresh Produce Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82Long-term Macroeconomic Trends in Mexico and Their Potential Impact on Mexican Produce Imports . . . . .83Retail Store Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84Impact of Logistical Improvements on Future Expansion of Produce Imports in Mexico . . . . . . . . . . . . . . . .86Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90

List of Tables

Chapter 1Table 1.1. Elasticity of produce expenditures by commodity, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Table 1.2. Mexican produce shopping patterns, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Table 1.3. U.S. fresh produce exports to Mexico by commodity, 1990-1999 . . . . . . . . . . . . . . . . . . . . . . . . .8

Chapter 2Table 2.1. Store format preferences of Mexican consumers for fresh fruit and vegetables,

1993-1998 (in percent) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Table 2.2. Mexican public markets by state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Table 2.3. Growth of tianguis in the Guadalajara metropolitan area, 1991-1998 . . . . . . . . . . . . . . . . . . . . . .19Table 2.4. Retail prices of produce by channel, Mexico City, 1986-1989 . . . . . . . . . . . . . . . . . . . . . . . . . . .20Table 2.5. Comparative retail prices of selected fresh produce commodities, Mexico City, D.F.,

December 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Table 2.6. Regional distribution of chain supermarkets and mass-merchandise retail food stores,

January 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30Table 2.7. Mexican imports of selected temperate fruits, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Table 2.8. Average maximum and minimum temperatures, selected Mexican cities . . . . . . . . . . . . . . . . . . . .39Table 2.9. Fresh produce prices at Mexico City Wal-Mart (Satélite store), December 11, 1998 . . . . . . . . . . . .44

Chapter 3Table 3.1. Installed and utilized capacity in Mexican central wholesale market facilities . . . . . . . . . . . . . . . . .64Table 3.2. Mexican and U.S. fresh produce farm price/retail price ratios . . . . . . . . . . . . . . . . . . . . . . . . . . .78

Chapter 4Table 4.1. FAPRI long-term real GDP projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84Table 4.2. Mexico’s supermarket footage in selected Mexican states, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . .85

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List of Figures

Chapter 1Figure 1.1. U.S. exports of fresh potatoes to Mexico, 1990-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Figure 1.2. Mexico, per capita Gross Domestic Product, 1965-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Figure 1.3. Liberalization of Mexican import tariffs, 1980-1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Figure 1.4. Merchandise trade as percentage of Mexican gross domestic product, 1980-1999 . . . . . . . . . . . . .2Figure 1.5. Mexican household food spending, 1968 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Figure 1.6. Allocation of food budget for home consumption by income decile, Mexico, 1996 . . . . . . . . . . . .3Figure 1.7. Elasticity of Mexican produce expenditures by income, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . .4Figure 1.8. Supermarket share of food sales for home use, United States and Mexico . . . . . . . . . . . . . . . . . . .6Figure 1.9. European supermarket growth, 1970-1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Figure 1.10. U.S. produce exports to Mexico, 1995-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Figure 1.11. Mexican produce exports to the United States, 1995-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Figure 1.12. Lettuce shipments between the United States and Mexico, 1990-1999 . . . . . . . . . . . . . . . . . . .7Figure 1.13. Onion shipments between the United States and Mexico, 1990-1999 . . . . . . . . . . . . . . . . . . . .7Figure 1.14. U.S. exports of apples and pears to Mexico, 1990-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Figure 1.15. U.S. exports of fresh grapes to Mexico, 1990-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Chapter 2Figure 2.1. Billboard promoting “tianguis” day in supermarket chain outlet . . . . . . . . . . . . . . . . . . . . . . . . .15Figure 2.2. Produce vendor at public market in downtown Mexico City . . . . . . . . . . . . . . . . . . . . . . . . . . .16Figure 2.3. Merchants selling fresh produce at a Mexico City tiangui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Figure 2.4. Breakdown of goods sold at Guadalajara tianguis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Figure 2.5. Number of produce items sold at low end of retail price range by channel . . . . . . . . . . . . . . . . .21Figure 2.6. Number of produce items sold at high end of retail price range by channel . . . . . . . . . . . . . . . .21Figure 2.7. Different maturities of fruit displayed at a Mexico City public market . . . . . . . . . . . . . . . . . . . . .24Figure 2.8. U.S.-origin pears displayed with tissue paper featuring “USA Pears” logo at

Mercado San Juan de Dios (public market), Guadalajara, Jalisco, December 1998 . . . . . . . . . . . . . . . . . . .26Figure 2.9. Market share of various retail food chains in Mexico, January 1998 . . . . . . . . . . . . . . . . . . . . . .29Figure 2.10. Percentage of groceries purchased at various types of retail outlets by income level . . . . . . . . . .36Figure 2.11. Variation in supermarket patronage by region, in percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37Figure 2.12. Percentage of fresh fruits and vegetables purchased at supermarkets/chain stores by region . . . .38Figure 2.13. Signage at Carrefour supermarket, Mexico City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42Figure 2.14. U.S. red seedless grapes for sale at Soriana supermarket, Monterrey, Nuevo León,

December 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46Figure 2.15. Tabletop display of plum tomatoes at Soriana supermarket, Monterrey, Nuevo León,

December 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46

Chapter 3Figure 3.1. Hand sorting potatoes at central wholesale market, Monterrey, Nuevo León . . . . . . . . . . . . . . . .52Figure 3.2. Tomatoes stacked in open wooden crates at central wholesale market, Mexico City . . . . . . . . . . .55Figure 3.3. Storage of lettuce and herbs in wholesale market stall, Culiacán, Sinaloa, March 1998 . . . . . . . . .57Figure 3.4. Manual loading of palletized cargo into containerized vehicle at central wholesale market,

Mexico City . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58Figure 3.5. Principal customers of central wholesale market merchants, Mexico City, 1997 . . . . . . . . . . . . . .59Figure 3.6. Assembling chayote squash for export market, Tizapan, Jalisco . . . . . . . . . . . . . . . . . . . . . . . . . .75Figure 3.7. Fresh chayote squash packaged for domestic Mexican market, Tizapan, Jalisco . . . . . . . . . . . . . . .76

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Executive Summary

Mexico began liberalizing its economy in the mid-1980s. It joined the General Agreement on Tariffs andTrade, gradually deregulated domestic commerce, andprivatized many state-owned enterprises. While theJuly 2000 election brought a major change in politicalleadership, the new administration has advanced theeconomic reform agenda initiated by the previousadministration. The 1994 North American Free TradeAgreement (NAFTA) eliminated tariffs on most agri-cultural products. Tariffs for sensitive agriculturalcommodities will gradually reduce to zero by 2008.NAFTA also encouraged the reform of Mexico’s com-plex system of import licensing and addressed issuesof investment, intellectual property, sanitary and phy-tosanitary regulations, transportation, environmentalconservation, and labor law.

These events mark an acceleration of NorthAmerican economic integration, which is stimulatingstructural changes in Mexico and provides the basisfor expanded trade and rapid economic growth.Integration is transforming all levels of the Mexicaneconomy, including the agriculture and food distribu-tion sectors.

Following Mexico’s rapid recovery from the 1994peso devaluation, the increase in trade fostered byNAFTA and the prospects of further economic inte-gration with its northern neighbors have boosted con-fidence in Mexico’s long-term economic stability andgrowth. This has boosted foreign and domestic invest-ment.

The flow of direct investment in Mexico has accel-erated in recent years in all sectors, including fooddistribution and retailing. In many cases, investmentis the vehicle for technology transfer and organization-al innovation. These innovations induce and promotechange in the traditional structures of production andmarketing.

More open markets, rising per capita incomes,urbanization, and foreign and domestic investmentare transforming the Mexican fresh fruit and vegetablemarketing system. Traditional marketing channels areadapting to new forces and new entrants. Participantsface new challenges and opportunities.

The liberalization of the past decade encouragedU.S.- and European-based retail store chains—Wal-Mart, Price Club, HEB, Auchan, Carrefour, amongothers—to establish and expand operations inMexico, often in partnership with existing Mexicansupermarket chains. These new entrants bring withthem management and marketing practices developedin their home market and in other foreign markets.This extensive experience includes modern technolo-gies and know-how regarding supply chain manage-ment, procurement arrangements, stock optimization,quality standard control, cold storage maintenance,product handling, shelf life preservation, and con-sumer services.

Mexican consumers have enthusiastically receivedthe unprecedented services and quality provided bythe newly arriving stores, allowing them a very suc-cessful introduction. The competition has forced localstores to enhance their services and efficiency, gener-ating a chain reaction of improved service and ration-alization of food retailing. The success of the super-market/convenience chain store format has generateda remarkable expansion of retail outlets and sellingareas in Mexico. Traditional supermarket chains thatused to target only high-income urban householdsbroadened their market horizon to include medium-and low-income neighborhoods and expansion intosmaller towns in the late 1990s.

These developments are changing the way perish-able items reach consumers in Mexico. Small, special-ized shops and stalls—corner stores, public markets,and street stalls—that procure produce from govern-ment-built central wholesale markets still account for

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Mexico’s Changing Marketing System for FreshProduce: Emerging Markets, Practices, Trends,and Issues

a big portion of total produce purchases. But thingsare changing rapidly, especially in the northernMexican states. The supermarket chain formatembodies economies of scale, improved quality stan-dards, cold chain management, and centralized inven-tory optimization. Supermarkets also attempt to pur-chase produce directly from producing regions,bypassing, and thus threatening, the dominant role oftraditional wholesale markets.

The major challenges facing Mexico’s fresh pro-duce distribution system brought on by the rapidexpansion of the supermarket format include:■ The lack of a common marketing nomenclature

and clearly enforceable quality standards;■ Insufficient cold storage availability and unreliable

cold transportation management;■ Inadequacy of some rural roads;■ Limited services and assembly capacity for produce

in rural areas; and■ Poor development of grower marketing associa-

tions. Free trade and market integration with the United

States and Canada are expected to stimulate strongeconomic growth in Mexico in the medium and longterm. Because Mexico is integrating from a lowerincome level than the United States or Canada, itsnational income is expected to grow faster. For exam-ple, the Food and Agricultural Policy ResearchInstitute (FAPRI) estimates that Mexico’s GrossDomestic Product (GDP) growth will be almost twiceas rapid as that of Canada and the United States inthe next decade. It is also expected to outperform therest of Latin America. This growth also implies anincreased share of GDP by the manufacturing andservices industries and a decline in the share con-tributed by primary sectors (agriculture, mining, andoil). The types of new jobs generated will reinforcethe existing trends toward further industrializationand urbanization of the country. The main avenuesthrough which this income growth would influencethe Mexican produce consumption and distributionsystems are:■ Higher per capita incomes will shift the Mexican

diet to favor more fruits, vegetables, and meat overtraditional food staples;

■ Higher average incomes will also translate into bet-ter equipped households (refrigeration,microwaves) and increased access to automobiles;

■ Women will increase their participation in theworkforce; and

■ More urban and industrial jobs will translate intoless time for food shopping.Expenditure elasticities for traditional food items

like tortillas and beans are very low (increases in percapita income will not translate into more consump-tion of these items) but expenditure elasticities forfruits and vegetables are high. This means that thehigher per capita income expected in the long termwill certainly translate into increased purchases ofproduce and meat products, which, due to their per-ishable nature, require different handling and distri-bution methods.

The availability of home refrigeration and family-owned automobiles played a critical role in the devel-opment of the U.S. food retail chain store system.Not all Mexican households have refrigerators, andthe rate of automobile ownership is one car for elevenpeople (compared to one car for every two people inthe United States). However, rapid growth in per capi-ta income will allow growing numbers of Mexicans toafford refrigerators and automobiles, which, in turn,may change their food purchasing habits.

The modernization of the Mexican economy andimproved educational levels are creating growing jobopportunities for women. In recent years, the numberof women in the labor force has expanded consider-ably, and the trend will continue or accelerate withMexico’s economic growth. The number of two-income households is expected to keep increasing aswell.

More manufacturing and service jobs, increasedurbanization, rising incomes, and higher levels ofwomen’s labor force participation lead to a “scarcityof time” and a growing demand for convenience infood shopping. The Food Marketing Institute reportsthat the average number of trips per week to purchasegroceries in Mexico has declined sharply from 11.5 in1995 to 7.5 in 1998. Still high by U.S. standards (2.2trips per week), this trend will surely continue withthe long-term demographic and income changes thateconomic growth will bring about in Mexico.

Finally, good roads and modern infrastructure, crit-ical elements in the development of a modern andefficient food distribution system, are slowly emergingin Mexico and are sure to improve with the country’sdevelopment.

A modern food distribution system in Mexico, anexpansion of the retail chain format, and the increasein quantity, quality, and mix of the Mexican demandfor fresh produce will generate increasing opportuni-

viii

ties for all potential suppliers. The U.S. exporter's spe-cial advantage in this context is probably related tothe following factors:■ The United States has a geographical advantage

with respect to Mexico, compared with somepotential competitors such as Chile and Argentina.

■ The United States has a free trade agreement withMexico that will eventually remove all remainingborder barriers to produce trade. Border crossingsbetween the United States and Mexico can beexpected to become more fluid and less costly astransportation, logistical, and legal barriers to tradeare reduced and finally eliminated.

■ Except for a few well-organized, export-orientedgrowers, few producers in Mexico currently havethe capability (whether individually or as part of acollective marketing organization) to directly supplylarge volumes of well-sorted, market-ready freshproduce supplies to the domestic Mexican super-market industry. Meanwhile, supermarket chains inMexico are increasingly attempting to streamlineprocurement by receiving produce deliveries attheir own regional distribution centers, rather thandepending entirely on deliveries of produce fromlocal wholesalers. Consequently, to the extent thatU.S. exporters have the organizational and opera-tional capability of supplying large volumes of mar-ket-ready produce items directly to Mexican super-market chain distribution centers, U.S. exportersmay have a logistical advantage over many Mexicanproduce growers.

■ Some of the long-term procurement relationshipsthat multinational supermarket chains have alreadyestablished with U.S. suppliers may carry over intotheir Mexican-based operations, enabling theMexican chain affiliates to obtain high-quality pro-duce supplies from U.S. sources at a less expensiveprice than would be possible otherwise, and toenjoy the same level of quality and reliability aschain affiliates in other locations.

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Introduction

he United States is the leading externalsupplier of tomatoes, onions, avocados,lettuce, oranges, and potatoes to Mexico(figure 1.1). Mexico is normally consid-

ered a source of these products, not a destination.However, Mexico is an expanding market for freshfruit and vegetables. While Mexico will supply muchof the growing demand itself, it will not supply all ofit and certainly not all products. Given its location,the United States is the natural supplier. Californiaand Texas are closer to Mexico City than to Chicagoor New York. And northern Mexico, where demand isgrowing the most, is even closer. Shipping producefrom the United States to Mexico should be no moreremarkable than shipping produce among States.Indeed, as the two economies have become moreclosely integrated, channels of distribution haveexpanded, and barriers to free exchange are beingremoved.

This report examines the development of Mexico’sproduce distribution system. The introductory chap-ter places the developments discussed in chapter 2 ina longer term and comparative context. There arethree main themes:

1. As family incomes increase and as familiesmove from the farm to the city, their spendingpatterns and diets change.

2. Supermarkets change what and how familiesbuy. Moreover, they change the way producersand shippers handle produce. The expansion ofsupermarkets in Mexico only began in the1980s. The changes that took place over thecourse of 50 years in the United States are hap-pening in Mexico in less than 20 years.

3. Economic policies influence produce marketing.Mexico embarked on a major liberalization of itsdomestic economy in the 1980s. In the 1990s,Mexico joined the United States and Canada inthe North American Free Trade Agreement(NAFTA), setting the foundation for an increas-ingly integrated North American economy.

1

CHAPTER 1: The Economic LandscapeDr. David Skully, Economic Research Service, U.S. Department of AgricultureJohn Link, Economic Research Service, U.S. Department of Agriculture

U.S

. mill

ion

dolla

rs

1990

0

2

4

6

8

10

12

14

16

Source: Foreign Agricultural Trade of the United States, USDA Economic ResearchService, various issues.

Figure 1.1—U.S. exports of fresh potatoes to Mexico,1990-2001

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Cons

tant

199

5 U

.S. d

olla

rs

1965 1970 2000

2000

2500

3000

3500

4000

Source: World Development Indicators 2002, International Bank for Reconstruction andDevelopment.

Figure 1.2—Mexico, per capita Gross Domestic Product,1965-2000

1975 1980 1985 1990 1995

Growth Fundamentals

Economic growth is primarily behind the growingdemand for produce in Mexico. Mexico has weath-ered two major economic crises in the last quartercentury (figure 1.2). As a major petroleum exporter,Mexico benefited from oil price increases in 1973 and1979 and borrowed heavily based on expected futureoil earnings. When oil prices declined and interestrates increased, Mexico was unable to meet its debtrepayments, and in 1982, it defaulted on its externaldebt. The economy entered a deep recession. Torevive the economy, Mexico unilaterally liberalized itsforeign trade regime and substantially reduced tariffson most products in 1987 (figure 1.3). In addition, itbegan to privatize many state-owned corporations andderegulate many industries. The economy recoveredrapidly, and growth was strong through 1994.

But when economic conditions deteriorated again,Mexico was forced to devalue the peso in December1994 to avoid a more severe crisis. The Mexicaneconomy fell into another recession, but it was rela-tively short-lived, and the economy rebounded by1997. The peso crisis, as this episode has come to beknown, provided an awkward beginning for NAFTA,the free trade agreement among Canada, Mexico, andthe United States. NAFTA helped solidify the reformsof the 1980s and led to new reductions in trade barri-ers. But the peso crisis, which increased the cost ofimports in peso terms, sharply reduced Mexican

import volumes and increased its exports. If onelooks only at imports, NAFTA appears to havereduced trade rather than increased it. But if onelooks at merchandise trade as a proportion of theMexican economy, NAFTA has had a large positiveimpact (figure 1.4).

Mexico’s economic growth can be divided into twofactors: population growth and income growth.Mexico’s population will soon exceed 100 million,but the rapid rate of increase of the middle of the pastcentury has gradually moderated, falling from anannual rate of over 3 percent to about 1.5 percenttoday. The Mexican economy has rapidly industrial-ized since 1968. The population is more urban andmore highly educated, household size is smaller, andincomes on average are considerably higher.

Income, Diet, and Food Spending

The development and future of produce marketingin Mexico reflects the long-term changes in Mexicandiets and in produce distribution. There are a fewuniversal laws governing household expenditures.One is that, as household income increases, the shareof income spent on food declines. Once essentialfood requirements are purchased, households use theremaining funds for other things, such as education,better housing, transportation, entertainment, or sav-ings and investment. But spending within the foodbudget also changes as income increases. Results

2

Ave

rage

tar

iff a

pplie

d on

impo

rts,

per

cent

20001980 1985 1990 1995

0

2

4

6

8

10

12


Figure 1.3—Liberalization of Mexican import tariffs,1980-1998

Mer

chan

dise

tra

de/g

oods

GD

P, p

erce

nt

20001980 1985 1990 1995

0

180

160

140

120

100

80

60

40

20


Figure 1.4—Merchandise trade as percentage of Mexicangross domestic product, 1980-1999

from several surveys of Mexican household foodexpenditures allow a comparison of a cross-section ofhouseholds. For example, figure 1.5 shows how foodspending patterns varied with household income in1968. This snapshot is now over 30 years old, but itreveals how Mexican household food spending couldbe transformed in the next 30 years.

The most striking feature of the graph is that alllines slope upward except the two that representexpenditures on beans and on corn and corn prod-ucts. Corn and beans are staples of the Mexican diet.The lowest income households spent 64 percent oftheir disposable income on food. Of their food spend-ing, corn accounted for 29 percent and beans for 12percent. Upper-income households had 17 times asmuch disposable income but spent virtually the sameamount of money for corn and beans as the lowestincome households. But corn accounted for 3 percentof the upper-income food budget and beans for 1percent.

The other side of the corn and beans story is that,as household income increases, more money is spentto diversify the diet. Wheat and rice products supple-ment the calories provided by corn, meats and dairyproducts supplement the proteins provided by beans,and fresh fruits and vegetables round out the diet.

The Mexican Statistical Institute (INEGI) conductsa survey of household income and expenditures every4 years. The most recent detailed data available are forthe last 4 months of 1996. Households are grouped

according to their “monetary income”; that is,income from wages and salary but not from interest,dividends, capital gains, or in-kind transfers. There are10 income groups or deciles; each decile has 2.047million households. The average household incomeper decile ranges from 2,050 pesos (about $260) forthe bottom decile [decile 1] to 44,465 pesos (about$560) for the highest decile. Figure 1.6 shows thecomposition of household expenditures on food andbeverages for home consumption by income decile.The lowest income decile spends over half of its foodbudget on carbohydrates, vegetable oils, and veg-etable proteins (beans). This is the traditional cornand beans diet. As incomes increase, the share offood spending on these products declines. The sharpdecline in vegetable proteins is balanced by the largeincrease in animal proteins, including milk, eggs, anddairy products. The share spent on fruits increaseswith household income, while the share for vegeta-bles increases and then declines.

Figure 1.7 focuses on how household incomeinfluences spending on fruits and vegetables. Itgraphs spending on vegetables and fruit by incomedecile against household income. The graph uses log-arithmic scales. It plots equal percentage changesequally; that is, the distance between 200 and 400 isthe same as the distance between 100 and 200. Theslopes of these lines show the rate of change in

3

Hou

seho

ld s

pend

ing

(pes

os)

100000100 1000 10000

1

10000

1000

100

10

Total household spending (pesos)

All food Corn meal Beans, dry Vegetables Fruits

Source: Encuesta National de Ingresos y Gastos de los Hogares, Instituto Nacional deEstadistica, Geografia e Informatica, Aguascalientes, México.

Figure 1.5—Mexican household food spending, 1968

Perc

ent

of f

ood

budg

et

I

0%

100%

80%

60%

40%

1996 Household income decile

20%

II III IV V VI VII VIII IX X

Animal protein

Fruits Vegetable protein

Carbohydrates, fatsVegetables

Other and alcohol

Source: Encuesta National de Ingresos y Gastos de los Hogares, Instituto Nacional deEstadistica, Geografia e Informatica, Aguascalientes, México.

Figure 1.6—Allocation of food budget for home consumption byincome decile, Mexico, 1996

chiles: arbol, habanero, etc.” has an elasticity of 0.46.The zero elasticity for serranos and jalapenos parallelsthat for dried beans and corn meal. The higher elas-ticities for the other chiles reflect the diversification ofMexican diets as household income increases. Thesteady increase in the shares for avocados, carrots,squash, and the “other” category also reflects thisdiversification.

In the fruit category, papaya is the most elastic, fol-lowed by “other: apple, pear, mango, mamey,” andoranges. Each has an elasticity greater than 1.00. Thisis significant for potential exporters to Mexico. Mexicois a major producer and exporter of papayas and man-gos, but it relies increasingly on imports to meet thegrowing demand for apples, pears, and otherTemperate Zone fruits.

Supermarkets Transforming ProduceMarketing

The Mexican food distribution system is undergo-ing major structural change. Small, specialized shopsand stalls account for the bulk of consumer food andproduce purchases, but supermarket chains are rapid-ly gaining market share. These developments arechanging the way that food makes it way from thefarm to the Mexican consumer. Mexican firms areconstructing state-of-the-art supermarket chains that

expenditures. Although more money is spent on veg-etables than on fruit at all income levels, the percent-age change in fruit spending is greater than the per-centage change in vegetable spending.

In addition to the observed expenditure valuesfrom the INEGI survey, the figure also plots lines sta-tistically fitted to the observed values. The slopes ofthese lines can be used to measure the sensitivity ofexpenditures to income changes. For total fruit expen-ditures, the slope is 0.93; for total vegetable expendi-tures, the slope is 0.42. This means that if householdincome increases 1 percent, total fruit expenditureswill increase by about 0.93 percent and vegetableexpenditures by about 0.42 percent. Thus, spendingon fruit is more than twice as sensitive as spendingon vegetables to changes in household income.

Table 1.1 shows the estimated elasticity and thelevel of expenditures for decile 4 and decile 7, house-holds with incomes ranking between 30 and 40 per-cent and between 60 and 70 percent in the distribu-tion of household incomes.

Within each commodity group, individual com-modities are listed in descending order of expenditureelasticity. There are large differences. Among vegeta-bles, lettuce has the highest elasticity, followed by car-rots. There are three categories of chiles listed.Serrano and jalapeno chiles (the traditional ingredi-ents in many basic recipes) have zero elasticity, mean-ing that households of all incomes spend about thesame amount on them. In contrast, poblano chileshave an elasticity of 0.71, and the category “other

4

Note on Expenditure Elasticities. The expenditure elasticities are provided as simple indicators. The coefficients reported intable 1.1 are the slope parameters, �, estimated from the equa-tion: ln(xi) = � + � ln(yi), where ln(xi) is the natural logarithmof the average expenditure on commodity x by households in ith

decile and ln(yi ) is the natural logarithm of the average monetaryincome of households in ith decile. The two estimated parame-ters, � and �, define the line representing the estimated relation-ship between income and expenditures. Except for the few casesmarked with asterisks, the estimated equation explained over 90percent of the variation in expenditures and the � coefficient waspositive and significantly different from zero at the p <0.005 levelof significance using a one-tailed t-test. Those few cases that werenot significant were commodities with very low expenditure elas-ticities: dried beans, serrano and jalapeño peppers, corn tortillas,sugar, and honey.

This is a very simple relationship and ignores many other vari-ables that can determine household expenditures. Among thesevariables is the number of individuals in a household, the agecomposition of households, the proportion of households living inrural or urban areas, and the nonmonetary income of households.The estimates do capture the relative sensitivity of expenditureson selected commodities with respect to income and are certainlyaccurate for the purposes of this chapter. Detailed forecasts offuture expenditures in Mexico should be made from more detailedand less aggregated estimates based on the rich INEGI surveydatabase.

Hou

seho

ld e

xpen

ditu

re, 1

000

peso

s

100

Figure 1.7—Elasticity of Mexican produce expendituresby income, 1996

1 10

0.01

1

0.1

Household income, 1000 pesos

FruitVegetables

challenge the capacity of the country’s distributionnetwork. This is particularly so for perishable prod-ucts such as produce, meats, and other products thatrequire refrigeration as they move through the market-ing chain. Truck fleets, wholesale markets, processors,packers and shippers, and farmers are all trying toadapt to new demands.

Supermarkets have existed in Mexico for decades,but until the 1980s, they were few in number andcatered principally to upper-income households and

5

Table 1.1—Elasticity of produce expenditures bycommodity, 1996

Household income group

Expenditure 30-40% 60-70%elasticity ($5,600.79) ($10,291)

All fresh fruits andvegetables 0.40 $40.82 $46.94

Tubers 0.40 $40.82 $46.94Other tubers:

camote, yuca, etc. 0.46 0.54 $0.60Potatoes 0.35 37.64 $43.69

Fresh vegetables 0.42 $158.43 $213.39Lettuce 1.16 2.28 5.91Carrots 0.93 4.04 7.79Other vegetables: nopal

peas, spinach, etc. 0.80 $13.86 $20.78Chayote 0.77 2.38 4.77Poblano chiles 0.71 3.79 8.75Avocado 0.66 9.30 12.65Squash 0.64 7.72 9.97Vegetables: mixed and bagged 0.62 3.98 4.75Cilantro 0.58 0.86 1.23Garlic 0.50 0.97 1.57Other chiles: arbol

habanero, etc. 0.46 3.71 6.55Green tomatoes 0.42 10.31 14.08Corn (sweet, on cob) 0.42 4.04 4.92Onion 0.40 21.02 29.67Cabbage 0.34 1.54 1.98Red tomatoes 0.22 51.63 62.76Serrano and jalapeno chiles* 0.02 16.98 15.25

Legumes (total)* -0.04 $134.07 $119.98Frijoles (dry beans)* -0.09 121.90 110.78

Fresh fruit 0.93 $58.32 $104.42Papaya 1.49 2.16 5.76Other: apple, pear, mango,

mamey, etc. 1.11 21.00 46.30Oranges 1.03 5.72 7.91Limes, grapefruit, tangerines 0.89 1.72 3.43Lemons 0.85 6.08 11.02Guava 0.82 3.85 5.41Plantains, other bananas 0.61 2.69 4.29Bananas 0.55 15.10 20.31

Processed fruits 1.31 $0.35 $1.02

* Elasticity is not significantly different from zero.

Table 1.2—Mexican produce shopping patterns, 1996

Primary store type

Self-service Corner Othersupermarket store markets

Shopper characteristic (percent)

Income$2,000 or less 47 14 39$2,000 to 4,000 76 13 12$4,000 or more 82 4 12

EducationPrimary 42 16 42Secondary 53 22 25Post-secondary 67 10 23College or more 90 4 4

All 59 13 27

Source: Trends in Mexico: Consumer Attitudes and the Supermarket, 1996, FoodMarketing Institute, Washington, DC, 1996.

expatriates. The recent expansion of the Mexicansupermarket sector has extended the customer baseto lower income households. Table 1.2 illustrates thatthe likelihood of shopping regularly at a supermarketincreases with income and education. The propensityto patronize supermarkets also varies by region andcity. Supermarkets are the dominant venue along theU.S. border and in northern cities such as Monterrey,but in the poorer southern states and in most ruralareas, supermarkets are still rare.

Changes in consumer behavior and the growth ofsupermarkets are forcing changes in the produce sup-ply chain. The Mexican supply chain is following thepath charted by the United States, Canada, andWestern Europe, but it is evolving at a much fasterpace (figure 1.8). The development of supermarketchains in the United States and Europe in the 1950sand 1960s was spurred in part by infrastructuredevelopment (figure 1.9). The U.S. interstate highwaysystem and the growth of refrigerated truck trans-portation freed suppliers from dependence on rail-roads and allowed deliveries to facilities outside cen-tral market districts. This enabled chain stores tobuild their own distribution centers and to accommo-date a high volume of direct shipments from produc-ers under central inventory control.

In the United States and Europe, supermarketsgained retail market share by contracting with cooper-atives, growers’ sales agents, or brokers to deliverproducts from production areas directly to the super-markets’ private distribution centers. Money is savedand margins enhanced by internalizing wholesaleservices within the firm. As direct procurement by

chains expands, the share of fresh product flowingthrough central wholesale markets contracts.

The supermarket boom in Mexico and thedemands that it places on the Mexican food market-ing system pose new challenges for farmers, policymakers, and analysts. As the supply chains of NorthAmerica become more closely integrated, it is antici-pated that more strategic alliances will form amongU.S., Canadian, and Mexican firms, including a fullyintegrated truck and rail network; harmonization of

product standards, contracts, and dispute resolution;and greater complementary trade.

The direct effect of NAFTA was to reduce tariffsand other government-imposed barriers to trade. Anindirect effect is, by increasing the volume of trade, tospur institutional innovations that reduce natural bar-riers to trade, such as transportation costs and othertransaction costs. As volumes increase and proceduresharmonize, transactions become more predictable andless costly. The result is a “virtuous cycle” of innova-tion and integration.

Produce Trade Profile

While Mexico is a large and growing market forfresh produce, it will remain a major produceexporter. It has a wealth of productive land in bothtropical and temperate climates. It is the world’s lead-ing producer and exporter of mangos and an impor-tant exporter of bananas, tomatoes, avocados, andmany other produce items. Mexico exports far moreproduce to the United States than the United Statesships to Mexico. Figures 1.10 and 1.11 show thatproduce trade grew steadily during 1995-1999, bothnorthbound and southbound. The scale on theMexican export graph is nearly 10 times that of theU.S. export graph. In 2001, Mexican produce ship-ments to the United States totaled about $2.5 billion,and U.S. produce shipments to Mexico totaled about$300 million. Besides relative magnitude, the graphsreveal other contrasts. Vegetables account for most of

6

U.S

. mill

ion

dolla

rs

1995

0

50

100

150

200

250

1996 1997 1998 1999 2000 2001

Fresh VegetablesFresh Fruit

Source: Foreign Agricultural Trade of the United States, USDA Economic Research Service,various issues.

Figure 1.10—U.S. produce exports to Mexico, 1995-2001

Perc

ent

1930 1950 1970 1990

0

70

60

50

40

30

20

10

United States Mexico

Source: Manchester, Alden C. “Rearranging the Economic Landscape: The FoodMarketing Revolution, 1950-91,” Agricultural Economic Report No. 660, USDA EconomicResearch Service, 1992.

Figure 1.8—Supermarket share of food sales for homeuse, United States and Mexico

Squa

re f

eet

per

capi

ta

Spain

0

0.4

0.6

0.8

1.0

1.2

1.4

0.2

G. Britain Italy Germany (W.)

1970 1980 1990

Source: Manchester, Alden C. “Rearranging the Economic Landscape: The FoodMarketing Revolution, 1950-91,” Agricultural Economic Report No. 660, USDA EconomicResearch Service, 1992.

Figure 1.9—European supermarket growth, 1970-1990

Mexico’s shipments, while fruit constitutes most ofU.S. shipments. And, since 1995, U.S. shipmentshave been growing much more rapidly than Mexicanshipments, albeit from a lower base.

Mexican-U.S. bilateral produce trade is largelycomplementary. That is, the United States purchasesproducts from Mexico that are not or cannot be pro-duced efficiently in the United States; bananas, forexample. Similarly, the United States tends to exportproduce in which it has a comparative advantage,such as apples and pears. Much of the complementar-ity stems from differences in growing seasons.

Trade in lettuce, which has the highest expenditureelasticity of all vegetables, is an excellent example ofseason complementarity (figure 1.12). Mexican let-tuce is shipped north during the winter months whenit is too cold to grow enough in the United States tomeet U.S. domestic demand. Conversely, U.S. lettuceis shipped south during the summer and early fallwhen it is either too hot or too dry to produce suffi-cient quantities in Mexico. In most years, the UnitedStates shows a trade surplus with Mexico for lettuce.Bilateral onion trade shows a similar seasonal pattern,although Mexican shipments north almost alwaysexceed U.S. shipments south. Mexican shipmentspeak in the spring, and U.S. shipments peak in thefall (figure 1.13).

Table 1.3 shows the annual value of U.S. produceexports to Mexico for each major category during1990-99. It also shows the logarithmic change in

7

U.S

. mill

ion

dolla

rs

1995

0

400

800

1200

1600

2000

1996 1997 1998 1999 2000 2001

Fresh VegetablesFresh Fruit

1800

1400

1000

600

200


Figure 1.11—Mexican produce exports to the UnitedStates, 1995-2001

10-y

ear

aver

age,

met

ric

tons

Jan.

0

40,000

30,000

20,000

10,000

Month

Feb. Mar. Apr. May Jul. Aug. Sep. Oct. Nov. Dec.Jun.

Mexico to U.S. U.S. to Mexico


Figure 1.12—Lettuce shipments between the UnitedStates and Mexico, 1990-1999

10-y

ear

aver

age,

kilo

s

Jan.

0

50,000,000

30,000,000

20,000,000

10,000,000

Month

Feb. Mar. Apr. May Jul. Aug. Sep. Oct. Nov. Dec.Jun.

Mexico to U.S. U.S. to Mexico

40,000,000


Figure 1.13—Onion shipments between the United Statesand Mexico, 1990-1999

export sales between 1990-1992 and 1997-99; thatis, between the average of the first 3 and last 3 years.Fresh fruit exports doubled between these two peri-ods, while fresh vegetable exports increased 43 per-cent. These rates of change are consistent with thefinding above that the expenditure elasticities for fruitand vegetables are, respectively, 93 and 43 percent.The similarity in values, however, is largely coinciden-tal. Growth in Mexican household consumption does

and declining tariffs on most produce exported toMexico. This tariff preference only adds to the loca-tion advantage the NAFTA partners enjoy. Chile hastariff preferences under its bilateral agreement withMexico, but they are not more favorable than theNAFTA preferences.

Summary

As Mexican economic growth continues andMexican incomes increase, Mexican produce con-

not directly translate into U.S. export growth; changesin Mexican production and competition from otherforeign suppliers also determine the volume of trade.This is apparent when export growth is examined infiner detail. For example, U.S. potato exports toMexico increased about twice as rapidly as lettuceexports, although lettuce is far more expenditure elas-tic than potatoes.

Among the largest valued categories of produce, asingle commodity often accounts for most of thetrade. Most of these key commodities are included assubcategories in table 1.3. Grapes account for most ofthe value in the grape/raisin category, apples accountfor about two-thirds of the apple/pear group, peach-es/nectarines account for most of the apricot/peachsales, and strawberries account for most of the salesin the small but rapidly growing berries category (fig-ures 1.14 and 1.15).

There are, of course, preferred varieties of specificfruits. For example, Red and Golden Delicious are theleading varieties of apples imported by Mexico, andd’Anjou pears are preferred to Bartlett pears. UnderNAFTA, Canada and the United States face very low

8

U.S

. mill

ion

dolla

rs

1990

0

10

20

30

40

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001


Figure 1.15—U.S. exports of fresh grapes to Mexico,1990-2001

U.S

. mill

ion

dolla

rs

1995

0

25

75

125

1996 1997 1998 1999 2000 2001

100

50

PearsApples

19941993199219911990


Figure 1.14—U.S. exports of apples and pears to Mexico,1990-2001

Table 1.3.—U.S. fresh produce exports to Mexico bycommodity, 1990-1999

Million dollars

LogarithmicCode Commodity 1990-92 1997-99 change (%)

800 Fresh fruit 47.2 127.8 100804 Dates, figs, pineapples,

avocado, guava, mango 0.2 0.6 140805 Citrus 0.7 3.3 157806 Grape/raisin 3.9 26.4 191

8061 Grapes 2.4 24.1 230807 Melon/papaya 0.8 0.8 9808 Apple/pear 32.0 77.4 88

8081 Apples, fresh 17.8 51.7 1078082 Pears/quinces 14.2 25.7 59809 Apricot, peach, plum 8.3 13.4 48

8093 Peaches/nectarine 5.4 7.6 33810 Berries, kiwi, other

berries 1.4 5.8 1458101 Strawberries 0.6 4.7 203

700 Fresh vegetables 28.1 43.3 43701 Potatoes 3.8 11.9 115

7019 Fresh, not seed 3.0 11.3 131702 Tomatoes 5.4 7.2 29703 Onion, garlic 10.2 8.9 -14704 Cabbage, cauliflower 0.5 2.0 142705 Lettuce 4.7 8.2 55706 Carrots, radishes, etc. 0.2 1.2 176707 Cucumbers, etc. 0.0 0.1 204708 Fresh peas, legumes 0.9 0.4 -93709 Other fresh vegetables 2.5 3.5 33

Source: Foreign Agricultural Trade of the United States, USDA Economic ResearchService, various issues.

9

sumption will also increase. Mexico will supply mostof its growing demand for produce but not all of it.Innovations in distribution, particularly the growth ofsupermarkets, are changing the way Mexican house-holds buy produce. Investments in refrigerated trans-port and storage are changing the kinds and qualityof produce consumers can buy. Most of thesechanges took place in the United States between1930 and 1965. In Mexico, they only started to hap-pen on a large scale in the 1980s. The changes havebeen rapid, and there are more to come.

As North American agricultural markets continueto integrate, opportunities for specialization willexpand. The United States and Canada are likely tofurther specialize in Temperate Zone produce andimport tropical and winter produce from Mexico. Theseason complementarity that exists for many prod-ucts, such as lettuce and onions, will no doubt con-tinue. Consumers in all three countries will expect tofind seasonal products year-round.

Although the United States is Mexico’s closest andlargest trading partner and enjoys many cost andlocation advantages as a supplier of produce to theMexican market, there are other competing sourcesof produce. Chile and New Zealand ship many of thesame produce items to Mexico that they export tothe United States. Mexico has preferential tradeagreements with several Central and South Americancountries. Guatemala, for example, is an importantsupplier of berries to both the United States andMexico.

On the export side, Mexico has recently conclud-ed a trade agreement with the European Union (EU)that allows some scope for increased Mexican exportsto the EU. Under this agreement and through thegeneral liberalization of agricultural trade, Mexicanagriculture is becoming more integrated into theworld trading system. It will specialize in producingand exporting produce in which it has an advantageand will rely increasingly on imports for products inwhich it is less competitive.

Finally, the process of economic liberalization thatMexico began in the mid-1980s is firmly on track.The election of Vicente Fox in July 2000 signals anendorsement of this process and may accelerate it.Although the Fox election represents a major changein political leadership, it may also be seen as a con-tinuation of the reforms initiated and implementedby Presidents Salinas (1988-1994) and Zedillo (1994-2000).

11

Diversity of Retail Marketing Channels inMexico

narrow majority (57 percent) of Mexicanhousehold grocery shoppers currentlyuses a modern self-service supermarketas its primary store for food purchases.

However, traditional market formats—such asenclosed public market facilities, open-air tianguis(mobile street markets), specialty stores, and cornergrocery stores—still comprise a significant share ofconsumer food purchases. Also, these traditional mar-kets frequently outstrip the importance of supermar-kets in certain product categories, including freshfruits and vegetables.1

In a January 1998 survey conducted by theWashington, DC-based Food Marketing Institute(FMI), only 21 percent of Mexican household shop-pers indicated that they usually purchase fresh pro-duce in a supermarket. Forty-seven percent said theyusually buy fresh produce at an enclosed “public”market, 11 percent at an open-air market, and 11 per-cent at either a specialty store (such as an independ-ent greengrocer) or at a corner grocery store.2

Moreover, the percentage of household shoppers whousually purchase fresh fruits and vegetables at asupermarket slipped in recent years from 26 percentin May 1993 to 21 percent in January 1998(table 2.1).3

The diversity of traditional and modern retail out-lets patronized by Mexican grocery shoppers contrastssharply with the behavior of most U.S. grocery shop-

pers, who rely much more heavily on self-servicesupermarkets and mass-merchandise chain stores forhousehold food purchases.4 This chapter exploressome of the reasons why most Mexican householdshoppers continue to patronize a broad spectrum oftraditional and modern markets for grocery items andhow demographic characteristics influence the foodretail preferences of various consumer segments.

Traditional Markets Still Appeal to MexicanConsumers, Despite Rapid Chain Store Growth.The appeal of traditional retail markets among a siz-able percentage of Mexican household shoppers con-tinues to linger even though supermarkets and mass-merchandise chain stores selling food products inMexico are multiplying at a healthy clip.Representatives of Mexico’s chief trade association forretail chain stores, the Asociación Nacional de Tiendas

CHAPTER 2: Preferences and Habits of theMexican Produce Consumer and Their Impacton the Local Retail EnvironmentDebra Tropp, Agricultural Marketing Service, U. S. Department of AgricultureDr. Jaime Málaga, Texas Tech University, formerly with the Texas Agricultural Market Research Center,Texas A&M University

1Tendencias en México: Actitudes del Consumidor y el Supermercado, Food MarketingInstitute, Washington, DC, 1998, p. 66.


3Ibid.

4According to statistics cited in the “66th Annual Report of the Grocery Industry,” ProgressiveGrocer, New York, NY, April 1999, p. 10. Self-service supermarkets (including mass-merchandiseretail food stores such as hypermarkets and supercenters) overwhelmingly represent the mostimportant retail channel for grocery products in the United States, accounting for approximately 77percent of U.S. grocery industry sales in 1998.

Table 2.1.—Store format preferences of Mexicanconsumers for fresh fruit and vegetables, 1993-1998(in percent)

Covered Corner or[public] Open-air Self-service convenience Specialtymarket market supermarket store store

1993 25 38 26 2 9

1995 39 23 20 4 9

1996 41 20 23 2 8

1998 47 11 21 4 7

Source: Tendencias en México: Actitudes del Consumidor y el Supermercado, FoodMarketing Institute, Washington, DC, 1998, p. 68. Numbers may not add up to 100percent because hypermarkets and other formats are not included.

12

Autoservicio y Departamentales (ANTAD), noted inDecember 1998 that the number of chain store out-lets for food in Mexico had grown 5 to 8 percent peryear since 1992.5 Nonetheless, the enhanced accessi-bility of supermarkets and chain stores alone has notbeen sufficient to lure the average Mexican consumeraway from traditional food market formats, especiallyfor purchasing perishable grocery items such as freshfruits and vegetables.

According to the 1998 FMI survey, the averageMexican consumer continues to strongly prefer publicmarkets over supermarkets for fresh fruits and vegeta-bles and other perishable commodities. The percent-age of household shoppers in Mexico who reportedthat they usually purchase fresh fruits and vegetablesat a covered public market grew steadily from 25 per-cent in May 1993 to 47 percent in January 1998.Fresh chicken and red meat (beef/pork) purchasesposted similar gains in market share.6

Frequent Food Market Visits DiminishImportance of One-Stop Shopping. One factor thatmay contribute to the relative attractiveness of publicmarkets for perishable foodstuffs is that the averageMexican grocery shopper visits food markets muchmore frequently than the average U.S. grocery shop-per. Also, the average shopper in Mexico appears tobe more comfortable seeking food supplies from avariety of sources, rather than depending on one storeto fill all of his or her needs.

The average Mexican household grocery shoppernow makes sharply fewer visits to food stores perweek than a few years ago. Local market observersattribute this development to improved local employ-ment conditions and the increased entry of Mexicanwomen into the paid workforce. Nonetheless, theaverage Mexican household grocery shopper currentlyvisits a food market more than three times as often asthe average U.S. shopper. The average U.S. groceryshopper visits a food store approximately 2.2 timesper week, while the average Mexican shopper visits afood store more than once a day at 7.5 times per week.7

Remarkably, the high rate of food market visits byMexican household shoppers is down significantlyfrom January 1995, when visits averaged 11.5 timesper week.8

Moreover, when focusing on the types of marketspatronized by various groups of consumers, itbecomes apparent than a sizable share of Mexicanfood shoppers actually visits food stores more fre-quently than the average alone would suggest.Grocery shoppers who indicated they primarily pur-chase household food supplies at a neighborhoodcorner store—11 percent of the sample population—reported they visited food markets an average of 11.4times per week. Those shoppers who typically pur-chased household food supplies at enclosed publicmarkets, open-air markets, and specialty stores—14percent of the sample population—reported they vis-ited food markets an average of 10 times per week.9

In contrast, consumers who indicated they primarilyshop at a supermarket visited food stores only abouthalf as frequently as other Mexican grocery shoppers,approximately 5.6 times per week. Nevertheless, eventhough supermarket shoppers in Mexico patronizefood stores far less frequently than other Mexicanfood shoppers, they still visit food markets nearlythree times as often as the average U.S. supermarketshopper.10

Not only do average Mexican household groceryshoppers visit food stores far more frequently thanaverage U.S. shoppers, but they appear far more will-ing to patronize a variety of stores. The averageMexican food shopper interviewed by FMI in January1998, for example, reported that he or she visitedapproximately three different food stores per week,compared with three different food stores per monthvisited by the average U.S. grocery shopper.

11

The tendency for Mexican consumers to visit retailfood markets on a frequent basis is especially pro-nounced in the case of fresh fruits and vegetables.Sixty percent of Mexican fresh fruit and vegetableshoppers interviewed by FMI reported they shoppedfor fresh produce at least twice per week, while morethan 33 percent indicated they shopped for fresh pro-duce on a daily basis (between five and seven timesper week).12 Only tortillas, milk, fresh bread, and non-alcoholic beverages were purchased with equal orgreater frequency.13

5Information obtained during December 1998 interview in Mexico City with Alfonso RodeaSandin, Assistant General Director of Asociación Nacional de Tiendas Autoservicio y Departamentales.



8Ibid.

9Ibid.10Statistics on Mexican consumer behavior obtained from Tendencias en México: Actitudes del

Consumidor y el Supermercado, Food Marketing Institute, Washington, DC, 1998, p. 42. Statisticson U.S. supermarket shoppers obtained from the “66th Annual Report of the Grocery Industry,”Progressive Grocer, New York, NY, April 1999, p. 39.



13Ibid.

13

Fruit and vegetable shoppers who usually patronizetraditional markets and specialty stores are also morelikely to visit food stores more frequently than shop-pers who prefer other store formats. A majority (57percent) of the shoppers interviewed by FMI whotypically visited traditional markets and specialtystores for fresh produce reported that they purchasedproduce on a “daily” basis (i.e., five to seven timesper week), compared with only 28 percent of self-described corner store shoppers and 26 percent ofself-described supermarket shoppers.14

Why Mexican Consumers Shop MoreFrequently Than U.S. Consumers forPerishables

Limited Access to Automobiles. Anecdotal evi-dence from field interviews with retail produce buyersand chain store managers in Mexico in March andDecember 1998 suggests that a large share of house-hold grocery shoppers—including those who patron-ize supermarkets and mass-merchandise retailstores—frequently walk or take public transportationto stores, thereby limiting how much they are able tocarry home. One produce procurement official from amultinational retail firm interviewed in December1998 by members of the Agricultural MarketingService (AMS), Economic Research Service (ERS), andTexas A&M University research team noted that asmany as 70 percent of his customers in Mexicowalked to his firm’s stores, while the stores’ parkinglots were largely empty most of the time. Thus, issuessuch as the population density of nearby residentialneighborhoods, pedestrian access, and availability ofpublic transportation are said to figure far moreprominently than access to a major highway in deter-mining the location of a new supermarket in Mexico.In contrast, proximity to a major highway is oftengiven primary attention in the United States for deter-mining the location for a new supermarket.

Government statistics appear to support the widelyheld belief among Mexican supermarket and chainstore managers that motor vehicle ownership inMexico remains comparatively rare and presents a realconstraint to how much food the average shopper isable to purchase during any single food market visit.

Privately owned automobiles in Mexico during calen-dar year 1997, based on official motor vehicle regis-tration records, totaled just over 8.6 million, com-pared with an estimated population of 93.7 million.15

Consequently, there was approximately one automo-bile for every eleven Mexican residents. In contrast,U.S. motor vehicle registration records show thatthere were more than 128.4 million privately andcommercially owned automobiles in the United Statesduring calendar year 1997. With the U.S. populationestimated at 267.8 million, private/commercial carownership amounted to nearly one automobile forevery two residents.16

Limited (or Nonexistent) HouseholdRefrigeration Capacity. Several supermarket buyersin Mexico noted that many of their retail customershad limited access to refrigerated storage at home andwere, therefore, likely to purchase only small amountsof perishable produce during each food store visit.Indeed, recent Mexican government statistics indicatethat significant percentages of Mexican householdscontinue to live without such basic household ameni-ties as indoor plumbing. As of 1995, nearly 7 percentof Mexican households surveyed were living withoutelectricity, and almost 15 percent were still livingwithout running water.17

Customer Preferences. Retail produce buyers inMexico indicated that local consumers often prefer topurchase fresh produce items for immediate use only,to ensure that the ingredients are as fresh and as suit-able for use in a particular dish as possible. For exam-ple, the condition and quality of tomatoes that theMexican consumer would typically purchase for mak-ing salsa fresca would be quite different from thetomatoes he or she would purchase for use in a salad.The extreme importance that average Mexican foodshoppers accord the quality of fresh produce at retailmarkets appears to be supported by the FMI’sJanuary 1998 survey. The survey revealed that fully92 percent of the interviewed shoppers rated “goodquality produce” as a “very important” factor in deter-mining which food store they preferred to patronize.This factor was surpassed only by “food safety” as the


15From the table, “Vehiculos de Motor Registrados en Circulación,” accessible from theInternet home page of the Banco de Informacíon Económica, part of the Instituto Nacional deEstadistica Geografia e Informatica. The table is located at the following Internet address: http://dgc-nesyp.inegi.gob.mx/BDINE/G10/G100071.htm.

16Data obtained from the table, “State Motor-Vehicle Registrations—1997,” available from theU.S. Department of Transportation’s Federal Highway Administration athttp://www.fhwa.dot.gov/ohim/1997/section2.html.

17From “Viviendas Particulares Habitadas y su Disponibilidad de Agua Entubada, EnergíaEléctrica y Drenaje 1990, 1992, y 1995,” Instituto Nacional de Estadistica Geografía e Informatica(INEGI), Mexico City. Accessible from the INEGI Web site located at www.inegi.gob.mx.

14

most important factor determining their food marketchoices.18

Food shoppers who typically patronized open-airtianguis and enclosed public markets rated “good pro-duce quality” even more strongly as a factor in foodmarket choice than the general sample population,with 97 percent rating “good produce quality” as“very important.” In addition, 97 percent of themembers of the two highest income tiers of the sam-ple population also ranked “good produce quality” asa “very important” factor in choosing a food market.19

Therefore, the ability to purchase fresh produce at amarket that meets precise quality characteristics clear-ly remains very attractive and important to large seg-ments of the Mexican population, including its high-est income segments, which represent a primary tar-get of Mexico’s burgeoning supermarket and chainstore firms.

Differences in Merchandising StrategiesBetween Traditional and Modern FoodMarkets

Many supermarket firms in Mexico—recognizingthe lingering attraction of traditional food marketsamong large numbers of Mexican consumers—haveattempted to invoke the image of traditional foodmarkets in their retail stores. They’ve done this bycreating countertop bulk displays of popular freshfruits and vegetables (such as oranges or tomatoes) inthe center of their produce departments and by adver-tising weekly “market” days that feature deep dis-counts on fresh produce items (figure 2.1).

Despite these efforts, the ways these firms typicallydisplay and market perishable merchandise differ con-siderably from the practices typically used at enclosedpublic markets and open-air tianguis. These distinctmerchandising practices may be categorized asfollows:

Pricing Policies. While supermarkets typicallycharge the same price for the same variety of com-modity, regardless of size, maturity, or cosmeticappearance, produce merchants at public markets andtianguis often apply different prices to products with

different sizes, maturity, or cosmetic appearance. Thispractice gives many customers the perception thatthey receive better value for their money at traditionalmarkets, since they are charged a specific price for aspecific quality of merchandise. Competitive pricingpolicies alone do not appear to be sufficient to shiftconsumer preferences from traditional markets to self-service supermarkets and mass-merchandise chainstores. Supermarket buyers indicated that the produceprice war that had occurred in the Monterrey area(once or twice a week, various supermarkets deeplydiscounted produce items, sometimes selling thembelow wholesale prices as loss leaders) appeared tohave done little to broaden the general customer baseof supermarkets, at least not in terms of householdconsumers. However, the discounts may haveincreased the number of small institutional buyerssuch as restaurant owners.

Product Selection. Another reason why supermar-ket and chain store buyers admit that they have diffi-culty competing with alternative markets is that theaverage Mexican consumer still shops several times aweek for groceries and places a very high value onpurchasing and consuming perishable commodities atthe peak of ripeness and freshness. For the large shareof Mexican grocery shoppers who place great impor-tance on obtaining fresh fruit and vegetables with pre-cise freshness or maturity characteristics, it may wellbe easier to locate merchandise with the desiredfreshness or maturity at a public market or a tiangui.Merchandise in these outlets tends to be grouped bycondition or maturity, in contrast to standard super-markets or mass-merchandise chain stores, wheremerchandise tends to be displayed in bulk and israrely, if ever, sorted on the basis of qualitycharacteristics.

The possibility that fresh fruit and vegetable shop-pers in Mexico may be drawn to public markets andtianguis because they are seeking precise quality andmaturity characteristics appears to be borne out byFMI’s January 1998 survey of Mexican householdgrocery shoppers. The survey revealed considerabledifferences between those who usually patronized anenclosed public market, an open-air tiangui, or a spe-cialty store and those who usually patronized a self-service supermarket. Thirty-one percent of self-declared “market/specialty store” grocery shoppersranked “the quality of food, products, or fruit/vegeta-bles” as the single most important factor affectingtheir food purchase decisions, while 28 percent

18Tendencias en México: Actitudes del Consumidor y el Supermercado, Food MarketingInstitute, Washington, DC, 1998, p. 90. The response, “very important,” refers to the top box of a4-point scale. Interviewed shoppers were able to rank 21 variables as possible influential factors indetermining their choice of food store.

19Tendencias en México: Actitudes del Consumidor y el Supermercado, Food MarketingInstitute, Washington, DC, 1998, pp. 94 and 96. The response, “very important,” refers to the topbox of a 4-point scale. Interviewed shoppers were able to rank 21 variables as possible influentialfactors in determining their choice of food store.

15

Figure 2.1—Billboard promoting “tianguis” day in supermarket chain outlet

duce, tiangui and public market vendors know thatmaintaining product quality contributes directly totheir livelihood.

No single type of retail establishment appears capa-ble of satisfying the culinary needs and preferences ofall segments of the Mexican consumer population.Therefore, a comprehensive understanding of thefresh produce retail distribution system in Mexicorequires an understanding of how both traditionaland modern retail distribution channels operate andhow they compete with one another in variousregions of the country and among members of differ-ent socio-economic classes.

Traditional Distribution Channels

The two primary forms of traditional markets thatcompete with modern supermarkets and mass-mer-chandise chains are enclosed public markets (mercadospúblicos in Spanish) and open-air tianguis. The term“public market” in the Mexican context generally

reported that “food freshness” was the single mostimportant factor affecting their food shopping habits.In contrast, only 23 percent of self-declared “super-market” food shoppers indicated that “the quality offood, products, or fruit/vegetables” was the mostimportant factor in their food purchasing decisions,and only 16 percent indicated that “food freshness”was most important.20

Product Handling. Buyers for several large super-market and hypermarket chains in Mexico Cityacknowledged to AMS/ERS/Texas A&M Universityresearch team members in a December 1998 inter-view that public market and tiangui merchants oftendo a better job of taking care of their produce thansupermarkets and chain stores do. Unlike somesupermarket and chain store personnel, who aresalaried employees that may feel little personalresponsibility for the condition of their store’s pro-


16

refers to a permanent, enclosed facility that was builtwith state or local government assistance and contin-ues to be managed by local government authorities.Commercial space at public markets is typicallyleased to large groups of independent small mer-chants, who sell their wares from individual smallkiosks—often numbering in the hundreds—lined upnext to each other (figure 2.2). Depending on thepublic market in question, the kiosks are often divid-ed along merchandise lines; for example, one row ofkiosks might feature prepared food vendors, andanother might feature fresh produce vendors.

Public markets are quite abundant in urban neigh-borhoods in Mexico, with more than 2,600 in opera-tion throughout the country (table 2.2). Nearly 40percent of these facilities are located in the denselypopulated states of the Distrito Federal (D.F.), Estadode México, and Jalisco, home to Mexico’s largest met-ropolitan areas, Mexico City and Guadalajara.

Statistics indicate that public markets are continuingto grow in number. Between 1987 and 1997, forexample, the number of public markets operatingwithin the Distrito Federal grew from 301 to 312facilities.21

The size of individual market facilities can varyconsiderably. According to a survey of public marketsin the Distrito Federal carried out by municipal gov-ernment officials in 1987, the average public markethad 217 tenants. However, the markets in this surveyranged from only 50 or 60 tenants, to one facility—located in the central building of the La Merced mar-ket, the former site of Mexico City’s central wholesalemarket—with nearly 4,000 tenants.

Figure 2.2—Produce vendor at public market in downtown Mexico City

21Public market numbers compiled by the municipal authority in charge of overseeing publicmarkets in the D.F. (Directorio de los Mercados Públicos) in 1987 and 1997. Figures for 1987 cited inAbasto y Distribución de Alimentos en las Grandes Metrópolis: el Caso de la Ciudad de México,Fernando Rello and Demetrio Sodi, Mexico, D.F., 1989, p. 132.

17

Most of the merchants at public markets specializein various types of perishable or prepared foods,although nonfood items such as clothing and toi-letries are frequently added to the overall merchandisemix. A 1987 survey of public market tenants con-ducted by Distrito Federal government officialsrevealed that 28 percent of the tenants sold fruits andvegetables, 7 percent sold various types of fresh meatand seafood products, 7 percent sold other groceryitems (including dairy products and cured meats), 12percent sold prepared food, 14 percent sold ready-to-wear clothing, and 33 percent sold other items.22 Thestrong orientation toward perishable merchandiseobserved at Mexico City public markets in the late1980s is consistent with the observations of

AMS/ERS/Texas A&M University research team mem-bers during their visits to several public market facili-ties in Mexico City and Guadalajara in December1998.23 (Detailed descriptions of these site visits willappear later in this chapter.)

Similar in format to enclosed public markets aretianguis, temporary open-air market facilities erectedat street intersections in urban neighborhoods, wheregroups of small merchants—often unregulated bylocal government authorities—sell wares from smalloutdoor stands that are easily disassembled and trans-ported from location to location. In contrast to theheavily food-oriented merchandise sold at most pub-lic markets, merchandise sold at tianguis typically ismore diverse, ranging from items such as seasonalfresh fruits and vegetables, bread, cheese, snackfoods, and fresh flowers to clothing, leather acces-sories, toys, books and magazines, and even autoparts.

Individual tianguis often stretch for several cityblocks. The average tiangui operating in theGuadalajara metropolitan region, for example, featuresnearly 200 stalls, while one of the largest ofGuadalajara’s tianguis, “El Baratillo,” occupies 48 cityblocks.24 The typical fresh produce stall at a tianguiconsists of no more than a table or two covered withcartons or bins of fresh fruit and vegetables. Well-equipped stalls may be surrounded by collapsiblemetal poles and covered by a piece of fabric to pro-vide minimal protection from the sun (figure 2.3),while other tiangui stalls are completely exposed tothe elements.

In keeping with the temporary nature of their con-struction, many tianguis rotate from one urban neigh-borhood to another on a weekly cycle, in accordancewith a preestablished route, while others operate dailyin the same location. (The number of vendors whosell merchandise at a particular tiangui varies fromseason to season.) The buying and selling of mer-chandise at itinerant markets in Mexico is a well-established custom that reportedly dates back to pre-Hispanic times. Indeed, the pre-Hispanic legacy canbe detected in the fact that these types of markets stillbear their traditional indigenous name.

Statistics on the poorly documented and rapidlyevolving tiangui sector of the Mexican economy indi-cate that the number of tianguis operating in major

Table 2.2—Mexican public markets by state

State Number Percent of total

Aguascalientes 18 0.7Baja California* 2 0.1Baja California Sur 8 0.3Campeche 34 1.3Coahuila* 19 0.7Colima* 15 0.6Chiapas 68 2.6Chihuahua* 48 1.8Distrito Federal** 312 11.8Durango 19 0.7Guanajuato 95 3.6Guerrero 223 8.4Hidalgo 39 1.5Jalisco* 254 9.6Mexico 471 17.8Michoacán 104 3.9Morelos 70 2.6Nayarit* 24 0.9Nuevo León* 21 0.8Oaxaca 130 4.9Puebla 121 4.6Querétaro 34 1.3Quintana Roo 27 1.0San Luis Potosí* 35 1.3Sinaloa 50 1.9Sonora 14 0.5Tabasco 86 3.3Tamaulipas 20 0.8Tlaxcala 17 0.6Veracruz 145 5.5Yucatán 85 3.2Zacatecas 35 1.3

Total 2,643 100.0

Sources: Unless otherwise noted, data obtained from Statistical Annual by State,1997, Instituto Nacional de Estadistica Geografia e Informatica, México, D. F.*Reflects data published in Sistema de Infraestructura Comercial, Secretaría deComercio y Forresto Industrial, México, D. F., 1995.**Reflects data collected by the Mexico City public market authority.

22Cited in Abasto y Distribución de Alimentos en las Grandes Metrópolis: el Caso de la Ciudadde México, Fernando Rello and Demetrio Sodi, Mexico, D.F., 1989, p. 132. Survey conducted bythe Directorio de los Mercados Públicos del D.F. in 1987.

23Ibid. 24“Vertiginoso Crecimento de Tianguis,” Ocho Columnas, Guillermo Gómez , Guadalajara,

Jalisco, December 7, 1998, p. 6A.

18

Mexican cities far surpasses the number of enclosedpublic markets and self-service retail food stores oper-ating in the same metropolitan areas. This suggeststhat one reason for the enduring popularity of tianguismay be their growing accessibility. Surveys taken in1987 and 1998 by municipal authorities in charge offood distribution in Mexico City revealed that approx-imately 833 tianguis operated in at least one neighbor-hood per week in the Distrito Federal, making themnearly three times as prevalent as the area’s 301enclosed public markets and more than three times asprevalent as the 257 private self-service store outlets(including 110 supermarkets and hypermarkets and147 convenience stores or independent grocerystores).25

Despite the rapid and extensive growth of self-serv-ice retail outlets in the 1980s and 1990s, the tiangui

has retained a preeminent position in the retail distri-bution channel for foodstuffs in the Mexico City met-ropolitan area. According to the Mexican agribusinesstrade publication Enlace, the number of tianguis oper-ating routinely in the Mexico City metropolitan areaby the end of 1996 had grown to 1,116, comparedwith 318 public market establishments and 500 self-service supermarkets and hypermarkets operating inthe same region.26

Mexico City is not the only urban population cen-ter in Mexico where the tiangui appears to presentpowerful competition to alternative retail outlets. Astudy commissioned by the Chamber of Commercein Guadalajara and published in late 1998 revealedthat the number of tianguis operating regularly in theGuadalajara metropolitan area had climbed 62 per-cent since 1991 to 292 establishments (table 2.3). As

Figure 2.3—Merchants selling fresh produce at a Mexico City tiangui

25Cited in Abasto y Distribución de Alimentos en las Grandes Metrópolis: el Caso de la Ciudadde México, Fernando Rello and Demetrio Sodi, Mexico, D.F., 1989, pp. 134 and 138. 26Enlace, Mexico City, D.F., vol. 2, no. 10, 1998, p. 1.

19

1998.29 This downward trend contrasts directly withthe steady gain in consumer patronage of public mar-kets for fresh fruit and vegetable purchases during thesame period.30

Studies by the Guadalajara Chamber of Commerceof 12 major local tianguis tend to confirm FMI’s find-ings. Their studies show that, during most of the1990s, the share of tiangui sales derived from transac-tions in household grocery items remained stable atbetween 16 and 17 percent. Although sales of food atthese 12 open-air establishments accounted for 27.4percent of total sales in 1996, compared to only 22.7percent in 1991, virtually all of this increase could beaccounted for by a 4.4-percent increase in sales offood destined for “immediate consumption” (figure2.4). Meanwhile, sales of “basic foodstuffs” barelyrose as a percentage of total sales from 16.4 percentin 1991 to 16.7 percent in 1996.

The following factors may help explain the limitedattractiveness of open-air tianguis as a source ofhousehold groceries among Mexican food shoppers:■ Growing price-sensitivity of the average Mexican

consumer following the peso devaluation and eco-nomic recession of the mid-1990’s;

■ Competitive supermarket and chain store pricingpolicies on perishable merchandise;

■ Lax government oversight of tiangui merchants andtheir commercial practices; and

■ Rising consumer concerns about food safety.Price Issues. Although many tiangui merchants

may lack some of the overhead expenses of publicmarket merchants and are certainly subject to farfewer overhead and operational costs than supermar-ket managers, the relative absence of overheadexpenses at tianguis does not necessarily translate intosignificant savings for the average Mexican consumer.Studies suggest that the prices charged by tianguimerchants for fresh fruits and vegetables are often

a result, the number of tianguis in the Guadalajarametropolitan area now surpasses the number of pub-lic markets (254) said to be operating in the entirestate of Jalisco.27 The importance of tianguis to thelocal economy has grown to such an extent that theyare now believed to account for 40 percent of com-mercial sales transactions in the Guadalajara region,while numerous stalls at enclosed public market facili-ties in the same neighborhoods stand empty or areseverely underused.28

According to investigative journalist GuillermoGómez Susaita, writing for the Guadalajara newspa-per, Ocho Columnas, the aggressive growth of tian-guis in recent years can be attributed to the followingfactors:■ The economic crisis in Mexico in the mid-1990s

and the subsequent devaluation of the peso ledindividuals to seek full- or part-time employmentin the “informal” economy (which includes streetvending).

■ Lax enforcement of commercial regulations by localgovernment officials has permitted a number oftiangui merchants to operate without payingrequired taxes and/or license fees for selling goodson public streets, prompting new entrants into thispresumably profitable sector of the economy.While the absolute number of tianguis might sur-

pass the number of public markets, however, only asmall percentage of tiangui transactions appear toinvolve food items purchased for future consumptionat home. FMI reports that the percentage of Mexicanconsumers who state that they usually purchase freshfruits and vegetables at an open-air market has actual-ly declined consistently in recent years, from a report-ed 38 percent in May 1993 to 11 percent in January

Table 2.3—Growth of tianguis in the Guadalajara metropolitan area, 1991-1998

Category 1991 1992 1993 1994 1995 1996 1998

Number of tianguis 180 196 212 229 245 267 292Number of stalls 34,103 36,831 39,410 42,563 46,876 52,665 n/aNumber of merchants 102,309 110,493 118,230 127,689 143,678 160,654 170,000 Average number of merchants per tiangui 568 564 558 558 586 602 582

Sources: Guadalajara Chamber of Commerce, “Análisis del Comercio Informal 1995-1997,” published by the Universidad de Guadalajara and the Jalisco Center for UrbanStudies. Reprinted in “Vertiginoso crecimento de tianguis,” Ocho Columnas, Guillermo Gómez Sustaita, Guadalajara, Jalisco, December 7, 1998, p. 6A.

27Tianguis figures were compiled by the Guadalajara Chamber of Commerce and were reprintedin the newspaper article, “Vertiginoso Crecimento de Tianguis,” written by Guillermo GómezSustaita and published in Ocho Columnas, Guadalajara, Jalisco, December 7, 1998, p. 6A. The lat-est public market figures available for the state of Jalisco were compiled by the BusinessInfrastructure System section of the Mexican Secretariat of Commerce and Industrial Developmentin 1995.

28“Vertiginoso Crecimento de Tianguis,” Ocho Columnas, Guillermo Gómez Sustaita,Guadalajara, Jalisco, December 7, 1998, p. 6A.


30Ibid.

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comparable to those charged at public markets andsupermarkets/self-service chain stores for the samecommodities. (The maturity and condition of thesecommodities may, of course, differ at each marketlocation.)

Table 2.4 shows some examples of the differentialsthat have been reported between the retail prices of

similar fresh produce items at tianguis, public mar-kets, and self-service supermarket outlets in MexicoCity, based on information collected between 1987and 1989 by the municipal government agency incharge of overseeing food distribution and wholesal-ing activity in Mexico City (Coordinación General deAbasto y Distribución or COABASTO). These price dif-ferentials reveal that tianguis, while conveniently locat-ed and possibly offering a superior range of producesizes and maturities, may not always provide the bestbargain in terms of prices alone.

The table presents retail price indices for nine pri-mary fresh produce items purchased over a period ofseveral years by Mexico City consumers at supermar-kets, tianguis, and public markets. These indices werecalculated using actual average food market prices col-lected between 1986 and 1989 by COABASTO,which attempted to analyze the differences, if any,between the average retail price charged by self-serv-ice supermarkets and more traditional retail outletsfor those fresh produce items most commonly pur-chased by Mexico City consumers.

Rather than hovering at the high end of the retailprice range, as might have been expected given theirhigher operational costs, the prices charged by super-markets often hovered near the average retail pricerecorded in other Mexico City food market outlets.Moreover, in the case of four produce items (toma-toes, avocados, papayas, and limes), the averagemonthly supermarket price actually fell below the

0

10

20

25

30

1991 1996

Source: “Vertiginoso crecimento de tianguis,” Ocho Columnas, Guillermo GómezSustaita, Guadalajara, Jalisco, December 7, 1998, p. 6A. Data obtained from GuadalajaraChamber of Commerce.

Figure 2.4—Breakdown of goods sold at Guadalajaratianguis

15

5

Imported goods

Costume jewelry Toys

Other merchandiseClothing

Food for immediateconsumption

Basic foodstuffs Shoes/leather Household articles

Table 2.4—Retail prices of produce by channel, Mexico City, 1986-1989 (Mexico City average = 1.00)

Retail price index

Supermarket/ Produce item Month(s) Year Public markets Tianguis Supermarkets tiangui price ratio

Tomatoes May 86 1.24 0.96 0.96 1.00August 86 1.16 0.87 1.04 1.19

Papayas (red) May-October 89 0.93 0.90 1.12 1.24Papayas (yellow) May-October 89 1.00 0.95 0.95 1.00Avocados October 88 1.19 1.10 0.86 0.78

January 89 1.08 1.01 1.05 1.04July 89 0.99 0.94 1.14 1.21October 89 1.22 1.12 0.86 0.77

Limes March 88 1.15 0.88 0.85 0.96Oranges December 87 1.02 0.99 1.06 1.07

July 87 1.01 0.97 1.12 1.15Chile peppers February 88 1.06 0.94 1.21 1.28

June 88 1.03 0.96 1.25 1.30August 88 1.10 0.89 1.00 1.12

Onions December 86 0.93 0.89 1.08 1.21May 86 0.98 0.92 1.11 1.21

Potatoes April 87 0.97 0.90 1.13 1.25

Source: Calculated by Texas A&M University Market Research Center using the average retail prices in Mexico, D.F., provided in the series of publications, Sistema Producto

Para el Distrito Federal, produced by the organization Coordinación General de Abasto y Distribución between 1987 and 1991.

21

overall average for Mexico City food markets. Overall,the ratio of supermarket prices to the average retailprice for the same commodity at a variety of modernand traditional market outlets ranged from a low of0.85 (limes) to 1.25 (chile peppers).

The idea that supermarket prices for fresh producein Mexico are often competitive with prices chargedby traditional markets is also supported by retail pricedata recently gathered by the federal agency in chargeof enforcing Mexico’s Law of Consumer Protection, ElInstituto Nacional del Consumidor y la ProcuraduríaFederal del Consumidor, known by the acronym PRO-FECO. Figures 2.5 and 2.6 depict the results of 5months of retail price data collected by PROFECOduring the summer and fall of 1999 to determinewhich category of retail store—open-air tianguis,supermarkets/chain stores, and other retail food mar-kets—was responsible for charging consumers the“minimum” and “maximum” retail prices for individ-ual produce items. During each survey period, pricedata were collected on 80-90 fresh produce com-modities/different commodity varieties. The data indi-cate that the maximum price for a fresh produce itemwas far more likely to be found at a supermarket orchain store than at an open-air tiangui or other retailmarket outlet on any given day. However, individualsupermarkets and chain stores were also responsiblefor offering the lowest retail price for fresh producecommodities more frequently than any other retaildistribution channel. According to 21 price surveyscarried out by PROFECO between August 13 andDecember 15, 1999, individual supermarkets/chainstore outlets accounted for the greatest number of“minimum” retail prices for fresh produce.Supermarkets/chain stores offered the lowest retailprices on most of the surveyed commodities 57 per-cent of the time (12 out of 21 occasions), comparedto 43 percent of the time for open-air tianguis.

Information collected by members of theAMS/ERS/Texas A&M University research team duringDecember 1998 at various Mexico City food marketstends to reaffirm the observations of COABASTO andPROFECO. The information suggests that individualsupermarkets, even those located in affluent neighbor-hoods, may offer prices on perishable fresh produceitems that are highly competitive with neighborhoodtianguis (table 2.5).

Supermarket executives in Mexico frequently claimthat the tiangui is a major source of competition inselling perishable food to retail consumers because

the extremely limited overhead costs of tiangui mer-chants enable them to pass along cost savings to theconsumer. However, the price information collectedby COABASTO, PROFECO, and members of theAMS/ERS/Texas A&M University research team sug-gests that, contrary to popular opinion, supermarketsare frequently quite price-competitive with neighbor-

8/1/1999

90

Source: Instituto Nacional del Consumidor y la Procuraduria Federal del Consumidor,Mexico D.F., posted on the following Internet site between August 1999 and January2000: http://www.profeco.gov.mx/precios/fruta.htm.

Figure 2.5—Number of produce items sold at low end ofretail price range by channel

Supermarkets/chain stores Other retail outletsTianguis

80

70

60

50

40

30

20

10

0

9/1/1999 10/1/1999 11/1/1999 12/1/1999

8/1/1999

90

Source: Instituto Nacional del Consumidor y la Procuraduria Federal del Consumidor,Mexico D.F., posted on the following Internet site between August 1999 and January 2000:http://www.profeco.gov.mx/precios/fruta.htm.

Figure 2.6—Number of produce items sold at high end ofretail price range by channel

Supermarkets/chain stores Other retail outletsTianguis

80

70

60

50

40

30

20

10

0

9/1/1999 10/1/1999 11/1/1999 12/1/1999

22

hood tianguis with regard to fresh produce prices. Asdiscussed earlier, the price-competitiveness ofMexican supermarkets, compared with traditionalretail outlets, appears to be related to the perishabilityof the produce item in question (table 2.4). In thecase of produce commodities that are relativelydurable (e.g., potatoes, onions, chile peppers), super-markets appear to be less price-competitive than alter-native market outlets, while they tend to be the mostprice-competitive with respect to those produce com-modities that are highly perishable (such as tomatoesand avocados).

The relationship between product perishability andsupermarket price-competitiveness may be explainedby two factors. The first is that supermarkets mayappear to offer more attractive prices on average forspecific perishable commodities than traditional mar-kets because they tend to charge the same flat pricefor each item within a specific product category. Incontrast, most tianguis and public markets tend tosort and display individual items within each com-modity category according to their specific size, con-dition, or level of maturity and price these items toreflect these underlying differences in product quality.Thus, in the case of goods where slight differences inripeness and maturity contribute substantially to theperceived value of the product, such as tomatoes andavocados, tianguis and public markets are more likelyto charge a premium for the highest quality productwithin a given commodity category.

Moreover, given the relatively small volume of mer-chandise that the standard operator of a tiangui orpublic market stall is able to handle on a daily basis, amerchant at a tiangui or public market has a greatfinancial incentive to handpick merchandise at thelocal wholesale market with an eye toward maximiz-

ing the profit that he or she can obtain from eachindividual produce item. Thus, it is quite possiblethat this incentive leads tiangui and public marketmerchants to stock their shelves with an unusuallyhigh percentage of perishable goods that meet exact-ing quality standards and can be expected to bring aprice premium in the marketplace.

Another factor that may help supermarkets andchain stores offer more competitive prices on highlyperishable produce items is the fact that supermarketsand chain stores typically have vastly superior accessto refrigeration than either tianguis or public markets.This substantially reduces the possibility that they willlose sensitive inventory through spoilage.

While traditional markets such as open-air tianguismay still edge out Mexican supermarkets and chainstores in terms of overall price competitiveness infresh produce, it is important to reflect that the cur-rent competitive pricing policies of Mexican super-markets have yet to fully reflect the benefits that mayaccrue from greater dependence on direct procure-ment and improved logistical efficiency. The establish-ment of regional produce distribution centers by indi-vidual supermarket and chain store firms is justbeginning to take root in Mexico. Supermarket pro-curement officials estimate that it takes about 20retail stores in a region to justify the construction andoperation of an independent produce distributioncenter in Mexico. Consequently, the ability of super-markets and chain stores to compete on price againsttraditional retail market channels may well increase infuture years, as a greater number of supermarkets andchain stores succeed in reducing their dependence onintermediaries in the supply procurement process.

Oversight Issues. The waning popularity of tian-guis as a primary source for fresh produce may also be

Table 2.5—Comparative retail prices of selected fresh produce commodities, Mexico City, D.F., December 1998

Wal-Mart Supercenter, Auchan hypermarket, Carrefour hypermarket,Weekly tianguis, Condesa Satelite (upper-middle Coyoacán (middle-class Polanco

Product type (middle-class community) class community) community) (affluent community)

Globe tomato 15.00 pesos/kg n/a 13.00 pesos/kg 13.75 pesos/kg(68 cents/lb.) (59 cents/lb.) (63 cents/lb.)

Iceberg lettuce 8.00 pesos/head 4.90 pesos/head 4.90 pesos/head n/a(36 cents/head) (22 cents/head) on special

(22 cents/head)

Chayote squash 4.00 pesos/kg 5.40 pesos/kg 2.30 pesos/kg n/a(without spines) (18 cents/lb.) (25 cents/lb.) (10 cents/lb.)

Source: Direct observations, AMS/ERS/Texas A & M University research team, December 1998. Peso conversion based on U.S. Federal Reserve midday exchange rates for theMexican peso for December 9, 1998 (9.954 Mexican pesos=1 U.S. dollar).

23

related to perceptions that customers might be morevulnerable to fraudulent business practices at a tianguithan at another type of market. At both public mar-kets and tianguis, it is standard practice for a mer-chant to select and weigh fresh produce items onbehalf of a customer, frequently on a scale that isobscured from the customer’s view. However, mer-chants at public markets, who lease space from pub-licly managed buildings and return to the same com-mercial location every day, are reportedly subject togreater scrutiny and inspection by local governmentofficials—and are more likely to use reliable weightsand measures—than merchants at transient tianguis.Guillermo Gómez Gustaia’s December 1998 articleon tianguis in the Guadalajara newspaper, OchoColumnas, comments that a chief social problem cre-ated by the surge of tianguis in recent years has beenthe lack of supervision over weights and measures,prompting some unscrupulous tiangui merchants tosell 800 or fewer grams of a food item for the price ofone kilogram.31

Food Safety Issues. Another reason that tianguismay not be faring quite as well among fresh fruit andvegetable shoppers relates to food safety and concernsabout spoilage. Since the mid-1990s, the confidenceof Mexican household shoppers in the safety of thefood they purchase from their primary food marketappears to have dropped considerably. Whereas 82percent of the shoppers interviewed by FMI inJanuary 1995 and 1996 indicated they were “mostly”or “completely” confident in the safety of the foodthey purchased from their primary food store, thispercentage dropped to 70 percent by January 1998.32

The most dramatic change was related to concernsabout spoilage, with 27 percent reporting in January1998 that they considered spoilage and germs athreat to food safety, compared with similar responsesfrom 5 percent of the interview sample in January1995 and 14 percent in January 1996.33

The consumers with the least confidence in thewholesomeness of their food were those who mostregularly patronized a public market or tiangui (com-pared with those who most regularly patronized a cor-ner grocery store, convenience store, or self-servicesupermarket). Only 60 percent of regular public mar-

ket/tiangui consumers interviewed by FMI in January1998 indicated that they were “completely” or “most-ly” confident in the safety of food purchased fromtheir primary food market. This compares with 70percent of those who usually purchased their food ata corner or convenience store and 74 percent of thosewho usually purchased their food at a supermarket.34

Because open-air tiangui markets tend to provide lessprotection from heat and humidity than other mar-kets and reportedly operate with less regulatory over-sight than other retail food outlets, the limitedpatronage of tianguis as a source of fresh fruit and veg-etables may reflect concern among increasingly safety-conscious Mexican consumers about the wholesome-ness of perishable food sold at tianguis.

Merchandising Practices at TraditionalMarkets

Whether fresh fruit and vegetables are sold at anenclosed public market or an open-air tiangui, pro-duce merchants at both markets typically share thefollowing practices:■ Focus on bulk produce. Most produce merchants

at public markets and tianguis display their freshfruit and vegetables in shallow bins sitting on topof a counter or table, usually packed until theyoverflow. Individual groups of commodities aretypically displayed to maximize their color and eye-catching appeal, and merchants frequently cutopen pieces of ripe fruit so that prospective buyerscan taste and smell samples. Given the emphasis oftraditional markets on allowing customers to havetactile exposure to the fresh fruits and vegetablesthey are interested in purchasing, it is unusual tosee displays of wrapped or packaged produce attraditional market stalls.

■ Narrow product specialization but strong atten-tion to differences in quality. Produce merchantsat public markets and tianguis generally carry a farmore limited selection of produce than the averagesupermarket or chain store food retailer. The mostextensive array of produce observed by theAMS/ERS/Texas A&M University research team atany public market or tiangui in December 1998involved about 50 individual produce items, com-pared with the more than 200 produce stock-keep-


32Tendencias en México: Actitudes del Consumidor y el Supermercado, Food MarketingInstitute, Washington, DC. 1998, p. 148.

33Ibid.


24

ing units carried on average in Mexican supermar-kets and chain stores.35 However, unlike most oftheir chain store competitors, public market andtiangui produce merchants typically attempt to dis-tinguish themselves by offering several differentcategories of the same commodity variety (e.g.,Roma tomatoes or Cavendish bananas) that havebeen sorted and assembled to reflect differences inappearance, size, or maturity (figure 2.7). Each ofthese product categories is priced differently toreflect the quality distinctions.

■ Lack of climate control, which encourages quickturnover of merchandise. Merchants at publicmarkets and tianguis usually store and display freshfruits and vegetables at ambient temperature, andthe only protection from the elements is the shadeof an enclosed public market building or the fabric

used to cover a tiangui stall. Without routineaccess to cold storage or refrigeration, public mar-ket and tiangui merchants typically purchase theirdaily inventory at central wholesale markets andlimit their inventory to what they expect to sellduring the course of a day. Therefore, they are ableto purchase and resell perishable products with anextremely limited shelf life (such as fully ripenedbananas and tomatoes).

■ Limited self-service. Produce merchants at publicmarkets often select and weigh items on behalf of acustomer, rather than permit a customer to selectand weigh his or her own merchandise. (Somemerchants weigh merchandise on a scale that iswithin full view of the customer, while others donot.) Those public markets that allow customers tohandle and select their own fresh fruit and vegeta-bles frequently charge a premium for the privilege.

■ Price bargaining. While many public market pro-duce merchants—though certainly not all—post“official” prices for their merchandise, they are

Figure 2.7—Different maturities of fruit displayed at a Mexico City public market

35Information about Mexican supermarkets and chain stores obtained during interviews withrepresentatives of the Asociación Nacional de Tiendas de Autoservicio y Departmentales in Mexico City,December 10, 1998.

Domestically produced tropical and semitropicalcommodities, such as oranges, limes, watermelons,pineapples, papaya, and guavas, dominated the selec-tion of fresh fruit, though a small quantity of import-ed temperate fruits, such as apples and red grapes,were included in the merchandise mix. The predomi-nant vegetables and herbs on display included toma-toes (both plum and globe), washed white Alpha vari-ety potatoes (the favorite variety throughout most ofMexico), onions, lettuce (mostly iceberg, someromaine), jalapeño peppers, carrots, cilantro, jicama,chayote squash, and tomatillos. Merchants also offeredsmaller quantities of red radishes, squash blossoms,cucumbers, cauliflower, and broccoli. Roma (plum)tomatoes far outnumbered globe tomatoes (perhapsaccounting for 80 percent of the total). The vastmajority of onions were white onions, which mostMexican consumers strongly prefer (instead of the yel-low onions commonly sold in U.S. supermarkets andthe red onions that are most popular in northwesternMexico). The only cucumbers in evidence were smallpickling cucumbers (similar to the “Kirby” variety).

The cosmetic appearance and uniformity of someof the highly perishable commodities sold at this pub-lic market—most notably the lettuce and tomatoes—were visibly superior to the quality of the same com-modity observed by research team members in nearbysupermarkets. Virtually all of the produce at the mar-ket was displayed and sold in bulk. The exceptionwas cellophane-wrapped Styrofoam trays of assortedvegetables labeled “soup sets” (consisting primarily offresh corn and cabbage).

Most of the market’s produce merchants visiblyfeatured a small quantity of U.S.-origin fresh fruit intheir stalls (either red grapes or d’Anjou pears in linewith the December season). The merchants used thefruit’s U.S. origin as a marketing tool, displaying itwith tissue paper or mesh bags that indicated thefruit had been grown and/or packaged in the UnitedStates (figure 2.8). Unfortunately, most of the U.S.-origin fruit on display had suffered some apparentdamage from bruising or crushing.

Mercado Campesino (Public Market Located inWorking-Class Residential Neighborhood,Guadalajara, Jalisco). This market facility—poorlylit, rundown, and generally dirty—restricted its mer-chandise to perishable and prepared food exclusively.While produce merchants carried merchandise similarto the Mercado de San Juan de Dios in terms of basicproduct mix and the ranges of sizes and maturities

25

often willing to entertain counteroffers fromprospective customers.

■ “Cash-only” sales. Cash is the only form of pay-ment typically accepted by public market vendors.Differences in Desirable Quality Characteristics

In Traditional Mexican Markets, Compared toTypical U.S. Product Preferences. Another factorthat should be considered when selling fresh produceto Mexico is that the average Mexican traditional mar-ket shopper may be accustomed to—and be willingto tolerate—fresh fruit and vegetables with qualitycharacteristics that might be considered serious liabili-ties in the U.S. marketplace. Notable examples of dif-ferences in commodity preferences observed by mem-bers of the AMS/ERS/Texas A&M University researchteam included the following:■ Most oranges on display were (naturally) green in

color.■ Carrots were generally very large and thick by U.S.

standards (except for a few baby carrots) and fre-quently exhibited external scarring and cosmeticdeformities (e.g. having crooked shapes rather thanstraight shapes).

■ The selection of apples was dominated by small-sized fruit (primarily the Red Delicious variety).

■ Jalapeño peppers were generally large and darkgreen in color, with extensive external scarring.

Highlights of Field Visits to Public Marketsand Tianguis in Guadalajara, Jalisco, andMexico City, D.F., December 1998

Mercado San Juan de Dios (Public Market,Located in Downtown District, Guadalajara,Jalisco). At this particular market, less than half of theselling area appeared devoted to perishable products.Many of the stalls in this popular tourist destinationjust prior to the Christmas holidays were dedicated togarments, electronics, and toys. Within the producesection, research team members observed no morethan 30 fresh fruit and vegetable items on display.Most individual merchants—lacking any visible coldstorage capability—appeared to carry no more than10 to 15 fresh produce items in current inventory,practically all of them displayed in bulk bins onwooden countertops. However, while these merchantstended to carry a fairly narrow selection of fresh fruitand vegetables, they typically offered each commodityin a variety of sizes and conditions (such as small andlarge oranges or bananas at various stages of maturity).

26

within individual product categories, they featured aless extensive selection of commodities (about 15produce items). The quality of the merchandise ondisplay was frequently poorer than at the San Juan deDios public market. Bananas, potatoes, tomatoes(mostly plum tomatoes), tomatillos, white onions,Red Delicious apples, oranges, and Key limes werethe most popular items on display, with lesser quanti-ties of chayote squash, green beans, guavas, pears, andcauliflower also offered for sale. The products thatappeared to suffer the worst damage in the warmmarket were fruits and vegetables produced in tem-perate climates (some of which were imported fromthe United States)—apples, pears, and cauliflower.There was no evidence that any of the produce mer-chants had any on-site access to cold storage or refrig-eration for their perishable product inventory.Although the produce merchants at the MercadoCampesino typically selected and weighed producefor their customers, some merchants offered cus-

tomers the option of selecting their own merchandisefor a small premium (they advertised this service withsigns at their stalls).

Many of the individual fresh fruit and vegetableproducts on display at the Mercado Campesino—par-ticularly the Key limes, plum tomatoes, and guavas—were very small. The smallness perhaps represented away in which merchants attempted to appeal to theirfrequent-shopper and price-sensitive customer baseby enabling customers to buy a very precise amountof an individual commodity at any single visit to themarket. All of the produce items on display were mer-chandised and sold in bulk form, although in the caseof tomatillos, some merchants provided the value-added service of peeling the husks from part of theirtomatillo inventory so that they could charge a premi-um for the peeled version.

Tiangui “El Baratillo” (Located in Working-Class Residential Neighborhood, Guadalajara,Jalisco). This huge, open-air street market—stretch-

Figure 2.8—U.S.-origin pears displayed with tissue paper featuring “USA Pears” logo at Mercado San Juan de Dios(public market), Guadalajara, Jalisco, December 1998

27

ing more than 40 city blocks with stalls selling every-thing from clothing to auto parts—contained a smallselling area devoted primarily to fresh produce. Therange of fresh produce available was very limited andheavily dominated by plum tomatoes, white onions,white Alpha potatoes, nopal (prickly pear cactus)leaves, winter squash, oranges, bananas, chile pep-pers, apples, mandarin oranges, watermelons, andU.S.-origin d’Anjou pears (in terrible condition). Ingeneral, the quality of the fresh produce at the “ElBaratillo” tiangui appeared worse than that of most ofthe fresh produce on display at the public markets inGuadalajara. The poorer quality may have been relat-ed to the absence of shelter and protection from thesun at the tiangui. Unlike the Mercado Campesino,tiangui customers were not given the option of select-ing their own merchandise. Produce was typicallyhand-selected by vendors and weighed by them onmechanical scales out of the viewing range ofcustomers.

Mobile Open-Air Tianguis, Condesa, MexicoCity, D.F. (Middle-Income Urban Neighborhood).This tiangui, which moves from one street corner toanother on a 7-day cycle within the Condesa neigh-borhood, occupied the better part of a large city blockwith 40-50 open-air, cloth-covered stands. Most ofthe items offered for sale—perhaps 80 percent—con-sisted of fresh fruits and vegetables, although someprepared food and snack food was available as well.Members of the AMS/ERS/Texas A&M Universityresearch team counted about 50 separate produceitems offered for sale. The product selection was high-ly concentrated among a handful of staple and sea-sonally available items, notably mandarin oranges(with leaves still attached), Roma (plum) tomatoes,white onions, iceberg and romaine lettuce, andbananas.

Several commodities on display were categorizedby size and maturity and were being offered at differ-ent prices in accordance with their different qualitycharacteristics. Most prominent among the commodi-ties displayed at a wide range of sizes and maturitylevels were Red Delicious apples (different sizes),bananas (different sizes—both standard and petitevarieties—and different maturities), and avocados(different maturities). Green d’Anjou pears from theUnited States, the only visibly imported fresh produceitem being sold at the tiangui, were displayed for salestill partially wrapped in the green tissue paper usedduring shipment. The produce vendors were appar-

ently using the tissue paper—which prominently fea-tured a “USA” logo—as a marketing tool.

Self-Service Supermarkets and Chain StoresFinding Niche in Mexican FoodMarketplace

While public markets and tianguis remain appeal-ing to many Mexican shoppers, especially for freshproduce items where product ripeness and maturityare strongly related to quality, modern self-servicesupermarkets and chain stores have grown andexpanded aggressively in recent years and havebecome an increasingly available source of perishablefoods. Between 1986 and 1997, the number of self-service supermarkets and mass-merchandise chainstores in Mexico that offer full-line grocery and per-ishable food departments nearly doubled from 522 to1,028 establishments.36 (While this aggressive growthrate is impressive, it is also important to recognizethat the overall penetration of chain store food mar-keting in Mexico—and its influence on consumerbehavior and food market choice—continues to lagfar behind that seen in more developed economiessuch as the United States. At the end of 1997, thenumber of chain-operated, self-service food marketsin Mexico represented only one store for every91,163 residents, compared with approximately8,671 residents for every supermarket/wholesale clubstore in the United States during the same period.37)

ANTAD, Mexico’s national association of self-serv-ice and department stores, defines the variety ofMexican chain stores currently operating in the coun-try as follows:■ Megamarkets offer a full line of grocery and depart-

ment store merchandise (such as clothing and elec-tronics), usually occupy more than 10,000 squaremeters (approximately 107,639 square feet) ofcommercial space, and typically offer a variety ofservices to consumers in addition to retail goods.

36Figures for 1986 obtained from “Abasto y Distribución de Alimentos en las GrandesMetrópolis: el Caso de la Cuidad de México,” Fernando Rello y Demetrio Sodi, Nueva Imagen,Mexico, D.F., 1989. Figures for end-1997 obtained from Directorio 1998 de la Asociación Nacionalde Tiendas de Autoservicio y Departamentales, Mexico, D.F., 1998. These figures exclude 948 con-venience stores that typically offer a limited selection of fresh produce.

37Mexican supermarkets statistics for end-1997 excerpted from Directorio 1998 de laAsociación Nacional de Tiendas de Autoservicio y Departamentales, Mexico, D.F., 1998, pp. 24-25. Mexican 1997 population data are drawn from “Encuesta Nacional de la DinámicaDemográfica, 1997: Methodología y Tabulados, 1999,” available at http://www.inegi.gob.mx/pobla-cion. U.S. grocery industry statistics for 1997 (based on 30,300 supermarkets and 730 wholesaleclub stores) obtained from “65th Annual Report of the Grocery Industry,” Progressive Grocer, NewYork, NY, April 1998, p. 10. U.S. population statistics for January 1, 1998, obtained from“Monthly Estimates of the United States Population: April 1, 1980 to June 1, 1999,” U.S. CensusBureau, Washington, DC, posted athttp://www.census.gov/population/estimates/nation/intfile1.1.txt.

28

■ Hypermarkets offer an extensive line of grocery andnongrocery merchandise, usually occupy between4,500 and 10,000 square meters (48,438 to107,639 square feet) of commercial space, andtypically offer a variety of services to consumers inaddition to retail goods.

■ Bodegas carry most grocery and nongrocery prod-uct lines, which they sell to customers at discount(wholesale and semiwholesale) prices. To keepoperating costs and prices low, bodegas offer few ifany services to customers and typically displaymerchandise with a minimum of decoration (thebodega format is similar to what is known as a“warehouse” retail store format in the UnitedStates). Individual bodegas in Mexico typicallyoccupy more than 2,500 square meters (26,910square feet) of commercial space.

■ Supermarkets principally carry perishable goods,other grocery items, and general merchandise(such as health and beauty aids) and typicallyoccupy between 500 and 4,500 square meters(between 5,382 and 48,438 square feet) of com-mercial space.

■ Membership clubs principally carry groceries, perish-ables, clothing, and general merchandise (such ashealth and beauty aids), much of which is pack-aged for sale in bulk-sized or multiple-unit packag-ing and sold to club members at wholesale orsemiwholesale prices. Individual membership clubstores in Mexico typically occupy more than 4,500square meters (48,438 square feet) of commercialspace and display merchandise with a minimum ofdecoration in an attempt to reduce operating costs.Similar to North America and Western Europe, the

most aggressive growth among Mexican chain storegrocery retailers has been by those firms that feature adiverse array of grocery and department store mer-chandise at a single location. Consequently, by thebeginning of 1998, more than 60 percent of chainstore grocery retail establishments in Mexico (exclud-ing convenience stores) consisted of mass-merchan-dise stores that offered a broad mix of grocery andnongrocery merchandise.38 Commercial display spacein these stores averaged 6,000 square meters (about64,583 square feet), more than three times that ofaverage conventional chain supermarkets in Mexico

(1,824 square meters, equivalent to 19,633 squarefeet).39

One result of Mexico’s very recent expansion intochain store grocery retailing is the fact that Mexico’semerging (and comparatively tiny) self-service groceryindustry may have become more heavily dominatedby mass-merchandise operators—and have largerstore facilities on average—than the U.S. self-servicegrocery industry. Compared to the chain-operatedgrocery sector in Mexico, nearly 60 percent of super-market stores in the United States—defined as anyfull-line, self-service grocery store with annual salesover $2 million, regardless of format—still offered aconventional store format primarily restricted to gro-cery and general merchandise as of 1998.40 Only 30percent of U.S. supermarkets (so-called superstoresand combination stores) offered customers an“extended” store format, featuring an extensive arrayof nonfood items and service departments in additionto traditional grocery items. Ten percent offered cus-tomers an “economy” format, emphasizing discountmerchandise, much of it sold in bulk, multiunit, orinstitutional-sized packaging.41

The continued domination of older, conventional-format stores in the United States has meant that theretail display space of the average U.S. supermarket isconsiderably smaller than that of a chain store foodmarket in Mexico. The average retail selling area of aU.S. supermarket in 1998 measured only 28,155square feet (2,616 square meters), compared with anaverage of 47,318 square feet (4,396 square meters)among Mexico’s 1,028 self-service chain store foodmarkets during the same time period.42 Thus, themarketing practices of most of Mexico’s chain-operat-ed food retailers—emphasizing an extensive selectionof grocery and nongrocery items in a single loca-tion—in some ways reflect a more “cutting-edge”approach to food marketing than those followed bythe average chain-operated U.S. supermarket.

38Ibid. Mass-merchandise stores are defined here as megamarkets, hypermarkets, bodegas andmembership clubs.

39Ibid.40Source: “66th Annual Report of the Grocery Industry,” Progressive Grocer, New York, NY,

April 1999, p. 10. Statistics exclude convenience stores and wholesale club stores.41Source: “66th Annual Report of the Grocery Industry,” Progressive Grocer, New York, NY,

April 1999, p. 10. U.S. supermarket statistics exclude convenience stores (57,000 establishments)and wholesale club stores (750 establishments). “Economy” format supermarkets cover a broadcategory of retail establishments, which specialize in discount merchandise, such as limited assort-ment and warehouse stores, which emphasize dry grocery items and offer few perishable items andservice departments, to super warehouse, hypermarket, and supercenter stores, which typically fea-ture an extensive array of nonfood items in addition to a full line of grocery and pharmacy mer-chandise.

42U.S. supermarket statistics excerpted from “66th Annual Report of the Grocery Industry,”Progressive Grocer, New York, NY, April 1999, p. 12. Mexican statistics excerpted from Directorio1998 de la Asociación Nacional de Tiendas de Autoservicio y Departamentales, Mexico, D.F.,1998, pp. 24-25. U.S. statistics exclude convenience and wholesale club stores, and Mexican sta-tistics exclude convenience stores.

fruits and vegetables at large-scale chain supermarketsand mass-merchandise retail outlets often comparevery favorably with prices for the same commoditiesat neighborhood public markets or open-air tianguis.This factor may well be related to the superior effi-ciency of the large-scale and centralized procurementand distribution systems used by many chain storefirms.

Recent surveys of consumer food market prefer-ences in Mexico suggest that attractive pricing policiesmay be a primary reason why certain Mexican groceryshoppers choose to patronize supermarkets. In FMI’sJanuary 1998 survey, 93 percent of the shoppers whousually purchased food at a supermarket indicatedthat “good, reasonable prices” heavily influencedwhere they shopped. That share compares with 88percent of consumers who primary shopped at tradi-tional markets or specialty stores and 86 percent whoprimarily shopped at corner stores.43

In addition to their perceived price-competitive-ness, supermarkets and other mass-merchandisechain retailers provide a number of benefits thateither cannot be obtained—or are not easilyobtained—from alternative retail sources in Mexico.These include:■ Superior product selection in perishables;■ Superior product shelf-life through cold storage

and refrigeration;■ Self-service;■ Safe shopping environment; and■ Fresh-cut/value-added produce items.

Broad Product Selection. Supermarkets and mass-merchandise chain stores, by virtue of their physicalstructure and cold storage capabilities, can accommo-date much larger inventories than individual freshproduce vendors at public markets or tianguis.Consequently, supermarkets and those mass-mer-chandise chain stores in Mexico that feature producedepartments tend to offer a far more extensive line offruits and vegetables than their public market andtiangui competitors. However, their inventories stillpale in comparison with the standard array of pro-duce items offered by average U.S. chain supermar-kets or mass-merchandise retailers.

According to representatives from ANTAD inter-viewed in December 1998, the average Mexicansupermarket chain or mass-merchandise retail store

29

Market Share of Mexican Chain Store FoodRetailers

Although Mexican-origin firms, such as Giganteand Comercial Mexicana, continue to dominate thelocal food retail scene, prominent international retailfirms are increasingly staking their claim in theMexican retail sector, often with help of joint venturearrangements with Mexican supermarket chains(figure 2.9).

The Mexico City metropolitan area remains thecenter of the country’s food chain store activity,accounting for 22 percent of all supermarket and

mass-merchandise retail chain stores selling groceryitems in 1998. Nevertheless, chain supermarkets andmass-merchandise chain stores have spread to everystate of the country in the past decade, although thesouthwestern region (including the states of Guerrero,Chiapas, and Oaxaca) still lags behind the rest of thecountry (table 2.6).

Reasons for Growing Popularity of Self-Service Stores in Mexico

Price Competition. One reason for the growingpopularity of chain supermarkets and mass-merchan-dise retail outlets in Mexico appears to be linked towidespread perceptions that chain stores offer pricesthat are equally, if not more, competitive with alterna-tive market outlets. As noted earlier, prices for fresh

3%

Source: Directorio 1998 de la Asociación Nacional de Tiendas de Autoservicio yDepartamentales, Mexico, D.F., 1998. Note that these figures exclude convenience storesfrom the total. In 2000, the Cifra Group officially changed its name to Wal-Mart deMéxico (the majority owner).

Figure 2.9—Market share of various retail food chains inMexico, January 1998

Wal-Mart de México

Aurrera/Superama(part of Cifra Group)

Price Club (part ofCommercial Mexicana)

Casa Ley

Soriana

Chedraui

Commercial Mexicana(excluding Price Club)

Gigante

Other

13%

1%

7%

6%

4%

11%

18%

37%


30

currently offers approximately 224 stock-keepingunits in its produce department, although the num-ber handled by individual stores at any given timemay range from 69 to 389.44 Collectively, these super-market and mass-merchandise firms may feature asmany as 600 different produce items over the courseof the year, many of them on a seasonal basis only.45

In contrast, the average supermarket in the UnitedStates carries over 500 produce stock-keeping units,nearly twice as many as the average Mexican super-market or mass-merchandise retail store. The largestU.S. supermarket firms report that they can get asmany as 1,100 different produce items from theirsuppliers.46

While the range of produce offered by standardsupermarkets or mass-merchandise retail stores inMexico may be small by U.S. standards, the morethan 200 produce items offered by these stores repre-sent an enormous increase from the 50 or fewer itemstypically offered by alternative retail public marketsand tianguis. Therefore, the expansion of chain storeoutlets in Mexico—and the consequent expansion ofretail selling capacity that can accommodate a broader

Table 2.6—Regional distribution of chain supermarkets and mass-merchandise retail food stores, January 1998

Store format Mexico City N.W. region Central S.E.region N.E.region North S.W.region Total

Number of stores

Supermarket 56 92 27 88 52 73 7 395 (38.4%)Bodega 72 1 29 10 10 4 8 134 (13.0%)Hypermarket 76 100 117 34 62 35 13 437 (42.5%)Megamarket 17 4 15 4 3 5 1 49 (4.8%)Membership Club 3 3 5 1 0 0 1 13 (1.3%)

Total mass merchandise, chain-operated food stores* 168 108 166 49 75 44 23 633 (61.6%)

Total chain-operated food stores** 224 200 193 137 127 117 30 1,028

(21.8%) (19.5%) (18.8%) (13.3%) (12.4%) (11.4%) (2.9%) (100.0%)

Source: Directorio 1998 de la Asociación Nacional de Tiendas de Autoservicio y Departamentales, Mexico, D.F., 1998. Note that these figures exclude convenience storesfrom the total. Regional categories are defined as follows: "Central" includes Aguascalientes, Colima, Hidalgo, Estado de México, Guanajuato, Jalisco, Michoacán, Morelos, Puebla, Querétaro, San Luis Potosí, and Tlaxcala."North" includes Coahuila, Chihuahua, Durango, and Zacatecas."N.E." includes Nuevo León and Tamaulipas."N.W." includes Baja California Norte, Baja California Sur, Nayarit, Sinaloa, and Sonora."S.E." includes Campeche, Quintana Roo, Tabasco, Veracruz, and Yucatán."S.W." includes Guerrero, Chiapas, and Oaxaca.*Excluding supermarkets**Excluding convenience stores

selection of specialty fruits and vegetables—has creat-ed new opportunities for marketing a broader range ofimported fresh produce items to the Mexican public.The benefits of providing an expanded range of prod-uct choices to Mexican consumers have been feltmost deeply by suppliers and marketers of U.S.-originproduce.

ANTAD estimates that 4-6 percent of all the pro-duce currently sold in Mexican supermarkets/chainstores is imported and that the vast majority consistsof “frutas finas,” or fruit grown in temperate climates,such as fresh table grapes, peaches, pears, nectarines,kiwi fruits, apples, and apricots.47 (These fruits areapparently known by the collective label, “frutasfinas” or “finer fruits,” because they are still regardedby many Mexican consumers as luxury items ratherthan a standard component of a daily diet, with thepossible exception of apples.) The vast majority of the“finer fruits” that appear on Mexican retail shelvesoriginate in the United States (table 2.7). However, agrowing minority of these items, especially tablegrapes and peaches, are beginning to be shipped byocean freight from Chile to the port of Manzanilloduring the winter season in the NorthernHemisphere. The influx of Chilean imports in recent44Information about Mexican supermarkets and chain stores obtained during interviews with

representatives of the Asociación Nacional de Tiendas de Autoservicio y Departmentales in Mexico City,December 10, 1998.

45Ibid.46Marketing and Performance Benchmarks for the Fresh Produce Industry, Edward W.

McLaughlin, Kristen Park, and Debra J. Perosio, Cornell University, Ithaca, NY, October 1997, p.36.

47Information obtained during interviews with representatives of the Asociación Nacional deTiendas de Autoservicio y Departmentales in Mexico City, December 10, 1998.

31

years has reportedly been prompted by the steadyrelaxation of fresh produce trade restrictions betweenMexico and Chile since the passage of a free tradeagreement between the two countries in 1991.

Despite ANTAD’s claims that imported produceaccounts for only about 5 percent of supermarket andchain store produce sales, information collecteddirectly from retail produce buyers and producedepartment store managers by members of theAMS/ERS/Texas A&M University research team sug-gests that this aggregate figure may understate the rel-ative contribution of imported produce at individualfirms. Representatives of corporate produce procure-ment departments and managers of retail producedepartments from six different supermarket and mass-merchandise chain store firms, contacted by the teamin Mexico City, Monterrey, Guadalajara, and Culiacánbetween March and December 1998, noted that theproportion of imported produce items carried by theirstores ranged from a low of 5 percent to a high of 20percent. Aside from the demand for temperate fruitsmentioned previously, corporate produce buyers,retail produce department managers, and receivers ofperishable commodities noted that there was strongdemand for certain U.S.-origin products (such asonions, tomatoes, and oranges) during times of theyear when Mexican-origin versions of the same com-modity were difficult to obtain. (One supermarketproduce buyer noted that there were even times ofthe year when he would ship jalapeño peppers fromthe United States to Mexico!)

Superior Product Shelf-Life Through ColdStorage and Refrigeration. Climate-controlled super-markets and mass-merchandise retail stores, whichfeature refrigerated display cases in their producedepartments and often maintain their produce inven-tory in cold storage before moving it to retail shelves,clearly offer superior protection for highly perishablecommodities than the standard public market or

tiangui, where refrigeration is rare or nonexistent.According to representatives from ANTAD, the superi-or ability of supermarkets and mass-merchandisechain stores to preserve the quality of fresh fruits andvegetables has reportedly not gone unnoticed bythose Mexican consumers living in regions with veryhot climates. In a December 1998 interview, they esti-mated that probably 30-40 percent of Mexican con-sumers living in regions with hot weather usually pur-chased their fresh produce in a climate-controlledsupermarket or chain store. This compares with the21 percent of shoppers surveyed by FMI in January1998 who indicated they usually purchased freshfruits and vegetables at a self-service supermarket ormass merchandise chain store rather than at anothertype of retail market.48

Rising Concerns About Food Wholesomeness.When evaluating the potential appeal of a tempera-ture-controlled retail environment among Mexicanfresh fruit and vegetable consumers, it may beinstructive to note the extreme importance thatMexican consumers accord food safety issues whenmaking a decision about where to shop. Ninety-threepercent of the participants in FMI’s January 1998 sur-vey reported that food safety was a very important fac-tor in their choice of food market, topping the per-centage of respondents who cited either “producequality” or “reasonable prices” as very importantinfluences.49 Within the category of food safety, thesingle greatest threat to food safety was perceived tobe related to “spoilage and germs.” Twenty-seven per-cent of shoppers reported that they consideredspoilage and germs one of the greatest threats to thesafety of the food they purchased, up from only 5



Table 2.7—Mexican imports of selected temperate fruits, 1997

Product Total imports Imports from Imports from Imports from Imports from U.S. marketcategory (MT) United States Canada Chile other countries share

Metric tons Percent

Apples 115,017 114,181 752 44 40 99.27Pears 41,302 40,193 18 1,090 1 97.31Table grapes 37,345 27,139 n/a 10,176 30 72.67

Source: “Mexico Remains Important Market for U.S. Deciduous Fruit,” USDA Foreign Agricultural Service, U.S. Embassy, MexicoCity, D.F., September 1998.

32

percent in January 1995 and 14 percent in January1996.50

To the extent that these food safety concerns—andconcerns about spoilage in particular—continue toexert greater influence on the food market decisionsof Mexican consumers, the supermarket sector canrealistically be expected to capture a growing share ofthe perishable commodity market. Supermarketsalready retain a considerably better reputation thanalternative retail outlets for providing safe food.Although consumer confidence in food safety haswaned substantially in Mexico in recent years, regard-less of market preference, those consumers who typi-cally patronize supermarkets are beginning to expressa greater degree of confidence in the safety of theirfood purchases than patrons of traditional marketsand specialty stores. Seventy-four percent of super-market shoppers interviewed in January 1998 report-ed that they were “mostly” or “completely” confidentin the safety of the food, compared with only 60 per-cent of public market, tiangui, and specialty storeshoppers. This contrasts with virtually equal respons-es by both groups in January 1996 (with 82 percentof supermarket shoppers and 83 percent of publicmarket/tianguis/specialty store shoppers indicatingthat they were “completely” or “mostly” confident inthe safety of their food purchases).51

“Self-Service,” a New Addition in Local ProduceMarketing. “Self-service” retailers such as supermar-kets and mass-merchandise chain stores offer Mexicanconsumers an opportunity to personally handle,select, and weigh their perishable merchandise, acomparatively rare advantage in a country where suchpractices are relatively uncommon in other marketoutlets. As noted earlier, it is standard practice forpublic market and tiangui merchants to select freshfruit and vegetables on behalf of a retail customer, tothe extent that some public market merchants willactually charge a premium to those customers whowant the “privilege” of selecting their own merchan-dise.52

Similarly, merchants at public markets and tianguistypically weigh merchandise for their customers, oftenon scales that are obscured from their customers’view. Therefore, the customer at traditional market

formats such as a public market or a tiangui is theo-retically more vulnerable to being shortchanged thanat a “self-service” supermarket or mass-merchandiseretail store. The suspicion raised by business practicesat traditional market facilities is particularly acute inthe case of transient tianguis, since merchants at thesemobile markets are believed to be subject to less regu-latory oversight than merchants at permanent, gov-ernment-managed, public market facilities. Also, theimproper use of weights and measures is believed tobe more prevalent at tianguis than at alternative—andmore carefully regulated—market outlets.53

Personal Safety While Shopping. One variablethat is reported to have an exceptionally strong influ-ence on household shoppers in Mexico and may be acontributing factor to growing chain store popularity,especially among higher-income households, is theperception that chain supermarkets and mass-mer-chandise stores provide a superior degree of personalsecurity than other retail outlets. Since 1995, the per-centage of Mexican food shoppers surveyed by FMIwho indicated that personal safety was a “very impor-tant” factor influencing their choice of food markethas consistently equalled or surpassed 90 percent,making personal safety one of only five factors thatwere rated so strongly by consumers. (The other fourfactors were food safety, produce quality, good/reason-able prices, and fresh meat quality.54) The influence ofpersonal safety on food shopping decisions appears tobe more important among higher income householdsthan among members of the general population. InFMI’s January 1998 survey, 99 percent of the respon-dents within the top two income brackets—approxi-mately 20 percent of the sample—indicated that per-sonal safety was a “very important” influence on theirchoice of food market, making it the single mostinfluential factor on store choice within this group.55

In terms of providing a safe shopping environment,chain supermarkets and mass-merchandise retailstores in Mexico appear to offer advantages that aren’treadily available at alternative retail outlets.Supermarkets and mass-merchandise chain stores inMexico usually feature brightly lit, wide shoppingaisles, a stark contrast to the dim surroundings of thetypical enclosed public market and the narrow shop-



52Observations by members of the AMS/ERS/Texas A&M University research team during sitevisits to public markets in Guadalajara, Jalisco, in December 1998.



55Ibid.

33

ping aisles and intense congestion found at mostpublic markets and tianguis. In addition, many super-markets and mass-merchandise chain stores inMexico—especially branches of international firmssuch as Auchan, Carrefour, and Wal-Mart—have cho-sen to hire large numbers of private security guards toroam store aisles and parking lots, and their very visi-ble presence may deter criminal activity.

Superior Selection of Value-Added/ConvenienceFoods. Another area in which supermarkets andchain stores are able to distinguish themselves fromproduce vendors at public markets and tianguis istheir ability to offer fresh-cut and convenience-orient-ed produce items in refrigerated display cases that canmaintain fragile items at proper handling tempera-tures. From the northern border town of NuevoLaredo to the southern city of Villahermosa, Tabasco,supermarkets and mass-merchandise retailers—espe-cially outlets of multinational firms—are beginning tointroduce a greater number of fresh-cut items in theirproduce departments, a development that has appar-ently been well received. The most popular fresh-cutitems are packaged salads—dominated by iceberg andromaine lettuce-based salad mixes and cabbage andcarrot-based slaw mixes—with some individual stores(especially in more affluent communities) offeringfresh-cut vegetables, such as baby peeled carrots andready-to-eat fruit salads featuring melons and tropicalfruits. (The specific assortment of fresh-cut merchan-dise offered by individual supermarkets and chainstores in various regions of Mexico will be describedin further detail later in this chapter.)

The selection of fresh-cut produce currently offeredby Mexican supermarkets and chain stores remainsvery limited by U.S. standards and often consists ofno more than a handful of packaged salad items.Nevertheless, buyers and produce department man-agers throughout Mexico consistently noted duringinterviews in March and December 1998 that pack-aged salads may provide U.S. produce exporters someof the best opportunities for future sales growth. Therationale is that the quality of U.S. packaged saladproducts is perceived—by both supermarket buyersand consumers—to be far superior to the Mexicanequivalent. Although a number of supermarkets andchain stores in Mexico carry fresh-cut salad itemsprocessed and packaged by domestic suppliers (mostnotably ProAgro, a Mexican/Chilean joint venture firmspecializing in fruit and vegetable production, market-ing, and distribution), local produce handlers indicat-

ed they greatly prefer packaged salad items from theUnited States for the following reasons:■ U.S. manufacturers and distributors are believed to

uphold a higher standard of sanitary conditionsand cold chain maintenance throughout the pro-cessing and handling process.

■ U.S. manufacturers offer greater product variety.■ Brand recognition and confidence among Mexican

consumers in the quality and reputation of U.S.-origin, fresh-cut products is far greater than fordomestic-origin, fresh-cut products.

■ U.S. manufacturers of fresh-cut products haveaccess to a superior (and presumably more effi-cient) distribution system between origin anddestination.

Prepackaged Food Product Labeling TightlyControlled in Mexico

To take advantage of existing market opportunitiesin Mexico, shippers and exporters of packaged pro-duce items to Mexico need to be aware that retailfood packaging is subject to stringent Spanish-lan-guage labeling requirements. Since November 1,1997, prepackaged food products offered for retailsale in Mexico—whether imported or domestic—have been required to carry certain basic productinformation in Spanish if the food package weighs atleast 25 grams per unit (approximately 0.88 ounce)and the “main display area” of the packaging is atleast 16 square centimeters (or 2.48 square inches).56

The mandatory label information includes:■ Name of product type and brand (a translation of

the brand name itself is not required);■ List of ingredients in descending order of quantity

for those ingredients equal to or exceeding 5 per-cent of the product composition, including addedwater, and the percent content of combined addi-tives or colors;

■ Net content or drained weight, as appropriate, inmetric units (with commas used in the place ofdecimal points);

■ Name and address of manufacturer or importer(this may refer to the actual manufacturer of theproduct, a merchant who commissions total orpartial manufacture of the product from a thirdparty, or an importer who represents himself/her-

56“Update No. 2—Mexican Labeling Standard NOM-051,” American Embassy, Mexico City,D.F., October 14, 1997, p. 3.

34

self as a supplier of the product through use of abrand, trademark, or company name);

■ Country of origin;■ Lot number, which may be any system the manu-

facturer chooses. (Its purpose is to facilitate prod-uct recall if it becomes necessary); and

■ Expiration date, as determined by the manufactur-er (as distinguished from a preferred consumptiondate).Labels on prepackaged food products that make

any qualitative or quantitative nutritional claims, suchas “low-fat,” “low-calorie,” “low-salt,” or “dietetic,”must include specific information about the nutrition-al content of the food product per serving (based onthe Mexican Health Ministry’s standard, NOM-086).Examples of labeling requirements for prepackagedfood with specific nutritional claims include themandatory listing of the following ingredients:■ Saturated fat and cholesterol in milligrams (when a

“low-fat” claim is used);■ Sodium in milligrams (when a claim of low-

salt/low-sodium is used);■ Sugar in milligrams (when a claim of “low-sugar” is

used); and■ Number of kilocalories (when a claim of “low-calo-

rie” or “dietetic” is used).Additional mandatory phrases are required when

aspartame and sorbitol are used or when productsclaim to be “gluten-free.”

Optional label information that may also appear onthe product package include:■ Preferred consumption date (e.g., the phrase, “best

consumed by. . .[date]”;■ Complementary nutritional information, such as

vitamin and mineral content, expressed as a per-cent of the Mexican daily recommended allowance;and

■ Instructions for use or preparation.The mandatory label information regarding prod-

uct type, brand, and net content must appear on theprimary surface of the food package, while otherrequired and optional information (such as recom-mended consumption date information) may appearon any other surface of the packaging. Although man-ufacturers and importers are permitted to use a foodpackage with other than Spanish on the label, theSpanish-language information that appears must havethe same characteristics as the foreign language prod-uct information in terms of size, typographical pro-portions, and visibility. The only way that manufactur-

ers and importers can exempt themselves from the“same size” requirement is if they completely obscurethe foreign-language product information (by attach-ing an adhesive label, for example) so that it can notbe seen by the consumer.

Compliance with the new food labeling regulationsis verified by the use of one of two documents, aCertificate of Compliance (Constancia de Conformidad)or a Judgement of Compliance (Dictamen deCumplimiento). These documents, either one of whichmust be presented to border inspectors or customsofficials during the import clearance process forprepackaged food products, are issued by one of tenprivate companies authorized by the Mexican govern-ment to act as “verification units” for all food productlabeling subject to NOM-051 or Mexico’s GeneralLabeling Specifications for Prepackaged Food andNonalcoholic Beverages.

The Certificate of Compliance program allowsimporters to receive approval of a product label andpackage in advance of physical importation (andproduct packaging/stickering). Representatives of averification unit preinspect a sample product labeland package to ensure that it complies with NOM-051. If the label and packaging prove satisfactory, theverification unit issues a Certificate of Compliance,which is subsequently presented to a Mexican borderinspector or customs official at the time of importa-tion. As of early 1998, the one-time fee for aCertificate of Compliance was about $64.57

A single Certificate of Compliance can be issued tocover an entire “family” of products without any limiton the number of family members, as long as themembers of the product family share the same basicingredients, use the same product brand, and useidentical or very similar labeling and containerdesigns. (Examples of product groups that wouldqualify as members of the same product “family” on aCertificate of Compliance include foods that areessentially identical except for different artificial flavor-ings and colors or a line of dry pasta products thatoffers a variety of noodle shapes). As of early 1998,each additional member of the product family addedabout $7 to the total cost of the Certificate ofCompliance.58

For products that have been kept in storage beforeentering Mexico or products entering the country

57“Update: Mexico’s New Labeling Standards,” Lewis Stockard, AgExporter, February 1998.58Ibid.

35

under contract with a verification unit that are takendirectly to the verification unit’s facilities, an alterna-tive document, the Judgement of Compliance(Dictamen de Cumplimiento), may be used. Under thisprogram, representatives of the verification unit con-duct an actual physical inspection of the packagedproduct at the time of importation. As in the case ofCertificates of Compliance, a single Judgement ofCompliance may be issued to cover an entire “family”of products, as long as the family members share thesame basic ingredients, use the same product brand,and use identical or very similar labeling and contain-er designs. As of February 1998, the fee for aJudgement of Compliance was about $107, withadditional items in a product “family” costing approx-imately $12 apiece.59

According to receivers of prepackaged fresh pro-duce in Mexico, interviewed by members of theAMS/ERS/Texas A&M University research team inMarch and December 1998, mandatory Spanish-lan-guage food labeling has definitely led to a smallreduction in the variety of packaged produce itemsthat supermarkets and mass-merchandise chain storesimport from the United States. The most notablereduction has been in packaged salads. Given the rel-atively small number of food stores currently operatedby chain store firms in Mexico, some U.S. suppliershave been unwilling to modify the packaging used foreach item in their product line just to satisfy the newMexican labeling requirements. In some cases, thesuppliers have restricted their packaging modificationsto those items that are perceived to have the greatestmarket potential.

More Intense Scrutiny of Prepacked FoodProduct Labels. In the September 17, 1999, issue ofMexico’s Diario Oficial (the Mexican equivalent of theU.S. Federal Register), the Mexican Ministry ofCommerce proposed modifications in the currentlabeling requirements for prepackaged imported foodand nonalcoholic beverages. Several of the modifica-tions were subsequently adopted by the Mexican gov-ernment and were published in the February 29,2000, issue of Diario Oficial.60 Among the modifica-tions was a section providing for the ongoing verifica-tion of label accuracy, which would require that labelscovered by NOM-051 for prepackaged food and non-alcoholic beverages be reinspected every 6 months.

Following the publication of the change in labelingrequirements, officials with the U.S. Embassy’sForeign Commercial Service in Mexico City expressedconcerns that the proposed new regulations werepotentially troublesome to the U.S. food industry asthey did not allow for any tolerance of error. As draft-ed in the February 2000 announcement, the newlabeling requirements would rely on a random sampleof five items to demonstrate that the stated contentsof a given label correspond exactly with the contentsof a given product and are in proper compliance withthe law. If any of the labels on the five random prod-uct samples were found to be less than 100 percentaccurate, the product could theoretically be seized instores and confiscated.61

Updated information about the current status ofMexican food product labeling requirements andenforcement may be obtained from the ForeignAgricultural Service (FAS) Agricultural Trade Office(ATO) in Mexico City, which can be reached by e-mail at [email protected]; by telephone at(011-52-55) 5280-5291, 5280-5277, 5281-6586, or5281-6588; or by facsimile (from the United States)at 011-52-55-5281-6093. The ATO also maintains aWeb site at http://www.fas-la.org/mexico/.

Primary Characteristics of the MexicanChain Store Shopper

The standard chain store food shopper in Mexicoappears quite different from the average Mexicanhousehold grocery shopper. The grocery purchasinghabits of residents in regions such as the northernmetropolitan area of Monterrey—where self-servicesupermarkets and hypermarkets are strongly preferredfor food purchases (including perishables)—varygreatly from those in metropolitan areas in MexicoCity and Guadalajara, where traditional food marketformats such as tianguis and public markets continueto attract large numbers of household consumers.

Moreover, despite aggressive attempts by supermar-ket and chain store firms to attract shoppers from allincome levels, the percentage of Mexican householdsthat primarily relies on supermarkets and mass-mer-chandise chain stores for food supplies continues tobe dominated by higher income segments of the pop-ulation. Lower income households continue to rely

59Ibid.60“SECOFI Publishes Modifications to Product Certification Requirements,” Gabriel

Hernandez, Agricultural Trade Office, U.S. Embassy, Mexico City, D.F., May 9, 2000.

61 “SECOFI Published Proposed Changes to Product Certification Requirements,” Sal Trejo,Benjamin Juarez, and Gabriel Hernandez, U.S. Embassy Foreign Commercial Service, Mexico City,D.F., October 19, 1999, p. 2.

36

heavily on traditional markets for most of their foodpurchases, especially perishable items. Some of themost prominent differences between typical super-market and chain store food shoppers and traditionalfood market shoppers are explored below.

Differences in Income. Many supermarkets andmass-merchandise chain stores have aggressively triedto woo lower income shoppers by deeply discountingperishable grocery items–including using produce asa loss-leader (at times below wholesale prices).Nevertheless, the appeal of supermarket and mass-merchandise chain stores as a source of perishablegroceries remains far more profound among membersof higher income households, a comparatively smallpercentage of the marketplace (figure 2.10).

While upper and middle-income consumers acrossMexico appear to have eagerly embraced supermar-kets for food purchases in general—with 82 percentreporting that they primarily shop for food at suchstores—they express far less unanimity when it comesto relying on a supermarket as their primary sourcefor fresh fruit and vegetables.62 Food shoppers fromhouseholds with the highest incomes (those with aminimum monthly income of 30,000 pesos) reportedthey were much more dependent on supermarkets as

0

60

80

90

100

30,000+pesos/month

Source: Tendencias en México: Actitudes del Consumidor y el Supermercado, FoodMarketing Institute, Washington, DC, 1998, p. 66.

Figure 2.10—Percentage of groceries purchased atvarious types of retail outlets by income level

70

50

Other

Corner storeSelf-service supermarkets/chain storesTraditional markets/specialty grocers

40

30

20

10

4,000-30,000pesos/month

1,000-4,000pesos/month

a primary source of fresh fruits and vegetables thanshoppers from middle-income households. Although43 percent of the top income earners surveyed byFMI in January 1998 reported that they usually pur-chased fresh fruits and vegetables in a supermarket,only 27 percent of participants in the middle-incomecategory (monthly incomes ranging between 4,000 to30,000 pesos) did the same.63

The dependence on supermarkets as a source ofgroceries and fresh produce dwindles even furtheramong lower income households. As illustrated in fig-ure 2.10, only 39 percent of the lowest income foodshoppers (monthly household incomes from 1,000 to4,000 pesos) reported that they relied on supermar-kets as a primary source of food—roughly half thepercentage reported by participants in higher incomebrackets—and only 17 percent reported that theyusually purchased fresh fruits and vegetables at asupermarket.64

Two factors that may help explain the wide dispari-ty between the store formats preferred by higher andlower income households are related to access totransportation and storage. Most households withinthe top and middle-income tiers own at least oneautomobile, whereas automobile ownership is veryunusual among the lowest income segment of thesurvey population. In this context, it is understand-able that the average consumer from a lower incomehousehold, who may have to carry merchandisehome from the store on foot or depend on publictransportation, might find neighborhood markets andcorner stores considerably more attractive than super-markets and mass-merchandise chain stores.

Consumers without access to a vehicle are likely topay great attention to the convenience of traveling toand from a store when deciding where to shop andare inherently restricted in the amount of merchan-dise they can purchase and transport during any sin-gle store visit. Similarly, lower income households inMexico frequently do not possess ample refrigerationand freezer capacity for perishable food products.Consequently, many advantages that chain storesoffer—such as the ability to purchase a broad rangeof merchandise at one location or the ability to pur-chase large volumes of competitively priced merchan-dise in bulk—may be lost on this segment of the



64Tendencias en México: Actitudes del Consumidor y el Supermercado, Food MarketingInstitute, Washington, DC, 1998, pp. 66 and 76.

37

population. In apparent support of this hypothesis,representatives of Mexico’s primary retail trade associ-ation, ANTAD, interviewed in December 1998, notedthat the aggressive pricing policies used by manysupermarkets and chain stores to lure non-chain storeshoppers—such as sponsoring weekly “tianguis days”with deep discounts on fresh produce or meat—havenot significantly changed their household customerbase. However, they have seen an increase in thenumber of small institutional buyers, such as restau-rant owners, who purchase products from chain retailoutlets.

Regional Differences. Consumers in variousregions of Mexico continue to exhibit very differentand distinct food market preferences, with a commen-surate impact on the local rate of supermarket growthand use. Recent surveys of consumer preferences sug-gest that the share of Mexico City food sales repre-sented by supermarkets and mass-merchandise chainstores may still be fairly low, especially in the case ofperishable grocery items. According to FMI’s January1998 survey, only 57 percent of Mexico City house-hold grocery shoppers reported that they usually pur-chased food at a self-service supermarket, while 37percent reported that they usually purchased food ata traditional market (tianguis/public market) or spe-cialty store (figure 2.10).65 When the market prefer-ences of Mexico City consumers were analyzed withrespect to perishable grocery items, the dependenceon self-service supermarkets dropped substantially,with only 14 percent of consumers reporting thatthey typically purchased fresh fruits and vegetables ata self-service supermarket rather than another type ofretail outlet (figure 2.11).66

Consumers in Guadalajara, Mexico’s second largestcity, appear at least as reluctant as Mexico City con-sumers to modify their traditional food shoppingpractices. In FMI’s January 1998 survey, only 38 per-cent of Guadalajara food shoppers reported that self-service supermarkets were their primary food store,with 32 percent reporting that they usually purchasedfood at a traditional market or specialty store andanother 29 percent reporting that they usually pur-chased food at a neighborhood corner store. (Theshare of individuals reporting that they used corner

stores as a primary food source was more than twicethat of any other region surveyed by FMI).67 As inMexico City, only a meager 14 percent of food shop-pers in Guadalajara reported that they typically pur-chased fresh fruit and vegetables at a self-servicesupermarket (figure 2.12).68

On the other side of the spectrum, the popularityof self-service supermarkets has spread rapidly amongfood shoppers in the northern city of Monterrey, whohave almost entirely abandoned traditional food mar-kets for their standard grocery purchases. Sixty-twopercent of household grocery shoppers in theMonterrey region reported that they shopped mostfrequently for food at a self-service supermarket, whilean additional 31 percent reported that they usuallypurchase food in a chain-operated hypermarket(which carries a full line of nongrocery merchandisein addition to dry and fresh grocery items). These fig-ures suggest that approximately 93 percent ofMonterrey residents are in the habit of purchasinghousehold groceries at self-service retail store on aroutine basis.69

In contrast, fewer than 1 percent of the householdgrocery shoppers surveyed in Monterrey reported thatthey usually purchased food in a traditional market or


66Tendencias en México: Actitudes del Consumidor y el Supermercado, Food MarketingInstitute, Washington, DC, 1998, pp. 72.


0

60

80

90

100

Mexico City

Source: Tendencias en México: Actitudes del Consumidor y el Supermercado, FoodMarketing Institute, Washington, DC, 1998, p. 66. “Smaller cities” category denotesaggregate survey results from Chihuahua, Culiacán, Mérida, and Veracruz.

Figure 2.11—Variation in supermarket patronage byregion, in percent

70

50

Other

Corner storeSelf-service supermarkets/chain storesTraditional markets/specialty grocers

40

30

20

10

Guadalajara Monterrey Smaller cities



38

specialty store (down from 4 percent reported only 2years earlier), and only 7 percent reported that theyusually purchased food at a neighborhood cornerstore.70 Even in the case of highly perishable goodssuch as fresh fruits and vegetables, fully half ofMonterrey household food shoppers indicated thatthey typically purchase these items at a self-servicesupermarket, more than three times the percentage(14 percent) reported by Mexico City and Guadalajarafood shoppers.71

Supermarket popularity also appears considerablymore widespread among consumers in some ofMexico’s smaller cities than in the more populatedmetropolitan areas of Mexico City and Guadalajara.According to the FMI January 1998 survey, 84 per-cent of food shoppers in the geographically diverseregional hubs of Chihuahua, Culiacán, Mérida, andVeracruz reported collectively that they primarilyrelied on a self-service supermarket. Only 12 percentof this group reported that they usually purchasedfood at a corner food market, and a mere 5 percentreported that they usually purchased food at a tradi-tional market or specialty store. The share of con-sumers in these four smaller cities who indicated thatthey usually purchased fresh fruits and vegetables atself-service supermarkets was 47 percent, virtuallyidentical to the 50 percent reported by Monterreyfood shoppers and, once again, more than three times

the percentage (14 percent) reported by food shop-pers in Mexico City and Guadalajara.72

The striking difference between food market prefer-ences in Mexico City/Guadalajara and other urbanareas in Mexico does not appear to have a singleexplanation. Part of the attraction of self-service super-markets and mass-merchandise stores for food shop-pers in the Monterrey region may be the fact thatshoppers in this region live near the United Statesand have become accustomed to visiting U.S. super-stores with large, diverse merchandise selections atdiscount prices. (Monterrey is only 240 kilometers orapproximately 150 miles from the U.S. border, andthe heavy concentration of supercenter stores atsparsely populated U.S. border towns such as Laredo,TX, testifies to the popularity of such stores amongMexican consumers within commuting distance fromthe U.S.-Mexico border.) This theory is shared by sev-eral supermarket buyers interviewed by theAMS/ERS/Texas A&M University research team inMarch and December 1998, who contended that thegreatest potential for near-term future supermarketexpansion in Mexico exists within 200 miles of theU.S. border because of the influence and familiarity ofU.S. retail practices.

Members of the food retail industry in Mexico havealso attempted to explain the vast differences in storeformat preferences in different regions by focusing onlocal differences in weather conditions. During aDecember 1998 interview, representatives of ANTADand produce buyers from several large supermarketfirms commented that local weather patterns were amajor factor influencing consumer choice of retailoutlet. In regions with very hot weather, an estimated30-40 percent of all fresh produce purchases tookplace in climate-controlled supermarkets and mass-merchandise chain stores, compared with a nationalaverage of approximately 21 percent.73 However, inhigh-altitude central regions with milder climates,tianguis and public markets represented more of acompetitive threat to supermarkets and mass-mer-chandise chain stores, since consumers in theseregions were less concerned about purchasing freshfruits and vegetables that had been stored and han-dled at ambient temperatures.

The possible influence of weather on local con-sumer behavior corresponds nicely with FMI’s find-

0

60

80

100

Mexico City

Source: Tendencias en México: Actitudes del Consumidor y el Supermercado, FoodMarketing Institute, Washington, DC, 1998, p. 72. “Smaller cities” category denotesaggregate survey results from Chihuahua, Culiacán, Mérida, and Veracruz.

Figure 2.12—Percentage of fresh fruits and vegetablespurchased at supermarkets/chain stores by region

40

20

Guadalajara Monterrey Smaller cities Total Mexico

70Ibid.71Tendencias en México: Actitudes del Consumidor y el Supermercado, Food Marketing

Institute, Washington, DC, 1998, pp. 72.

72Ibid.73Tendencias en México: Actitudes del Consumidor y el Supermercado, Food Marketing

Institute, Washington, DC, 1998, pp. 68.

39

ings from its January 1998 survey. The survey indicat-ed that traditional open-air and enclosed (non-airconditioned) food markets were far more popular inMexico City and Guadalajara—cities that enjoy a rela-tively mild climate—than in the other cities includedin the survey (Chihuahua, Culiacán, Mérida,Monterrey, and Veracruz), which typically experiencemuch warmer weather. As table 2.8 illustrates, MexicoCity and Guadalajara, which are located in high-eleva-tion areas, experience considerably milder climatesthan other metropolitan areas in the FMI survey,especially during the evenings and throughout thesummer months.

Another factor that may contribute to the relativeattractiveness of supermarkets and chain stores as asource of fresh produce in various regions in Mexicois the extent to which local food shoppers consumefresh fruit and vegetables as part of their overall diet.ANTAD representatives pointed out in theirDecember 1998 interview that the share of producesales in relation to overall store sales can differ sub-stantially among regions. In towns around the north-ern border areas with the United States, produce mayaccount for as much as 12-15 percent of overall gro-cery sales, while the proportion of produce sales tooverall grocery sales may dip as low as 5-8 percent incommunities near the center of Mexico. To the extentthat perishable fresh fruits and vegetables comprise agreater portion of local diets than comparatively shelf-stable commodities such as grains, legumes, andbread products, this may well affect local consumerpreferences for purchasing groceries in a climate-con-trolled atmosphere.

Vehicle ownership may also play a role in the pref-erences of local consumers and the apparent strongpreference of Mexico City and Guadalajara shoppersto patronize traditional markets for perishable foods.Per capita car ownership might reasonably be expect-ed to be less prevalent in cities that are very densely

populated and have well-developed public transporta-tion systems.

Observations from Supermarket and Mass-Merchandise Chain Store Field Visits,December 1998

Provided below are highlights of observations col-lected by the AMS/ERS/Texas A&M University researchteam during visits to 14 supermarkets and mass-mer-chandise chain stores in the northern Mexican bordertown of Nuevo Laredo, the central metropolitan areasof Guadalajara and Mexico City, and the southeasterncities of Veracruz and Villahermosa in December 1998.The physical layout of chain store produce depart-ments and the core selection of produce items offeredremained roughly similar from region to region.Nonetheless, the research team discovered that therange of merchandise, the price of individual commodi-ties, and the inclusion of imported produce items andfresh-cut vegetable/packaged salad products varied sub-stantially from store to store, even when the physicalsize of the departments and the availability of shelfspace were comparable.

Two factors that appeared to influence the range ofproduce offered and/or the inclusion of imported pro-duce and fresh-cut vegetables/packaged salads in thestores’ produce departments were: ■ The income level of the store’s clientele (based on

store location and the likely customer base that astore attracts); and

■ The degree to which the firm was managed/ownedby a multinational company. Not surprisingly, stores operating in higher-income

residential communities generally carried a broaderrange of comparatively expensive imported, specialty,and fresh-cut produce than stores operating in lowerincome communities. Even so, consumer incomealone did not appear to explain the entire difference in

Table 2.8—Average maximum and minimum temperatures, selected Mexican cities

City January-March April-June July-September October-December Yearly

Chihuahua 4-21°C (39-70°F) 15-31°C (59-88°F) 18-31°C (64-88°F) 6-22°C (43-72°F) 11°C-26°C (52-79°F)Culiacán n/a n/a n/a n/a 17-31°C (63-88°F)Guadalajara 8-26°C (46-79°F) 14-30°C (57-86°F) 15-26°C (59-79°F) 10-25°C (50-77°F) 12-27°C (54-81°F)Mérida n/a n/a n/a n/a 21-32°C (70-90°F)Mexico City 7-23°C (45-73°F) 11-26°C (52-79°F) 11-24°C (52-75°F) 8-22°C (46-72°F) 9-23°C (48-73°F)Monterrey 11-23°C (52-73°F) 20-31°C (68-88°F) 22-33°C (72-91°F) 13-24°C (55-75°F) 17-28°C (63-82°F)Veracruz 19-26°C (66-79°F) 23-30°C (73-86°F) 23-31°C (73-88°F) 21-27°C (70-81°F) 22-28°C (72-82°F)

Sources: Mexico Handbook, Joe Cummings and Chicki Mallan, Moon Publications, Inc., Chico, California, pp. 14-17, and Historical Weather Search results from theWashington Post home page, located at http://www.washingtonpost.com/wp-srv/weather/historical/historical.htm.

40

produce merchandising practices among individualfirms. Regardless of location, multinationally ownedand operated mass-merchandise firms such as Wal-Mart, Sam’s Club, and Carrefour generally appearedto be much more aggressive about dedicating primeshelf space to imported fresh fruits and vegetablesand value-added fresh produce items than Mexican-based mass-merchandise firms (such as Soriana andTiendas Chedraui). These differences may be tracedto the fact that many of the multinational firms havemore well-established business relationships with for-eign suppliers than Mexican-run firms and may havesuperior leverage in procuring imported and/or value-added fresh produce at reasonable prices. The multi-national firms may also benefit from the large volumesof product that they are already accustomed to pur-chasing for their retail outlets outside of Mexico.

Highlights of Supermarket/Chain StoreField Visits in Guadalajara, Jalisco

Soriana (Branch of Mass-Merchandise RetailChain Based in Monterrey, Nuevo León). This rela-tively new retail outlet (1-1/2 years old at the time ofthe visit) represented one of only four Soriana storesin the Guadalajara area. Guadalajara is a fairly newterritory for Soriana, which has traditionally had astronger presence in northern Mexico and whichmaintains its primary produce distribution centerfacility in Monterrey, Nuevo León. In the case of retailstores that are located relatively far from the firm’sproduce distribution center, such as the Guadalajaraoutlets, store managers rely heavily on deliveries fromthe local central wholesale market for their produce.According to Ing. Francisco Velez, the local regionalprocurement manager for Soriana, the store we visitedobtains about 40 percent of its fresh produce directlyfrom the central wholesale market in Guadalajara andmost of the remainder from the firm’s produce distri-bution center in Monterrey. The distribution centeralso supplies all of its imported produce (whichaccounts for about 20 percent of the overall selectionof fresh produce, a very high percentage by Mexicanstandards). The primary imported fresh produceitems offered at this point in the winter season wereapples, pears, and grapes.

The store featured a very clean, brightly lit producedepartment, with ample refrigerated display space anda working misting system (one of only a handful spot-ted during 2 weeks of supermarket tours and the only

one spotted in a store operated by a domesticallyowned food retailer). A quick count of the number ofstock-keeping units in the produce departmentrevealed about 140 items, about the average numberfor a Mexican supermarket or chain store food retailer.No wrapped or fresh-cut produce items were visible.

Ing. Velez pointed out that despite the impressivecondition of the Guadalajara store’s fresh producedepartment (far superior to one in another Sorianastore located in a residential neighborhood of NuevoLaredo), consumers in Guadalajara tend to buy lessproduce than residents of other metropolitan areas.Produce departments represent about 6-7 percent oftotal store sales in Guadalajara, compared with about9 percent at the national level. Losses in the producedepartment typically amount to about 4 percent oftotal arrivals.

Gigante (Part of Mass-Merchandise Retail ChainBased in Mexico City). This store, featuring a combi-nation food store/department store format, represent-ed one of 36 retail outlets (with conventional super-market, expanded, and warehouse-type store formats)operated by Gigante in the Guadalajara metropolitanarea in December 1998 and one of 187 stores operat-ed by Gigante throughout Mexico. Virtually all of theproduce was delivered to the store from the compa-ny’s regional produce distribution center in theGuadalajara area. The store received all of its mer-chandise in enclosed cartons, and losses amounted toabout 7 percent of total produce arrivals.

The store’s produce department was structured instandard Mexican supermarket fashion, featuring(unrefrigerated) tabletop bulk displays of product ona few center islands, while more exotic and specialtyproduce items were displayed in upright refrigeratedcases along the perimeter of the department. Itemscarried in the store’s produce department totaledabout 70, at the low end of the typical range carriedby Mexican food retailers, and accounted for merely 6percent of total store sales. While most of the pro-duce items on display appeared to be well sorted interms of size and maturity, some appeared to sufferfrom a significant degree of damage or spoilage. Forexample, much of the lettuce was beginning to turnbrown, while many of the tomatoes and apples werebruised.

The only apparent U.S.-origin fruit offered for saleduring the December 1998 visit was a small selectionof red grapes and pears. Although the producedepartment featured a considerable amount of adver-

41

tising for U.S.-origin fruit—with posters promotingU.S. strawberries, grapes, and pears—there appearedto be little if any coordination between the display ofadvertising materials and the display of relevant mer-chandise. The produce manager on duty noted thatsome customers ask for U.S. fruit products specifical-ly and that U.S. fruit products enjoy a good reputa-tion but that they are “too expensive” for many of hiscustomers. Underscoring the “bargain-hunter” orien-tation of the store’s customer base was the fact thatthe produce department used handwritten signsrather than commercially printed signs to indicateproduct names and prices, which conveyed the sensethat the store was attempting to minimize overheadexpenses. The only value-added fresh produce itemson display were two wrapped lettuce and celery itemsmarketed under the “Mr. Lucky” brand name, packedby a Mexico City-based produce wholesaler.

Highlights of Supermarket/Chain StoreField Visits in Mexico City, D.F.

Auchan (Part of Mass-Merchandise Retail ChainBased in France). This store—located in Coyoacán, amiddle-class suburban neighborhood—was about 1-1/2 years old when members of the AMS/ERS/TexasA&M University research team visited in December1998 and represented the only Auchan store operat-ing in Mexico at the time. The produce departmentwas relatively large by Mexican supermarket/chainstore standards, displaying approximately 250 stock-keeping units of product. As usual in large Mexicansupermarkets, the center aisles of the produce depart-ment featured large bulk tabletop displays of stapleitems (e.g., potatoes, zucchini, lettuce, citrus), withspecialty/exotic items featured in refrigerated displaycases along the perimeter of the department. One ofthe center aisle items on special during the day of ourvisit (displayed without refrigeration on a tabletop)was cellophane-wrapped, Mexican-origin iceberg let-tuce marketed under the “Mr. Lucky” brand name.Normally priced at 6.00 pesos per head, the iceberglettuce was selling that day for 4.90 per head (about49 cents per head at prevailing exchange rates).74

However, the condition of the lettuce was terrible;many of the leaves had turned brown, and severalheads were spoiled.

Other notable items displayed in the producedepartment’s center aisles included fresh chayotesquash (without spines) for an unusually low price byMexican standards of 2.30 pesos per kilogram orabout 10 cents per pound. (Many of the pieces ofchayote squash were still covered with pieces of news-paper, which had apparently been used as packinginsulation.) There was also a tabletop display (unre-frigerated) of imported pears from the United Statesthat were displayed in green tissue paper featuring a“USA” label, a marketing tool to both advertise theproduct’s country of origin and disguise the product’sunderlying condition.

The store carried a handful of packaged saladitems, all of which appeared to be produced byProAgro, a Mexican/Chilean joint venture firm special-izing in fruit and vegetable production, marketing,and distribution. The most prominent fresh-cut pro-duce item on display (occupying two rows of shelfspace) was a so-called “Italian Mix” salad product,which contained a largely romaine lettuce-based mix-ture of salad greens, packaged in rigid, clear plasticcartons, and marketed by ProAgro under the brandname, “Daily Salad.” This item sold for 22.90 pesosper package or approximately $2.30 for 250 grams(just over one-half pound). Other packaged fresh-cutproducts featured on Auchan’s retail shelves were:■ ProAgro “Ensalada Mixta” shredded coleslaw mix

(white cabbage, red cabbage, and carrots), whichsold for 9.90 pesos per 400-gram package or about99 cents for 14 ounces;

■ Caesar salad with dressing included in the pack-age, which sold for 13.30 pesos per 385-grampackage or about US $1.34 for 13.5 ounces; and

■ Shredded carrots.Carrefour (Part of Mass-Merchandise Retail

Chain Based in France). This store—located inPolanco, a largely affluent midtown neighborhood—carried the largest selection of produce items of anyretail food store visited by the AMS/ERS/Texas A&MUniversity research team in December 1998. A quickcount of the items in the produce department indicat-ed there were 300-350 stock-keeping units, includingmany specialty items and many dried fruit and nutitems (probably an unusually high percentage becausethe visit took place shortly before Christmas).

The produce department featured several centralislands with tabletop bulk displays of staple items,with dozens of other specialty and exotic items dis-played along the perimeter. Distinguishing the store’s

74Based on Federal Reserve Bank midday exchange rates for December 9, 1998, of 9.954 pesosper U.S. dollar.

42

display of produce was the unusual amount of shelfspace devoted to fresh-cut and packaged items (nodoubt owing to its location in an affluent neighbor-hood). Unlike any other store visited by the researchteam, the Carrefour store in Polanco maintained astand-alone refrigerated case for packaged salads thatprominently featured U.S.-origin packaged saladitems (notably “Salad Time”-brand salad, shreddedcarrots, and baby carrot products manufactured bythe California-based firm, Tanimura and Antle). Otherproduce items in Carrefour’s Polanco store that wereexplicitly advertised as originating in the UnitedStates were kiwi, red grapes, Bosc pears, and red andyellow d’Anjou pears (the red pears were in goodcondition, but the yellow pears had some brownspots and scarring).

Besides selling U.S.-origin packaged salads andvalue-added vegetable products, the Carrefour storealso sold a few types of branded Mexican-origin pro-duce, including “Mr. Lucky” brand cellophane-

wrapped heads of iceberg lettuce and bagged celerystalks (which were labeled as having been grown inthe state of Guanajuato).

The signage in the Carrefour produce departmentwas particularly striking and eye-catching, featuringbold graphics and color photographs. Several postershung from the ceiling, each entitled “Del Productor AlConsumidor” and featuring color photographs of vari-ous Mexican fruit and vegetable growers holding sam-ples of their production at their farms, an apparentattempt to emphasize the close relationship betweenthe retailer and a variety of Mexican agricultural pro-ducers (figure 2.13). Below each photograph, thesigns stated (in Spanish), “We select the country’sbest producers, not only to favor domestic produc-tion, but also to offer the best quality (available) inthe market.” Aside from the theme of close connec-tion between the farmer and the store’s merchandise,the store also had a poster entitled “Fruits andVegetables,” which indicated that the store’s produce

Figure 2.13—Signage at Carrefour supermarket, Mexico City

43

department offered the “freshest” produce items pos-sible and instructed shoppers to return merchandise ifthey weren’t completely satisfied.

In addition to the signage in the produce depart-ment itself, the Carrefour store featured signs with theslogan, “lo más bajo precio” (the absolutely lowestprice), across various departments. Therefore, theadvertising strategy of the store with relation to pro-duce items could be summarized as follows:■ Price-driven (declaring that it offers the lowest

prices around);■ Quality-driven (emphasizing the freshness of its

fruits and vegetables);■ Consumer confidence-oriented (guaranteeing returns

if the shopper is not satisfied with product quali-ty); and

■ Nationalist (claiming a close relationship withdomestic agricultural growers).Superama (Part of a Chain of Conventional

Supermarkets Operated by Wal-Mart de México,Formerly the Cifra Group). Superama is a memberof Mexico’s largest food retail firm, which also oper-ates Wal-Mart, Sam’s Club, and Bodega Aurrerastores. (Wal-Mart acquired controlling interest of theCifra Group in 1997, and the firm officially changedits name to Wal-Mart de México in 2000.) TheSuperama supermarket chain has traditionally targetedhigher income segments of the Mexican population.

During their December 1998 visit to Superama’sstore in Polanco, the AMS/ERS/Texas A&M Universityresearch team observed a variety of U.S.-origin prod-ucts on display in a refrigerated case in the producedepartment, most notably packaged salad and veg-etable products such as:■ Greenhouse-produced butter lettuce (packaged in

rigid plastic cartons and in excellent condition);■ “Green Giant” brand cellophane-wrapped iceberg

lettuce;■ Fresh-cut packed cauliflower and broccoli florets;

and■ “Peter Rabbit” brand packaged baby carrots.

(These were in extremely poor condition. Theywere visibly spoiled, and it appeared that some ofthe sell-by dates on the product packaging hadbeen tampered with.) Alongside the U.S.-origin packaged salad and

fresh-cut vegetable items, the store also featured aMexican-origin “hearts of romaine” packaged saladproduct.

In an unusual move for a Mexican chain store foodretailer, Superama’s Polanco store also carried a con-siderable quantity of imported “counter-seasonal”fresh produce from Chile, primarily stone fruits suchas Bing cherries, peaches, nectarines, and plums.

Wal-Mart (Part of Mass-Merchandise ChainBased in the United States). This store—located inSatélite, a largely upper-middle class suburban neigh-borhood in northwest Mexico City—featured a layoutsimilar to other Mexican retail food stores. The centerof the produce department featured large overflowingtabletop displays of mostly staple produce items, andthe shelves lining the perimeter of the producedepartment featured value-added, specialty, and exoticproduce items. While the physical layout of the pro-duce department was typical of most Mexican super-markets and chain stores observed by theAMS/ERS/Texas A&M University research team, themerchandising of produce appeared to be quite dis-tinct from the practices of other local chain stores inseveral notable ways:■ A preponderance of wrapped and bagged produce.

Large quantities of the vegetables and fruit wereeither bagged or wrapped in cellophane and placedon Styrofoam trays. Considerably more producewas treated this way than in any other Mexicansupermarket or chain store visited by the researchteam. Most unusual for a Mexican retail store, twoof the items in the produce department’s centerisland tabletop display were packaged (rather thandisplayed in bulk). This represented both the onlytime that members of the research team observedbagged items on a center island produce displaythroughout its visits to Mexican food retail storesand one of the few times that an item displayed inthe produce department’s center island was clearlylabeled as imported. The two packaged items werebags of Red Delicious apples from the Mexicanstate of Chihuahua and 3-pound bags of “FancySmall” graded green d’Anjou pears fromWashington State, both containing smaller fruitthan would typically be featured on U.S. retailshelves.

■ Greater attention to quality control. The quality of thefresh produce at the Wal-Mart store was muchmore uniform and largely better than at most ofthe other Mexican supermarkets and chain storesvisited by research team members. In addition, onone side of the refrigerated case along the perime-ter of the produce department, the store featured a

44

working misting system for bulk salad greens andherbs, a fairly rare amenity among Mexican super-markets and chain stores.

■ Substantial inclusion of prepared food in the producedepartment. Wal-Mart was one of the few retail foodstores visited in Mexico that displayed a number ofready-to-eat products, such as fresh-cut fruit andfruit salads in plastic containers, in its producedepartment. (The only other store visited byresearch team members in which fresh-cut itemswere offered for sale in the produce department,albeit to a more limited degree, was a branch ofanother multinational firm, Carrefour).While the uniformity and appearance of its fresh

produce appeared superior to other retail food storesin Mexico and prices appeared competitive with otherretailers across a broad range of commodities, thisparticular Wal-Mart store offered only an averagerange of produce, compared with other Mexicansupermarkets and chain stores. The number of stock-keeping units in the produce department totaledapproximately 170 items. Aside from the U.S.-originpears, other produce items clearly advertised as U.S.products included California kiwifruit (in bulk),bagged green grapes (in poor condition), and at leastone Tanimura and Antle fresh-cut “Salad Time” prod-uct (the popular “Santa Fe” packaged salad mix withJack cheese and ranch dressing). The salad mix wasdisplayed next to comparably priced Mexican versionsof packaged salad products, most notably the ProAgrobrand “Italian salad” and Caesar salad items. The

retail prices of selected products at the Mexico CityWal-Mart are shown in table 2.9.75

Other fresh fruit and vegetable retail prices appear-ing in the Wal-Mart/Aurrerá circular the second weekof December 1998 in Mexico City were:76

■ Domestic iceberg lettuce, 1.99 pesos (20 cents)per head;

■ Domestic oranges (Veracruz origin), 1.99 pesos perkilogram (9 cents per pound);

■ Jicama, 3.99 pesos per kilogram (18 cents perpound);

■ Sugar cane, 3.99 pesos per kilogram (18 cents perpound);

■ “Amameyada” variety papaya, 6.99 pesos per kilo-gram (32 cents per pound);

■ Chilean “Starking” variety apples, 12.99 pesos perkilogram (59 cents per pound);

■ “Calmeria” grapes (green, seeded), 19.99 pesos perkilogram (91 cents per pound); and

■ Bing cherries, 69.99 pesos per kilogram ($3.19 perpound).Store personnel at the Wal-Mart store in the

Satélite neighborhood of Mexico City clearly considerCarrefour—another multinational operator of mass-merchandise retail stores—their primary source ofcompetition in the local grocery market. At the timeof the AMS/ERS/Texas A&M University researchteam’s visit in December 1998, the front of the

75Based on Federal Reserve Bank midday exchange rates for December 11, 1998, of 9.938pesos per U.S. dollar

76Conversion based on Federal Reserve Bank midday exchange rates for December 11, 1998, of9.938 pesos per U.S. dollar..

Table 2.9—Fresh produce prices at Mexico City Wal-Mart (Satélite store), December 11, 1998

Item Price

3-pound bags of green, medium-ripe, U.S.-origind’Anjou pears (from Washington State) 10.90 pesos per bag (about 37 cents per pound)

Cellophane-wrapped heads of iceberg lettuce (“Duo” brand, Mexican-grown and packaged, in terrible condition with extensive leaf discoloration) 4.90 pesos (about 49 cents) per head, on sale

Washed white potatoes, Alpha variety 9.70 pesos per kilogram (44 cents per pound)

Red leaf lettuce and romaine lettuce (bulk) 6.50 pesos (65 cents) per head

Tanimura and Antle “Salad Time” brand “Santa Fe” packaged salad with Jack cheese and ranch dressing 9.90 pesos (99 cents) per package

ProAgro Caesar salad with dressing and ProAgro Italian salad 9.90 pesos (99 cents) per package

U.S.-origin green seedless grapes, in plastic mesh bags labeled "Product of USA," poor condition 23 pesos per kilogram ($1.05 per pound)

45

Satélite Wal-Mart store featured two grocery carts, onelabeled Wal-Mart and one labeled Carrefour, filledwith the same assortment of food and grocery prod-ucts. Located next to the carts was a poster thatrecorded the differences in prices between both storesand listed how much money one would have savedby buying the products at Wal-Mart.

Highlights of Supermarket/Chain StoreField Visits in Nuevo Laredo, Tamaulipas

La Argentina (Part of a Small, Locally OperatedConventional Supermarket Chain Based in NuevoLaredo, Tamaulipas).77 The store primarily catered toa lower income population and offered only a limitedselection of 60-70 produce items for sale. Virtuallyevery item featured in the produce department wassold in bulk, except for a handful of cellophane-wrapped items produced and packaged in Mexico(heads of iceberg lettuce, celery stalks), suffering fromsignificant discoloration. Unlike the large displays ofbulk produce typically seen in larger stores, LaArgentina only displayed a small quantity of eachitem, even on the tabletops in the center of the pro-duce department.

Soriana (Part of a Mass-Merchandise RetailChain Based in Monterrey, Nuevo León). As wascustomary among so many larger supermarkets andmass-merchandise retail outlets in Mexico, thisSoriana store in Nuevo Laredo featured overflowingtabletop displays of bulk produce items in the centerof its produce department. The displays consistedmostly of staples such as Roma (plum) tomatoes,white onions, avocados, potatoes, and iceberg lettuce.Smaller quantities of specialty and imported productswere displayed along the perimeter of the departmentin refrigerated cases.

Several U.S. items were in evidence, including onefeatured in the center island display—red potatoesfrom Colorado (which, according to the cartons inwhich they were displayed, were produced in the SanLuis Valley of Colorado and packed by MundorfPacking in Fort Garland, CO). At 7.90 pesos per kilo-gram (approximately 36 cents per pound), the redpotatoes were considerably less expensive than thewashed Mexican-origin Alpha variety white potatoes

on the adjoining table, which were offered at 9.90pesos per kilogram (approximately 45 cents perpound).78 (On balance, Mexican consumers preferbuying washed potatoes, rather than the unwashedpotatoes most common in U.S. stores, and preferdomestic Alpha variety white potatoes to U.S.-originwhite potatoes. However, supermarket produce buy-ers from northern Mexico indicated that there isgrowing demand for U.S.-origin Russet potatoesamong Mexican consumers living near the U.S.-Mexican border.)

Other imported items in the produce departmentwere U.S.-origin red seedless grapes, pears, and headsof white cauliflower, all displayed in refrigerated cases.The grapes, which remained in their original meshplastic bag packaging and sat atop a Styrofoam cartonthat advertised their “Best Seller” brand name (mar-keted by the California-based firm, Hemphill andWilson), appeared to be in decent condition (figure2.14). Next to the grapes were bulk displays of fourvarieties of pears, many of which were significantlybruised and scarred. The store also displayed a smallnumber of cellophane-wrapped heads of “Bonipak”-brand cauliflower (from Bonit Packing Company inSanta Maria, CA), many of which were significantlydiscolored.

Imported items weren’t alone in suffering frominsufficient quality control. A clerk, who was unpack-ing cardboard cartons of cellophane-wrapped,Mexican-origin iceberg lettuce (“La Alameda”-brandlettuce from the state of Querétaro), appeared to bediscarding at least one-third of the carton’s contentseven before putting the products on display. Similarly,the bulk display of Roma (plum) tomatoes located inone of the center islands contained everything fromentirely green tomatoes to overripe ones, and manywere heavily scarred and bruised (although their sizesappeared relatively uniform) (figure 2.15).

The produce department contained almost nothingin the way of value-added or fresh-cut products. Oneof the few value-added items offered was an assort-ment of “soup greens” labeled “Sopa Puchero” andsold under the “Fresh Garden 1” brand (packed byJorge A. Rodriguez, based in San Nicolas de los Garza,Nuevo León). Packed on Styrofoam trays, wrapped inplastic, and weighing 550 grams (approximately 1.lpounds), the soup greens package consisted of freshchayote squash slices, an ear of white sweet corn, car-rot slices (lengthwise), a few string beans, sliced greencabbage, and a sprig of cilantro.

77 As of January 1998, La Argentina was composed of eight retail outlets, according to theDirectorio 1998 de la Asociación Nacional de Tiendas de Autoservicio y Departamentales, Mexico,D.F., 1998, p. 24.

78 Based on Federal Reserve Bank midday exchange rates for December 4, 1998, of 9.9950pesos per U.S. dollar.

46

Figure 2.14—U.S. red seedless grapes for sale at Soriana supermarket, Monterrey, Nuevo

Figure 2.15—Tabletop display of plum tomatoes at Soriana supermarket, Monterrey, Nuevo León, December 1998

47

Highlights of Supermarket/Chain StoreField Visits in Veracruz and Boca del Rio,Veracruz

Alba (Small-Scale Conventional Supermarket,Part of a Small, Locally Operated SupermarketChain Based in the City of Veracruz).79 This storeappeared to be a cross between a convenience storeand a full-service grocery store in terms of store sizeand product selection. (According to ANTAD statis-tics, the average Alba supermarket is about 601square meters or about 6,469 square feet, slightlylarger than the average convenience store in the sameregion and less than one-tenth the size of the othergrocery chain outlet visited by members of theAMS/ERS/Texas A&M University research team in theVeracruz suburbs, the Tiendas Chedraui hypermarketin Boca del Rio, which measures about 7,912 squaremeters or about 85,164 square feet.80) The merchan-dise at Alba, unlike most of the chain stores visited bythe research team, appeared restricted to traditionalgrocery items, food products, cleaning products, anda small selection of health and beauty aids. While asmall selection of fresh meat and produce items wereavailable (the store offered 30 or so staple fresh fruitand vegetable items in its produce department, alongwith a refrigerated case for delicatessen items andfresh meats), most of the merchandise was canned orotherwise nonperishable. Because the store was locat-ed in the middle of a lower income, inner-city neigh-borhood, the emphasis on nonperishable merchan-dise might well reflect the limited amount of refriger-ated storage available in nearby households.

The produce department was similar to the LaArgentina store in Nuevo Laredo. The center of thedepartment featured a wooden table with modestbulk displays of staple product items such as orangesand potatoes, while smaller quantities of individualfruits and vegetables were displayed in a refrigeratedcase along the wall. No fresh-cut or value-added prod-ucts and no products clearly identified as importswere observed. Sample prices of selected fresh pro-duce items included:81

■ Washed white potatoes, 7.50 pesos per kilogram(around 34 cents per pound);

■ Chayote squash, 2.30 pesos per kilogram (around10 cents per pound);

■ Roma tomatoes, 8.30 pesos per kilogram (around38 cents per pound, poor quality);

■ Iceberg lettuce, 5.80 pesos (about 58 cents) perhead; and

■ Romaine lettuce, 6.50 pesos (about 65 cents) perhead.Tiendas Chedraui (Part of a Mass-Merchandise

Retail Chain Based in Xalapa, Veracruz). Thisstore—located in a brand new shopping mall in anaffluent suburban neighborhood—is a member of a40-store hypermarket chain headquartered in thestate of Veracruz, which has a very strong consumerfollowing and regional presence in southern Mexico(11 of the 40 stores are in Veracruz state alone). Thestore, like many Mexican supermarkets, featuredtabletop displays of bulk items in the center of itsproduce department for staple products (such astomatoes, potatoes, onions, oranges, grapefruit, andlimes), with smaller quantities of other produce dis-played along the perimeter in refrigerated cases. Thenumber of fresh fruit and vegetable items was approx-imately 150, roughly average for a Mexican supermar-ket or chain store retailer.

Unlike some of the displays at other large mass-merchandise chain stores in Mexico, especially instores operated by multinational firms, the TiendasChedraui store appeared to carry few (if any) wrappedand fresh-cut produce items. In addition, for whateverreason, the bulk displays in the center of the producedepartment appeared less extensive than those atother Mexican mass-merchandise retail chains, suchas Soriana and Gigante. Items imported from theUnited States were clearly labeled and advertised assuch and included Red Delicious apples fromWashington State, red seedless grapes, and d’Anjoupears. Various Mexican-origin products were adver-tised on the basis of their state of origin as well, suchas “Oranges from Veracruz.” Problems with productquality were evident among some of the commodities.For example, the chayote squash featured on specialdiscount was displayed without regard for differencesin product sizes, condition, and maturity, and piecesof the original material used for packing insulation(newspaper) were still sticking to the squash. Sampleprices of selected fresh produce items included:8279As of January 1998, Galerias El Alba was composed of eight retail outlets, all located in the

city of Veracruz, according to information published in the Directorio 1998 de la AsociaciónNacional de Tiendas de Autoservicio y Departamentales, Mexico, D.F., 1998, p. 24.

80Directorio 1998 de la Asociación Nacional de Tiendas de Autoservicio y Departamentales,Mexico, D.F., 1998, p. 71.

81Conversion of retail prices based on Federal Reserve Bank midday exchange rates forDecember 11, 1998, (latest previous trading day) of 9.938 pesos per U.S. dollar.

82Conversion of retail prices based on Federal Reserve Bank midday exchange rates forDecember 11, 1998, (latest previous trading day) of 9.938 pesos per U.S. dollar.

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■ Washed white Alpha variety potatoes, 7.80 pesosper kilogram (about 36 cents per pound);

■ Pineapple, 8.41 pesos per kilogram (about 38cents per pound);

■ Oranges, 2.18 pesos per kilogram (about 10 centsper pound);

■ Chayote squash, 1.25 pesos per kilogram (about 6cents per pound, on special);

■ Globe tomatoes, 14.00 pesos per kilogram (about64 cents per pound);

■ White onions, 9.40 pesos per kilogram (about 43cents per pound);

■ Grapefruit, 2.45 pesos per kilogram (about 11cents per pound);

■ Limes, 1.63 pesos per kilogram (about 7 cents perpound);

■ Romaine lettuce, 4.45 pesos (about 45 cents perhead, poor quality);

■ U.S.-origin red seedless grapes, 32.70 pesos perkilogram (about $1.49 per pound); and

■ U.S.-origin green d’Anjou pears, 10.70 pesos perkilogram (about 49 cents per pound).

Highlights of Supermarket/Chain StoreField Visits in Villahermosa, Tabasco

Bodega G (Part of the Gigante Group, a Mass-Merchandise Retail Chain Based in Mexico City).This store, which featured a warehouse-type format inits grocery departments, carried a limited, thoughwell-priced, selection of fresh produce items. Thecomparatively small produce department only con-tained approximately 70 stock-keeping units, and col-ored lights were used throughout the refrigeratedcases to make the sometimes tired-looking produceappear greener. Sample prices included the follow-ing:83

■ Iceberg lettuce, 3.80 pesos (about 38 cents) perbag (poor quality, with brown outer leaves);

■ Washed white Alpha variety potatoes, 7.95 pesosper kilogram (36 cents per pound);

■ Chayote squash, 4.40 pesos per kilogram (20 centsper pound); and

■ Roma (plum) tomatoes, 18.00 pesos per kilogram(83 cents per pound).Carrefour (Part of Mass-Merchandise Retail

Chain Based in France). This store, about 2-1/2

years old at the time of the December 1998 visit, fea-tured a somewhat broader selection of produce itemsthan Bodega G (about 100 stock-keeping units), aswell as products that were more carefully sorted andappeared to be in superior condition. Nonetheless,produce selection in Carrefour’s Villahermosa storewas approximately one-third that of Carrefour’sPolanco store in Mexico City, reflecting apparent dif-ferences in the income and preferences of each store’scustomer base. The Villahermosa store containedpractically no fresh-cut or value-added items, apartfrom one shelf of selected cellophane-wrapped vegeta-bles displayed on Styrofoam trays. Washed whiteAlpha variety potatoes were offered at the unusuallylow price (by local chain store standards) of 6.30pesos per kilogram (approximately 29 cents perpound). The attractiveness of this price appeared tobe confirmed by the fact that the large display of bulkpotatoes was practically sold out at the time of thevisit.

Sam’s Club (Part of U.S.-Based Chain of Mass-Merchandise Wholesale Clubs, Sister Operation toWal-Mart Supercenters). Of all of the supermarketsand mass-merchandise stores visited by the researchteam in the Villahermosa area, Sam’s Club offered thehighest product quality and greatest product unifor-mity in its fresh fruit and vegetable selection. In manycases—especially in bulk produce—its prices com-pared favorably with other local chain stores. Thestore displayed approximately 80 stock-keeping unitsin its produce department. (As at the U.S.-basedSam’s Club stores, the Villahermosa store requiredcustomers to be members in order to purchase prod-ucts at the store.) Selected prices for bulk produceincluded:84

■ Roma (plum) tomatoes, 12.70 pesos per kilogram(58 cents per pound), nice quality; and

■ Iceberg lettuce, 5.00 pesos (51 cents per head).In an unusual merchandising strategy for a

Mexican food retailer, the Villahermosa branch ofSam’s Club featured a stand-alone refrigerated (coffin)case entirely stocked with fresh-cut packaged saladand produce items, all U.S.-origin products from theCalifornia-based firm of Tanimura and Antle. Theseitems included packaged salads such as a “Santa Fe”salad mix with Jack cheese, a Caesar salad mix, andbaby spinach leaves, all priced from 16 to 22 pesosper package (approximately $1.62 to $2.23). The

83Conversion of retail prices based on Federal Reserve Bank midday exchange rates forDecember 16, 1998, of 9.885 pesos per U.S. dollar. 84Ibid.

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spinach-based salad mixes appeared to be in verygood condition, but all of the mixes containing ice-berg lettuce had some browning along the edges ofthe leaves.

Other U.S.-origin, fresh-cut packaged vegetableitems in the refrigerated case included Tanimura andAntle’s coleslaw mix and shredded carrots (eachpriced at 14 pesos per package or around $1.42 atprevailing exchange rates) and two different packagesof baby carrots, a regular package and a so-called“kids lunch pack” that featured multiple small pack-ages of carrots. (The Villahermosa Sam’s Club was theonly store visited by the research team where this par-ticular item was observed.) In addition to fresh fruitsand vegetables, Sam’s Club carried a wide selection offrozen vegetables, including U.S.-origin brandeditems.

Aside from having a relatively large selection ofproduce items, Sam’s Club had floors and merchan-dise displays that were exceptionally clean and order-ly, compared with most other supermarkets and chainstores visited by the research team (with the possibleexception of the Soriana store in Guadalajara, Jalisco).Store personnel were committed to removing wasteand extraneous materials from the produce depart-ment as quickly as possible.

Tiendas Chedraui (Part of a Mass-MerchandiseRetail Chain Based in Xalapa, Veracruz). This store,a member of a chain that is said to have the strongestfollowing among local grocery shoppers, offered someof the worst quality fresh fruit and vegetables seen bymembers of the AMS/ERS/Texas A&M research teamin Mexican grocery chains. Many of the 70 or soitems in the produce department were bruised andspoiled, and most items were displayed on tabletopswithout regard to differences in size, maturity, andappearance. Probably the worst example of qualityproblems that members of the research teamobserved at the store involved a small selection of cel-lophane-wrapped specialty fruit items on Styrofoamtrays (e.g., imported strawberries) that were displayedin a refrigerated case along the perimeter of the pro-duce department. Much of this imported product wasalready turning green and moldy. In another case(involving the display of fresh chayote squash), theproduct was still covered with the bits and pieces ofnewspaper that had been used as packing insulation.Selected prices of bulk produce included:85

■ Chayote squash, 1.25 pesos per kilogram (around 6cents per pound); and

■ Roma (plum) tomatoes, 12.70 pesos per kilogram(around 58 cents per pound).

Summary:

The rapid expansion and growing popularity ofmodern self-service supermarkets and mass-merchan-dise stores in Mexico in recent years should notobscure the fact that Mexican grocery shoppers con-tinue to exhibit very different shopping habits andpreferences from their U.S. counterparts. While thevast majority of U.S. grocery shoppers turn to super-markets and mass-merchandise retailers for food sup-plies, grocery shoppers in most regions of Mexicocontinue to patronize a variety of modern and tradi-tional markets for foodstuffs—and retain a distinctpreference for purchasing fruits and vegetables in tra-ditional street and public markets—despite the grow-ing accessibility of modern retail outlets. Factors suchas heavy dependence on public transportation andlimited household refrigerated storage capacity oftendiminish the attractiveness of one-stop shopping forperishable products, with the result that the averageMexican household grocery shopper continues to visitfood stores several times per week. In addition, theimportance among many Mexican consumers of pur-chasing fruits and vegetables with precise qualitycharacteristics (such as maturity) tends to give localstreet and public markets an advantage against thestandard produce merchandising practices of mostgrocery chains. Nonetheless, chain supermarket andmass-merchandise stores retain their own distinctcompetitive edge and social cachet in the Mexicanfood marketplace; aside from offering a greater senseof personal safety and providing superior climate con-trol for perishable products, they can offer a muchbroader (and highly price-competitive) selection offruit and vegetable merchandise than traditional mar-ket outlets, including greater varieties of importedfruit from temperate climates and convenience-orient-ed fresh-cut products, such as packaged salads.

As a result of the growing importance of supermar-kets and mass-merchandise retail stores in producemerchandising and distribution, Mexican consumersare being exposed to a greater variety of fresh fruitand vegetable products than ever before, creating newmarket opportunities for shippers and exporters ofU.S.-origin product. The information provided in this85Ibid.

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chapter is intended to expand awareness among U.S.produce growers, shippers, and exporters about thechanging character of the Mexican retail produce mar-ketplace, the implication of supermarket and mass-merchandise store growth on future demand forimported produce, and the likelihood of continuedsteep competition between traditional and modernretail operations for portions of the Mexican con-sumer food dollar, given the complementary nature ofproducts and services that each retail segment contin-ues to offer the local produce consumer.

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Current Function of Intermediaries in theDistribution of Mexican Produce

n the United States, nearly two-thirds ofthe fresh produce sold at supermarkets isshipped directly to the retailer from pro-duction regions (either by growers/ship-

pers or by field brokers).86 In contrast, the Mexicanproduce distribution system continues to be charac-terized by strong participation from urban-based inter-mediaries. In a 1997 article in Enlace magazine, aMexican trade publication focused on food distribu-tion issues, Luis Felipe Moreno noted that 60 cen-trales de abasto (central wholesale market facilities inurban population centers) handled more than 90 per-cent of all fresh products distributed to retail buyers.87

One facility alone, the Central de Abasto de laCiudad de México (CEDA), Mexico City’s primarywholesale market facility, handles a reported 40 per-cent of Mexico’s domestic horticultural production.88

Approximately 17,000 metric tons of fresh food prod-ucts and 4,000 metric tons of processed food prod-ucts move through CEDA every day from 2,000 mar-ket stalls.89 The majority of the facility (1,650 whole-sale stalls, or 83 percent of the total) is devoted to thefruit and vegetable trade. With a storage capacity ofaround 114,000 metric tons, the fruit and vegetablesection of CEDA provides the 20 million residents ofthe Mexico City metropolitan area with an estimated87 percent of its fruit and vegetable requirements.CEDA also represents an important source of fresh

fruits and vegetables for communities in the southand southeast portions of Mexico.90

Many Mexican supermarkets and mass-merchan-dise chain stores have vigorously tried to bypass inter-mediaries and implement more efficient procurementsystems. However, anecdotal evidence from interviewswith produce growers, brokers, wholesalers, and retailbuyers throughout Mexico confirms that most freshfruits and vegetables—both imported and domestic—continue to be handled by at least one central whole-sale market in an urban population center beforebeing delivered to a retail market outlet or distribu-tion center. The level of dependence on centralwholesale markets differs significantly by firm. Ininterviews with the AMS/ERS/Texas A&M Universityresearch team, supermarket and mass-merchandisechain store buyers indicated that their firms pur-chased from as little as 25 percent to as much as 90percent of their fresh produce from a central whole-sale market. Only one of the seven chain stores sur-veyed reported obtaining less than half of its producesupplies from a central wholesale market. This partic-ular firm had managed to reduce its dependence onthe wholesale market from a previous level of 60-70percent within a 4-year period.

Reasons for Continued Retailer Dependence onWholesalers. The lingering dependence of even thelargest Mexican retailers on the central wholesale mar-ket can be largely attributed to the absence of a well-developed marketing infrastructure in many Mexicanfruit and vegetable production areas. This is especiallytrue in those areas that have not historically beeninvolved in export-oriented commerce. Mexicansupermarket and chain store buyers note that relative-ly little of the domestic fresh produce destined for theinternal market is adequately prepared for retail sale at

CHAPTER 3: The Changing Role of WholesaleMarkets in Mexican Produce DistributionDebra Tropp, Agricultural Marketing Service, U.S. Department of AgricultureDr. Jaime Málaga, Texas Agricultural Market Research Center, Texas A&M University

86U.S. figures obtained from Marketing and Performance Benchmarks for the Fresh ProduceIndustry, Edward W. McLaughlin, Kristen Park, and Debra J. Perosio, Cornell University, Ithaca,NY, 1997, p. 33.

87“Las Centrales de Abasto ante los Retos de Cambio,” Luis Felipe Moreno, Enlace, MexicoCity, vol. 2, no. 7, 1997, p. 15.

88“La Central de Abasto de la Ciudad de México: Redes de Frio y Modernización,” GuillermoTarrats Gavidia, Enlace, Mexico City, vol. 2, no. 7, 1997.

89Enlace Para El Abasto, published by the Trustees of the Mexico City Central WholesaleMarket, Mexico City, 1994, p. 7.

90Enlace Para El Abasto, published by the Trustees of the Mexico City Central WholesaleMarket, Mexico City, 1994, pp. 7 and 16.

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the shipping point. Only the largest Mexican growersroutinely sort and classify produce by size and maturi-ty at their packing sheds. The items that receive thistreatment are primarily commodities destined forexport—such as onions, tomatoes, oranges, limes,avocados, and mangoes—which are shipped directlyto foreign retail buyers.

In contrast, the sorting and classification of freshproduce for the internal market has historically beenconducted at central wholesale markets in major pop-ulation centers. The inconsistent or nonexistent appli-cation of quality product standards at many ruralpacking facilities (except those that are primarilygeared toward exports) obliges Mexican retailers todepend heavily on wholesalers and other intermedi-aries for fresh produce that more closely meets theirspecifications for size, quality, appearance, andmaturity.

Functions Typically Performed by WholesaleFirms for Large Retailers. The primary functionsperformed by produce wholesalers that Mexicansupermarket buyers cited as critical to the success oftheir business operations were:

Product sorting. In the absence of well-definedand well-accepted uniform quality standards, mostfresh fruits and vegetables for the domestic market aresorted and classified by individual firms at wholesalemarket facilities rather than at packing facilities. Mostof this product selection and classification is donemanually, with products typically being categorizedand separated on the basis of either maturity or size(figure 3.1).

Product assembly. Wholesalers provide the valu-able service of receiving fresh produce (often in bulk)from numerous individual small producers and theirbrokers and reassembling it in ways that make it easi-

Figure 3.1—Hand sorting potatoes at central wholesale market, Monterrey, Nuevo León

53

er for the retailer to accept delivery. These servicesmight include:■ Packing items in appropriate containers for trans-

port, storage, or retail sale (e.g., wooden and plas-tic crates, mesh bags, cardboard cartons);

■ Packing items in unit sizes that meet the volumerequirements of specific retailers;

■ Palletizing packaged merchandise; and■ Creating mixed loads of perishable items for deliv-

ery to individual retail stores or retail warehousefacilities. The need to have an intermediary reassemble fresh

fruits and vegetables is particularly important in a rap-idly evolving marketing environment such asMexico’s. On the supply side, producers for thedomestic Mexican market are often small-scale farmoperations that are individually unable to fulfill thevolume requirements, product quality, or packagingspecifications of retail grocery chains. On the demandside, even though the number of chain affiliated retailoutlets is expanding rapidly, many supermarkets andchain stores in Mexico do not yet operate a sufficientnumber of retail outlets to justify building and operat-ing their own proprietary distribution centers in everylocality they serve. One representative of a multina-tional supermarket chain interviewed by theAMS/ERS/Texas A&M University research team notesthat a supermarket chain needs to operate about 20retail stores in a particular region before the establish-ment of an independent produce distribution centerbecomes cost-effective. The inability of many Mexicanfruit and vegetable producers to deliver market-readyproduce directly to destination markets, coupled withthe inability of some chain retailers to receive andstore full truckloads of perishable merchandise in cer-tain parts of their operational territory, creates animportant role for produce wholesalers and otherintermediaries, who are able to receive single com-modities by the truckload, discard merchandise thatmay have deteriorated in transit, repackage merchan-dise in unit sizes that are appropriate for retail sale,and deliver mixed truckloads of produce items toretail customers.

Specialized product handling requirements.Certain fresh fruit and vegetable items have specialhandling requirements that are best served by anintermediary such as a wholesaler in a primary popu-lation center. Two such items are the white Alpha vari-ety potato, the most popular potato variety amongMexican consumers, and imported Washington State

apples. In the case of the Alpha potato, Mexican con-sumers greatly prefer washed potatoes and will fre-quently pay a premium for them. Therefore, manywholesale operators maintain potato-washing facilitiesas close to the point of sale as possible to preventserious product deterioration. Similarly, retail purchas-es of Washington State apples often require the servic-es of a produce wholesaler because such apples mayonly enter Mexico in a sealed container. Therefore,any buyer interested in receiving less than a containerload of Washington State apples must obtain themthrough a wholesaler.

Drawbacks of Wholesale MarketDependence

The widespread reliance on wholesalers by bothsmall and large Mexican food retailers adversely affectsthe quality of the fresh produce that they sell. Freshproduce items that move through a central wholesalemarket facility are naturally subject to longer transittimes than those that are shipped directly from apacking shed to a retail distribution center. Therefore,they face a greater risk of damage or loss during thedistribution process, especially given the rudimentarystate of cold storage and mechanization that exists atmany Mexican wholesale market facilities.

Spotty and Inadequate Use of RefrigeratedStorage. Supermarket buyers interviewed in MexicoCity in December 1998 by the AMS/ERS/Texas A&MUniversity research team uniformly expressed disap-pointment with the produce wholesalers at theMexico City Central de Abastos. The buyers claimedthe wholesalers failed to grasp the critical importanceof cold chain maintenance for perishable products,observing that “nobody [in the Mexican wholesalesector] wants to invest in cold storage facilitiesbecause they don’t understand the philosophy behindcold chain maintenance. . .[and] are more concernedabout the products suffering from freezer burn.”91 Theconcern expressed by Mexican food retailers is con-firmed by testimony from wholesale operators andwholesale market administrators and by official statis-tics of cold storage availability.

In U.S. wholesale markets, fresh produce items areroutinely stored in temperature-controlled chambersto prevent deterioration and maximize shelf life. Also,


54

produce commodities are typically separated andstored in one of several available cold storage cham-bers according to their specific humidity and tempera-ture requirements. In contrast, sizable portions of thefresh fruit and vegetable inventory held at Mexicanwholesale market facilities are frequently stored with-out any refrigeration. The volume of product stored intemperature-controlled conditions varies significantlyby market location, with a notable decline as onemoves into the interior of the country.

The AMS/ERS/Texas A&M University researchteam interviewed market administrators and mer-chants at four produce wholesale markets servingmajor Mexican population centers (Guadalajara,Mexico City, Monterrey, and Villahermosa) and oneproduce wholesale market in a major agricultural pro-duction region (Culiacán) during March andDecember 1998. The team learned that refrigeratedstorage was still regarded as a luxury rather than astandard business practice by many Mexican producewholesalers. A brief overview of refrigerated storageconditions at individual wholesale markets from northto south follows.

Monterrey. Lic. Francisco Reyna Garza, marketadministrator of the “Star” wholesale market inMonterrey, observed in March 1998 that, while themajority of the market’s wholesale stalls maintainedsome type of refrigerated storage capacity, only about50 percent of the produce items handled by the mar-ket were actually kept in refrigerated storage. Most ofthe available cold storage capacity was devoted tohighly perishable items such as tomatoes, avocados,bananas, and apples, while the majority of items,such as oranges, papaya, pineapple, jicama, watermel-on, potatoes, and onions, were typically not held intemperature-controlled conditions.

Culiacán. At the Culiacán wholesale market—located in the northwestern Mexican state of Sinaloa,the source of much of Mexico’s export-oriented agri-culture—all of the fruit and vegetable merchants visit-ed by members of the AMS/ERS/Texas A&MUniversity research team appeared to offer some typeof cold storage for fresh fruits and vegetables.However, some of the smaller merchants maintainedonly one or two tiny refrigerated chambers that werecapable of holding only limited shares of their perish-able inventory. The largest merchant at the facility,specializing in imported and domestic fruit, main-tained 13 refrigerated chambers at two different tem-perature levels and had the capacity to hold about

600 wooden crates or cardboard cartons simultane-ously. Another operator, a vegetable broker specializ-ing in Roma tomatoes, sweet peppers, and chile pep-pers, remarked that approximately 75-80 percent ofthe merchandise he handled was refrigerated.

Guadajalara. The General Director of theMerchants Union at the Guadalajara Central deAbastos, Lic. Ruben Mendez Garcia, noted that theonly produce items routinely kept in cold storagechambers are temperate fruits (e.g., apples, pears,stone fruits, grapes, and berries) and bananas (duringthe ripening process). Some of the vegetable handlerson the Guadalajara wholesale market remarked thatthey didn’t see any particular need to maintain coldstorage facilities on their premises. One merchant,who primarily sold Roma tomatoes, zucchini, andchile peppers, said he “doesn’t need” cold storagebecause he buys only “what he can sell” and hastwice as many customers as he needs to sell hisinventory.

Mexico City. According to Serafin Quintero Garciaand Victor Vargas Flores of the Mexico City CentralWholesale Market’s Producers and Merchants Union,who were interviewed in March 1998, “not everymerchant at the Central de Abastos has refrigeratedstorage capacity.” Cold storage was primarily used fora handful of sensitive goods, such as bananas (80 per-cent of which were held in refrigerated conditions),avocados, and grapes. The latest available statisticssuggest that the overall use of cold storage in whole-sale produce operations in Mexico City remains quiterestricted. Survey responses to the first Census ofMerchants at the Mexico City Central de Abastos car-ried out in 1997 indicated that only 12 percent of themerchants selling perishable grocery items at the mar-ket depended on any form of cold storage on theirwholesale premises.92

Villahermosa. The most limited use of cold stor-age encountered during site visits to wholesale marketfacilities in Mexico occurred in Villahermosa, a majordistribution platform for fresh produce in the south-eastern part of the country. There were 40 producewholesale stalls at this facility. Antonio de la Torre,manager of the Villahermosa wholesale market,revealed in a December 1998 interview that he knewof only one produce merchant on the market—some-one who imports fresh fruit—who routinely refrigerat-

92La Central de Abasto de la Ciudad de México: Redes de Frio y Modernización,” GuillermoTarrats Gavidia, Enlace, Mexico City, D.F., vol. 2, no. 7, 1997, p. 4.

55

ed at least some of his merchandise (in a trailer adja-cent to his wholesale stall).

Packaging Materials That UnderminePreservation of Product Quality. Insufficient coldstorage space is only one of several problems thataffect fresh produce held at Mexican wholesale marketfacilities. Additional product damage and deteriora-tion also occur from inadequate packaging materials.Notable exceptions are a few domestic commodi-ties—limes from Veracruz, tomatoes from Sinaloa,and bananas from Tabasco—which are primarilypacked for the more lucrative and demanding exportmarket and are typically received by wholesale marketfacilities in sturdy, well-insulated cardboard cartons.However, the majority of domestically produced freshfruits and vegetables arrive at Mexican wholesale mar-kets in bulk or in open, poorly insulated containers,such as burlap and mesh sacks or wooden cratesinsulated with newspaper. Even when these items arerepacked by the wholesaler, they tend to be packed inopen or partially exposed wooden or plastic cratesfilled to the brim, which leaves the merchandise vul-

nerable to crushing and bruising, especially when thecrates are stacked on top of each other (figure 3.2).

Because of these wholesale practices, retail buyersin Mexico—even the largest supermarket and chainstore buyers—often have difficulty obtaining freshfruits and vegetables in packaging that is amenable toproper storage, palletization, and mechanical load-ing/unloading at their receiving warehouses and distri-bution centers. In a December 1998 interview inMexico City with corporate produce buyers fromthree major supermarket and chain store firms, thebuyers noted that only about 15-20 percent of theirfresh produce items currently arrived in cardboardcartons, mostly items that were specifically packed tomeet export quality standards.

Wholesalers and retailers expressed a wide varietyof opinions as to why most domestically producedfresh fruits and vegetables handled by Mexican whole-sale market facilities were stored and delivered toretailers in wooden and plastic crates rather than inmore protective cardboard cartons. Wholesalers gen-erally argued that they used wooden and plastic crates

Figure 3.2—Tomatoes stacked in open wooden crates at central wholesale market, Mexico City

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because most price-sensitive retailers in Mexico areunwilling to pay the necessary premium to receiveproduce that has been stored in more heavily insulat-ed and sturdier packaging. The price differentialsbetween bulk and packaged fresh produce can be siz-able indeed. One wholesale vegetable dealer inCuliacán estimated that cardboard cartons generallyadded an average of 25 pesos per kilogram or about$1.33 per pound to the wholesale price of fresh pro-duce over product packed in bulk and 2 or 3 pesosmore per kilogram or $0.11-0.16 more per poundthan product packaged in wooden crates.93 Because ofthese differentials, the choice of packaging can have asignificant bearing on the total cost of merchandise,especially for heavy produce items that cost relativelylittle on a per-pound basis. “Star” wholesale marketadministrator, Lic. Francisco Reyna Garza, noted that,in Monterrey, virtually all items such as watermelonsor pineapple were shipped to retailers in bulk, since“it’s impossible to be price-competitive otherwise.”94

The price sensitivity of some retailers may havebeen exacerbated by Mexico’s recent experiences withcurrency devaluation, which raised fears that income-squeezed customers would not be able to afford mer-chandise that was packed in relatively expensive card-board cartons. During a March 1998 interview, mar-ket administrator Reyna recalled some attempts toship potatoes in cardboard cartons in 1994. Thispractice stopped, however, after the major peso deval-uation of late 1994 because “people could no longerafford to pay for the more expensive packaging.” (Mr.Reyna remarked that the bags most commonly usedto pack and ship fresh potatoes in Mexico were sixtimes less expensive than cardboard cartons.)95

A prominent tomato packer and exporter in Sinaloaoffered another perspective on the enduring populari-ty of wooden crates in Mexican produce wholesalingand distribution. The packer remarked that he contin-ued to use open wooden crates for part of his domes-tically oriented packing line because of buyer expecta-tions. In his opinion, some domestic buyers prefer toreceive product in partially exposed wooden crates“filled to the top,” despite the increased risk of crush-ing and product losses, because they don’t perceive

that they have received a “good value” for theirmoney otherwise.

Representatives from larger food retail firms, suchas supermarkets and chain stores, also stated thatthey were reluctant to pay a premium for cardboardcartons. They argued that crates—especially plasticones—provided better ventilation and preserved thequality of the produce better than cardboard cartonswhen cold storage was not used, as is so often thecase at Mexican wholesale markets. In a December1998 interview, two corporate produce buyers fromprominent supermarkets and chain store firms com-mented that they might be willing to pay a premiumfor some fresh fruits and vegetables if they were pack-aged in plastic crates but only under a distributionsystem in which they didn’t have to return the [recy-clable] crates to the wholesaler.

Even in those comparatively rare circumstances inwhich Mexican produce wholesalers keep fresh fruitsand vegetables under refrigeration and store them incardboard cartons, the handling of produce itemsoften appears less than optimal in terms of preservingproduct quality. In cold storage warehouses at theCuliacán wholesale market, for example, it was com-mon to see relatively fragile items such as lettuce,green onions, and cilantro stored in open cardboardcartons overflowing with product, exposing the con-tents to potential crushing and damage (figure 3.3).

Heavy Reliance on Manual Labor, ProlongingMerchandise Exposure to Ambient Temperature.The standard U.S. practice of using mechanical fork-lifts to move palletized cargo from cold storage ware-houses onto a transportation vehicle is very much theexception at Mexican wholesale markets for severalreasons:■ Cold storage chambers and nonrefrigerated ware-

houses maintained by individual wholesale firmsare frequently too small to permit the use ofmechanical forklifts.

■ Frequent use of poorly insulated and nonuniformpackaging materials by growers and wholesalersmakes it impractical to use mechanical forklifts forloading and unloading produce merchandise.

■ Many vehicles that deliver and receive produce—notably, the small open trucks that are predomi-nately used by market customers to deliver prod-ucts to their final destination—are not compatiblein height with the market’s loading docks, requir-ing merchandise to be loaded manually (box bybox).

93Dollar/peso equivalency based on an exchange rate of 8.5250 pesos for one U.S. dollar onMarch 25, 1998, the date of the interview. Exchange rates obtained from “Daily Mexican PesoRate Against U.S. Dollar” chart, located at www.jeico.co.kr/cnc57mxc.html, and reflect noon buy-ing rates as certified by the U.S. Federal Reserve Bank.

94From March 24, 1998, interview with “Star” wholesale market administrator, Lic. FranciscoReyna Garza in Monterrey, Nuevo León, México.

95Ibid.

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The reliance on manual labor is so firmlyentrenched in Mexican wholesale market practices thatmembers of the AMS/ERS/Texas A&M Universityresearch team observed cases in which manual laborwas relied on even when it didn’t appear necessary. Atone Mexico City operation, the research teamobserved workers hand loading cargo into a refrigerat-ed truck, even though the cargo was being removedfrom a pallet, forklifts were available, and the truck’sheight was compatible with the loading dock (figure3.4). The obvious disadvantage of manual labor is thatit greatly prolongs the time that the merchandise isexposed to ambient temperature at loading docks (fewof which are connected directly to cold storagechambers).

Poor Wholesale Handling Contributing to HeavyLosses. Given the limited availability of refrigeratedstorage, the widespread use of nonprotective packag-ing materials, and the heavy reliance on manual labor,it is not surprising that wholesale produce merchants

in Mexico reported extensive losses of perishableinventory. At the Culiacán wholesale market, forexample, a representative of one of the largest pro-duce firms who used refrigerated storage extensively(13 refrigerated chambers at two temperature levels)reported that his perishable product losses averagedabout 15 percent and could reach as high as 20-25percent for a sensitive commodity like bananas. InVillahermosa, where refrigerated storage at the whole-sale market was almost nonexistent, the market man-ager estimated that average produce losses reached25-30 percent of all fresh fruits and vegetables mov-ing through the market. In addition, certain items—mangoes, Maradol papayas, and locally popular tropi-cal fruits such as zapote and guanabana—were vulner-able to even worse damage because of their relativefragility.

Within Mexico as a whole, an estimated 50-60 per-cent of the total volume of perishable agriculturalproducts produced in the country is lost between

Figure 3.3—Storage of lettuce and herbs in wholesale market stall, Culiacán, Sinaloa, March 1998

58

harvest and the time the products reach the con-sumer.96 To be sure, some of the heavy losses can beattributed to the general lack of attention paid to coldchain maintenance at most wholesale markets.Insufficient or nonexistent access to refrigeration atrural packing facilities and in transportation vehiclesis also a factor.

Rural Road Conditions Impede QualityPreservation During Transport. Produce lossesbetween point of origin and destination markets mayalso be exacerbated by the poor road conditions. Thehighway and toll-road system in Mexico appears pri-marily designed to support heavy passenger trafficbetween major cities and surrounding bedroom com-munities, rather than the efficient long-distance trans-port of commodities from rural areas to major popula-tion centers. Consequently, rural roads—even thoseserving as major arteries to agricultural productionregions—often suffer from severe neglect.

During their December 1998 visit to agriculturalproduction regions in the state of Veracruz, membersof the AMS/ERS/Texas A&M University research teamobserved the poor condition of many rural roadsthroughout the state. The primary road linking theport of Veracruz to the town of Martinez de la Torre—primary shipping point for citrus and the country’ssecond largest agricultural shipping point market—was so riddled with potholes that it was virtuallyimpassible by truck. Meanwhile, in southern Veracruzstate (near the pineapple production region of CiudadIsla), research team members watched as local chil-dren filled potholes on the poorly maintained two-lane highway with dirt, held a rope across the high-way, and asked for money from passing vehicles ascompensation for their “repairs.” The risk that freshfruit and vegetable cargo may experience significantdamage during long-distance transport on these poor-ly maintained rural roads is aggravated by the fact thatrelatively few Mexican growers (except those who pri-marily supply the export market) pack their produce

Figure 3.4—Manual loading of palletized cargo into containerized vehicle at central wholesale market, Mexico City

96“La Central de Abasto de la Ciudad de México: Redes de Frio y Modernización,” GuillermoTarrats Gavidia, Enlace, Mexico City, D.F., vol. 2, no. 7, 1997, p. 3.

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in enclosed cartons that offer substantial protection orinsulation.

Reasons Why Wholesalers Resist Change inBusiness Practices. Faced with such a serious level ofproduct deterioration, one might ask why more mer-chants at Mexican wholesale markets don’t introducerefrigerated storage and adopt more careful storagepractices for perishable products. The answer appearsto lie with the wholesale market’s customer base andwhether these customers are willing to pay more tobe ensured a higher, more uniform quality andextended shelf life. At the “Star” wholesale producemarket in Monterrey, where supermarkets and chainstores account for roughly 70 percent of the market’soverall turnover (15 percent goes to regional whole-salers and 15 percent to small retailers), a relativelylarge portion of the market’s perishable produce itemswas stored under temperature-controlled condi-tions—approximately 50 percent as of March 1998.

“Star” market administrator Lic. Francisco ReynaGarza noted that the market’s customer base hadshifted dramatically from the late 1980s, when smallretailers accounted for 90 percent of the market’s pro-duce sales. This phenomenon reflects the proliferationof chain grocery stores in northern Mexico over thelast decade and a half and the displacement of manysmall greengrocers by large retail firms. As an exam-ple, Mr. Reyna pointed out that the prominent,Monterrey-based Soriana supermarket firm operatedonly one store in 1985, compared with 59 stores inthe spring of 1998, with 24 stores in the Monterreyarea alone. Alone among the managers of several pro-duce wholesale markets in Mexico visited by theAMS/ERS/Texas A&M University research team, Mr.Reyna expressed concerns about the growing domina-tion of chain stores and the role that his market willplay in the local produce distribution system over thenext 10 to 15 years. His concerns reflected the factthat chain store firms continue to build additionalretail outlets, construct independent produce distri-bution centers to support inventories at these stores,and develop the capacity to receive an increased vol-ume of direct shipments of fresh fruits and vegetablesfrom growers.

At the other four produce wholesale markets inMexico visited by the research team, however, mostadministrators and merchants appeared uncon-cerned—at least in the short run—that the prolifera-tion of chain stores may undermine their businesses.Despite the aggressive growth of individual supermar-

kets and chain stores over the past few years, thesestores still appear to represent a minor percentage ofoverall produce sales at most Mexican wholesale mar-kets. Stall operators at covered and open-air markets(tianguis)—who purchase small quantities of perish-able merchandise for almost immediate resale to retailconsumers, are extremely price-conscious, and typi-cally inspect merchandise on site before purchasingit—remain the primary distribution channel for themarket’s fresh produce (figure 3.5). In such a market-ing environment, it becomes more understandablewhy relatively few wholesale produce merchants havechosen to invest in refrigerated storage capacity or toadopt other quality-preserving measures. The factorsthat appeal to the large retail and chain store buyer—such as extended shelf life, uniform product quality,and extended supply availability—are of relatively lit-tle importance to the majority of Mexico’s wholesalemarket customers.

Another factor that may discourage wholesale pro-duce merchants from pursuing chain store accountsmore aggressively relates to the issue of credit.Wholesale produce merchants are accustomed toreceiving prompt, if not immediate, payment fromtheir retail and institutional clients. They are not nec-essarily inclined to increase the proportion of

0 10

Source: First Census of Merchants at the Mexico City Central de Abastos, 1997. The sumof percentages does not equal 100 because each merchant was able to select as manyas three options.

Figure 3.5—Principal customers of central wholesalemarket merchants, Mexico City, 1997

Household consumers

Other wholesalers Others

Supermarkets

Other fooddistributorsPublic markets Tianguis

Percent

20 30 40 50

Corner stores

60

accounts held with chain store firms, who frequentlydemand far more liberal credit terms than other cus-tomers. Market administrators at the Mexico CityCentral de Abastos commented that about 60-70 per-cent of the tomatoes handled by the terminal marketwere sold on a cash basis. On those comparativelyrare occasions when the small retail buyer purchasesmerchandise on credit, he or she typically receivescredit terms of 3-4 days, compared with 15-20 daysthat supermarkets and chain stores typically demand.Similarly, in bananas, the majority of sales were trans-acted on a cash basis. The average retail buyer pur-chasing bananas on credit usually received creditterms of about 8 days, compared with 20-30 daystypically demanded by chain store clients.

Below are some perspectives offered by a numberof produce wholesalers at various urban wholesalemarkets about the relative importance of supermar-kets and other chain stores to their overall businessoperations:

Culiacán. An interview with a representative of thelargest produce firm on the Culiacán wholesale mar-ket in March 1998 revealed that he sold about 80percent of his produce to small full-line grocery storesand about 20 percent to other independent retailers.He didn’t typically sell merchandise to chain stores atall because he “doesn’t like to work with supermar-kets.” One of his competitors on the market, a veg-etable broker, expressed similar sentiments aboutsupermarkets and chain stores and remarked that he“refuses to do business with them” because they are“too risky.” He sold all of his merchandise to smallindependent retailers and wholesalers. In his opinion,supermarkets and other chain stores imposed unreal-istically tight standards on produce arrivals—super-markets expect to receive full trailers without anywaste or unusable product—and their inflexibility andtendency to reject deliveries have increased as theirbuying power has expanded. Although this brokercommented on the growing buying power of super-markets and chain stores, he also mentioned that hedid not expect the growing importance of large chainstores to have any noticeable impact on wholesalemarkets in the Mexican food distribution system.

Guadalajara. Large chain stores such as theCuliacán-based supermarket firm Casa Ley maintain areceiving warehouse on the Guadalajara wholesalemarket, and assorted other firms—Aurrera, Wal-Mart,and Sam’s Club—remain steady clients of the whole-sale market. Nevertheless, the general director of the

merchants union at the Guadalajara central wholesalemarket, Lic. Ruben Mendez Garcia, indicated in aDecember 1998 interview that the Guadalajara whole-sale produce market was still primarily orientedtoward servicing the tiangui trade. Recent declines inthe volume of merchandise moving through thewholesale market were attributed to obsolescence—notably traffic congestion and the lack of convenientparking—and the development of new wholesalemarkets in towns previously served by theGuadalajara Central de Abastos. The declines were notattributed to an expansion of direct shipments tosupermarket distribution centers by agriculturalproducers.

Commentary from a variety of produce merchantsinterviewed at the market on the same day inDecember 1998 tended to confirm Mr. Mendez’sassertions that relatively little of the produce mer-chandise handled on the Guadalajara wholesale mar-ket was diverted to supermarket and chain store chan-nels. One vegetable merchant, who specializes inRoma tomatoes, zucchini, and chile peppers,remarked that supermarkets and chain stores pur-chase less than 10 percent of the product he movesin a given year. He didn’t consider supermarkets andchain stores particularly good customers for two rea-sons: they are prone to reject and return merchan-dise, and they typically pay their suppliers 15-20 daysafter delivery. He said most of his customers pay cashat the time of delivery.

A fruit merchant on the market—who sells hisfirm’s own production of Chihuahuan apples as wellas domestic and imported pears, grapes, and otherfruit items—remarked that he sold merchandise tosupermarkets and chain stores but only a small quan-tity because they were difficult to deal with, expecteda 5-percent price discount, and tended to return toomuch merchandise. In fact, he said he would only sellmerchandise indirectly to supermarkets and chainstores through an intermediary because he doesn’twant to accept the responsibility of handling returns.

Two other citrus wholesalers—members of integrat-ed producer/wholesaler firms—mentioned that theydidn’t sell to supermarkets and chain stores at all.One of the gentlemen, a lime merchant, objected tothe standard terms of payment offered by supermar-kets and chain stores and their expectations for a 5-percent price discount. He indicated that he “didn’tfeel any need” to cater to supermarkets/chain storesbecause “he had other options.” Most of the limes he

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sold (90 percent) were distributed outside theGuadalajara metropolitan region to regional marketcenters, and the remainder were distributed to localpublic markets.

Mexico City. Serafin Quintero Garcia, president ofthe Mexico City central wholesale market’s producersand merchants union, was interviewed by theAMS/ERS/Texas A&M University research team inMarch 1998. He reported that about 80-85 percent ofthe central wholesale market’s produce is sold toopen-air tianguis, enclosed public market stall opera-tors, and small independent shopkeepers, while onlyabout 10 percent is sold to supermarkets. These fig-ures correspond in general with statistics obtainedduring the first Census of Merchants at the MexicoCity wholesale market in 1997. When asked to nametheir top three customers, 44 percent of the whole-sale merchants who responded to the survey citedpublic markets, 42 percent named tianguis, and 30percent indicated that other wholesalers at the marketwere among their top three. In contrast, only 12 per-cent of the merchants indicated that supermarketsrepresented one of their top three market outlets(figure 3.5).

Villahermosa: During interviews in December1998, Villahermosa wholesale market general managerAntonio de la Torre and market analyst EliseoRodriguez Alzina disagreed about whether the grow-ing influence of supermarkets and chain stores in theregion had had an impact on the business operationsof the wholesale market. Mr. de la Torre believed thatmultinational retail chain stores such as the French-based Carrefour and the U.S.-based Sam’s Club—which frequently rely on direct shipments for supplyprocurement—had presented significant competitionduring the past 2-3 years that they had been open inthe region. He noted, however, that while manyprominent local chain stores such as TiendasChedraui, Gigante, and Carrefour had successfullyinstituted direct buying programs with Mexican grow-ers for certain commodities, they were obligated toturn to the Central de Abastos for tropical and semi-tropical commodities such as pineapples, bananas,watermelons, and other melons. The chain stores hadproblems obtaining these commodities directly fromdomestic growers in proper condition (to somedegree because the products required special han-dling such as ripening after harvest).

Mr. de la Torre’s colleague, Mr. Rodriguez, arguedthat he didn’t see any threat at all to Villahermosa

wholesale market operations from local supermarketsand chain stores. He said most of the wholesale mar-ket business was conducted with small shopkeepersand restaurant owners, and supermarkets and chainstores weren’t a critical element of the market’s cus-tomer base. Data collected by Mr. Rodriguez suggest-ed that the rise of local chain stores hadn’t slowed thevolume of product handled by the Villahermosawholesale market. Nor did the rise slow the volumehandled by the adjacent tiangui campesino, a type ofopen-air farmers market exclusively for locally grownproduce from the state of Tabasco. (Contrary to stan-dard U.S. practice, all of the merchants on the tianguicampesino were brokers selling products on behalf ofagricultural producers, not the producers them-selves.)

Between 1995 and 1997, the quantity of horticul-tural products handled by the wholesale market rose32 percent to 164,172 metric tons, and cumulativearrivals between January and November 1998 wererunning 6 percent above comparable 1997 levels.Meanwhile, the quantity marketed through the adja-cent tiangui campesino grew dramatically from an esti-mated 2,000 metric tons in 1994 to more than104,000 metric tons in 1997, although cumulative1998 volumes from January through November wererunning 8 percent below comparable 1997 levels. Theparticular success of the tiangui campesino can be par-tially explained by the sizable difference in rentscharged to tenants at the wholesale market and ten-ants at the tiangui campesino. The difference may haveenabled tiangui campesino merchants to offer compara-ble merchandise at more attractive prices. Wholesalemarket tenants paid an average rent of about 50 pesos(about $5.06) per week for each covered stall, whiletiangui tenants paid as little as 18 pesos ($1.82) perweek for an open-air stall.97

Barriers to Direct Linkages BetweenProduce Growers and Retailers

If most wholesale markets in Mexico remain sopoorly suited to handle the fresh produce needs ofthe large food retailer, why do so many supermarketsand chain store grocers in Mexico continue to rely onwholesale markets for most of their fresh produce?

97Dollar/peso equivalency based on an exchange rate of 9.885 pesos for one U.S. dollar onDecember 16, 1998, the date of the interview. Exchange rates obtained from “Daily Mexican PesoRate Against U.S. Dollar” chart, located at www.jeico.co.kr/cnc57mxc.html, and reflect the noonbuying rates as certified by the U.S. Federal Reserve Bank.

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The answer to this question, of course, is multifac-eted. Mexican supermarkets and chain stores contin-ue to source fresh fruits and vegetables from whole-sale markets rather than from growers partly becausemany of them are still at the stage of corporate devel-opment where the cost of building and operatingindependent produce distribution centers is still noteconomically feasible—or at least not feasible in everymarket location. This fact obliges some firms to turnto wholesale suppliers to receive, store product, anddeliver less than full truckloads of individual producecommodities for distribution in a particular marketlocation.

Even if every Mexican supermarket and chain storefirm eventually attained the economy of scale neededto justify building independent distribution centers ineach region where it operated stores and had thephysical capability to receive most produce directlyfrom growers, an immediate transition to greaterdirect deliveries and a decline in wholesale marketdependence would not necessarily follow. As notedearlier, supermarkets and chain stores in Mexicodepend on produce wholesalers to provide the sortingand assembly functions for fresh fruits and vegetablesthat tend to be neglected in Mexican productionareas. The absence of commonly agreed-upon andenforceable grades and standards for fresh produce,coupled with inadequate quality control in the pro-duce supply chain, discourage the direct shipment ofperishable agricultural products from the producer tothe end buyer. This situation stands in sharp contrastto the U.S. produce marketing system, in which com-pliance with industry-generated quality grades andstandards for fruits and vegetables are enforced bygovernment authorities, and the PerishableAgricultural Commodities Act allows long-distancetransactions to flourish by providing a legal mecha-nism for resolving payment and shipment disputes.U.S. produce shippers also typically have more rou-tine access to a modern highway system and refriger-ated transportation than their Mexican counterparts.

Beyond the legal and infrastructural barriers todirect retail shipments to Mexico, anecdotal evidencefrom interviews with large produce growers suggeststhat the development of direct business transactionsbetween growers and retail clients has been inhibitedby the perception that chain stores are more difficultto work with than other produce receivers. Chainstore buyers typically demand more uniform productquality than other customers, reserve the right to

reject products if they don’t meet their precise specifi-cations, and pay for products as much as 45 daysafter delivery. For growers that are used to being paidfor merchandise by brokers and other intermediariesbefore or at the time of delivery and that have beenable to dispose of merchandise without sorting orreassembling their produce, the stringent demands ofthe chain store retail sector have frequently been diffi-cult to accept.

Nevertheless, some Mexican supermarkets andchain stores apparently are beginning to implementsuccessful direct buying programs with some domes-tic producers. The factors that appear to contribute tothe success of direct buying programs are exploredlater in this chapter.

Institutional Barriers to Direct Shipments. Onereason why relatively few Mexican fruit and vegetableproducers ship produce directly to domestic super-markets and chain stores is that they often lack accessto local packing facilities where their products can besorted and assembled for direct retail sale. In inter-views with the AMS/ERS/Texas A&M Universityresearch team, wholesale market managers and retailbuyers repeatedly pointed out that most of the cen-trales de acopio (assembly centers) in rural areas werecontrolled by large producers with a strong export ori-entation. These centers were specifically designed tosupport the classification and packaging of a handfulof commodities (e.g., bananas, limes, and melons).Consequently, those fruit and vegetable producersthat supply the domestic Mexican consumer markets,often smaller scale growers who don’t produce export-grade commodities or who produce commodities thataren’t in demand by export markets, must typicallyrely on urban wholesalers to sort, wash, and packagetheir products in appropriate unit sizes for sale toretail customers.

Vertical Integration of Production andWholesale Functions. The often blurry distinctionbetween produce “growers” and “wholesalers” inMexico may well have contributed to the concentra-tion of sorting, classification, and packing activities aturban wholesale markets rather than in productionregions. Most of Mexico’s largest produce wholesalersare also involved directly in agricultural productionand are responsible for selling and distributing theirown production (as well as the production of other,usually smaller growers) at their urban wholesale mar-kets. During interviews in March and December1998, wholesale market managers indicated that 20

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percent of the produce wholesale firms at the “Star”wholesale market in Monterrey, 40 percent at theMexico City wholesale market, and 70 percent at theGuadalajara market were directly involved with theproduction side of agriculture.

The vertical integration of Mexican fruit and veg-etable producers into marketing and distribution wasfurther documented in the 1997 Census ofMerchants at the Mexico City central wholesale mar-ket. Thirty-three percent of the merchants respondingto the survey were affiliated with firms that weredirectly involved with agricultural production, and 66percent purchased fruits and vegetables directly fromproduction zones, often providing assistance to theproducers by subsidizing the cost of seeds, agricultur-al chemicals, and fertilizers.98 For these large integrat-ed grower/wholesale firms, moving sorting and assem-bly functions closer to the point of destination wouldappear to have two primary benefits: ■ Wholesale firms can presumably achieve better

economies of scale by consolidating merchandisedeliveries at one central location and carrying outsorting and repacking functions at a relatively lowcost per unit. (Carrying out these functions nearthe point of destination is particularly advanta-geous if the wholesale firm is sourcing productfrom a variety of suppliers and production regions.)

■ Integrated growers/wholesalers can presumablyachieve greater quality control by conducting prod-uct sorting and repacking functions near their pri-mary retail customer base rather than at the pointof origin.Unfortunately, the concentration of sorting and

assembly functions at a handful of urban wholesalemarket facilities can contribute to a phenomenonknown as “product tourism.” This occurs when agri-cultural products are shipped from farms or packingsheds in rural production regions to wholesale mar-kets in major population centers before being redis-tributed to smaller consumer markets, even those thatare near the original production region. For example,the largest produce merchant on the Culiacán whole-sale market, located in the heart of one of Mexico’sprimary tomato growing areas, commented in March1998 that he acquired most of his tomatoes from theGuadalajara wholesale market (730 kilometers or 450miles away). He said he did this because he receives

more uniform and better packaged products if hedeals with an intermediary rather than a producer.The added transportation and handling costs involvedin shipping perishable products through a series ofintermediaries are presumably passed along to thefinal consumer, who ends up paying more for prod-ucts of often inferior quality (since product qualityhas had a greater opportunity to deteriorate duringthe handling process).

The data in table 3.1 underscore the fact that thewholesale distribution of foodstuffs in Mexico is heav-ily concentrated in a handful of major population cen-ters, notably Mexico City (located in the DistritoFederal) and Guadalajara (located in the state ofJalisco). More than 25 percent of Mexico’s installedwholesale market capacity—and nearly 35 percent ofits utilized capacity—is in the Distrito Federal and thestate of Jalisco. The wholesale market occupancy rateelsewhere in the country averages just over 60 per-cent and frequently falls well below 50 percent, par-ticularly in the southern and eastern portions of thecountry.

Infrastructural Obstacles and Challenges.Preserving product quality from origin to destinationin Mexico cannot be ensured due to inadequateaccess to refrigerated transportation, poor roads, andthe predominant use of thinly insulated packagingmaterials for domestic-oriented product by Mexicanproduce growers and packers. Therefore, it becomespreferable to conduct product sorting and classifica-tion functions further along in the distribution chan-nel than is customary in the United States. Accordingto interviews conducted by members of theAMS/ERS/Texas A&M University research team inMarch and December 1998, the consistent use ofrefrigeration to transport fresh fruits and vegetablesentering the domestic market is still more the excep-tion than the rule. This is true even among the largestsupermarkets and chain store firms, although thedesire of large retailers for extended product shelf lifeand quality preservation appears to be driving agreater adoption of cold chain maintenance at thewholesale and retail levels, especially in northernMexico.

Wholesalers and retail buyers typically blame thelack of attention paid to temperature control duringtransport on the “mentality” of Mexican producegrowers and packers, who don’t fully understand theimportance of cold chain maintenance in preservingproduct quality. On the other hand, produce packers

98Cited in "Abasto Alimentario en la Ciudad de México: La Central de Abasto y los MercadosPúblicos," Marcel Morales Ibarra, Enlace, Mexico City, vol. 2, no. 10, 1998, pp. 8 and 9.

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and wholesalers argue that they don’t routinely userefrigeration to deliver perishable merchandise to des-tination markets because their Mexican wholesale andretail clients are unwilling to absorb the additionalcosts necessary to receive produce that has beentransported under temperature-controlled conditions.

Anecdotal evidence gathered by theAMS/ERS/Texas A&M University research team indi-cated that the cost of refrigerated transportation cansignificantly inflate the final price of delivered perish-able merchandise. A produce buyer for a major super-market firm on Mexico’s west coast interviewed inMarch 1998 remarked that the cost of refrigeratedtransportation, on average, could be expected toequal about 6 percent of the final retail cost of a pro-duce item. The buyer indicated the cost could well

exceed this level during peak fruit and vegetable har-vest seasons. (For example, he noted that Decemberis typically a difficult time to find trucks because itcoincides with the beginning of the primary harvestseason in Baja California.) He also estimated that itwould cost about 4,500 pesos (about $528.00) totransport a 45-foot refrigerated container of fresh pro-duce from the Guadalajara wholesale market to hisfirm’s retail distribution center in a major northwest-ern city, a distance of 731 kilometers (about 454miles).99 This translates into a refrigerated transporta-

Table 3.1—Installed and utilized capacity in Mexican central wholesale market facilities

Share ofShare of wholesale

Location of country’s Occupied Unoccupied market stalls wholesale Wholesale wholesale wholesale wholesale that aremarket facilities market stalls market stalls market stalls market stalls occupied

Number Percent Number Percent

Estado de México (2000 population 13,096,686) 956 6.96 655 301 68.51Distrito Federal (2000 population 8,605,239) 2,145 15.61 2,122 23 98.93Veracruz (2000 population 6,908,975) 762 5.54 234 528 30.71Jalisco (2000 population 6,322,002) 1,304 9.49 1,262 42 96.78Puebla (2000 population 5,076,686) 1,078 7.84 611 467 56.68Guanajuato (2000 population 4,663,032) 780 5.67 528 252 67.69Michoacán (2000 population 3,985,667) 806 5.86 508 298 63.03Chiapas (2000 population 3,920,892) 176 1.28 58 118 32.95Nuevo León (2000 population 3,834,141) 1,019 7.41 677 342 66.44Oaxaca (2000 population 3,438,765) 57 0.41 57 0 100.00Guerrero (2000 population 3,079,649) 392 2.85 158 234 40.31Chihuahua (2000 population 3,052,907) 470 3.42 262 208 55.74Baja California Norte y Sur (2000 population 2,911,408) 152 1.11 0 152 0.00Tamaulipas (2000 population 2,753,222) 295 2.15 249 46 84.41Sinaloa (2000 population 2,536,844) 441 3.21 247 194 56.01San Luis Potosí (2000 population 2,299,360) 400 2.91 320 80 80.00Coahuila (2000 population 2,298,070) 252 1.83 252 0 100.00Hidalgo (2000 population 2,235,591) 50 0.36 50 0 100.00Sonora (2000 population 2,216,969) 158 1.15 126 32 79.75Tabasco (2000 population 1,817,829) 80 0.58 80 0 100.00Yucatán (2000 population 1,658,210) 56 0.41 23 33 41.07Durango (2000 population 1,448,661 548 3.99 379 169 69.16Querétaro (2000 population 1,404,306) n/a n/a n/a n/a n/aZacatecas (2000 population 1,353,610) 201 1.46 113 88 56.22Tlaxcala (2000 population 962,646) n/a n/a n/a n/a n/aAguascalientes (2000 population 944,285) 750 5.46 551 199 73.47Nayarit (2000 population 920,185) 130 0.95 13 117 10.00Quintana Roo (2000 population 874,963) 120 0.87 72 48 60.00Campeche (2000 population 690,689) n/a n/a n/a n/a n/aColima (2000 population 542,627) n/a n/a n/a n/a n/a

Total Mexico (2000 population 97,483,412) 13,745 100.00 9,684 4,061 70.45

Sources: Wholesale market statistics were compiled by the Domestic Business Promotion Agency, Mexican Secretariat for Business and Industrial Development, and appearedin the article, “Replanteamiento del Abasto Alimentario,” by Marcel Morales Ibarra in Enlace magazine, vol. 2, no. 2, 1997, pg. 10. Mexican population statistics for 2000were obtained from a table entitled “Social and Demographic Statistics: Mexican’s Population, By State, 1895-2000,” accessible from the Instituto Nacional de Estadística,Geografía e Informática web site at http://www.inegi.gob.mx/estadistica/ingles/sociodem/fisociodemografia.html. The 2000 population data that appear in this table arebased on a February 2000 census.

99Dollar/peso equivalency based on an exchange rate of 8.5250 pesos for one U.S. dollar onMarch 25, 1998, the date of the interview. Exchange rates obtained from “Daily Mexican Peso RateAgainst U.S. Dollar” chart, located at www.jeico.co.kr/cnc57mxc.html,and reflect the noon buyingrates as certified by the U.S. Federal Reserve Bank.

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tion cost for containerized fresh produce of about$1.16 per mile.

Meanwhile, short-haul deliveries in refrigeratedvehicles (e.g., moving perishable products from aregional retail distribution center to individual retailstores) were reported to be far more expensive thanlonger trips. According to one chain store producebuyer in northern Mexico interviewed by members ofthe AMS/ERS/Texas A&M University research team,the cost of transporting 15 metric tons (33,069pounds) of product 15 kilometers in a refrigeratedvehicle could be expected to total 500 pesos. Thisequated to about $58.50 at prevailing exchange ratesor approximately $6.28 per mile.100

The high cost of refrigerated transportation inMexico is attributed to two major factors: the expen-siveness of gasoline and diesel fuel and the limitedavailability of refrigerated trailers. The shortage of trail-ers makes it difficult for even the most well-capital-ized produce handlers to reserve space on refrigeratedtrucks for every produce shipment, particularly for“less than container load” and short-haul deliveries.Chain store retail buyers note that the availability ofrefrigerated transportation services in Mexico hasn’tkept pace with the rapid growth of new entrants intothe retail marketplace for perishable commodities.This is most notable in the case of multinational retailfirms that have historically operated their retail storeswith a greater emphasis on cold chain maintenancethan locally owned supermarket chains.

A spokesman for a major U.S.-based chain storefirm noted in December 1998 that he only knew ofone large food retailer in Mexico—a subsidiary of aU.S.-based company—that routinely used refrigeratedtransportation on a consistent basis for short-haulproduce deliveries. In his experience, most short-hauldeliveries from chain store distribution centers tolocal stores were in nonrefrigerated vehicles and tookplace at night to reduce the likelihood of heatdamage.

In another illustration of the prevailing shortage ofrefrigerated vehicles, a representative of one chainstore firm operating in northern Mexico interviewedin March 1998 remarked that his firm sometimesrented vehicles from its fleet of refrigerated trucks to acompeting supermarket chain. Renting out its trucks

helped this firm overcome the difficulty of arrangingdeliveries of its merchandise to local retail stores inrefrigerated vehicles on demand. The shortage ofrefrigerated transportation services was causing atleast one chain store to rethink its policy of outsourc-ing its transportation needs in favor of maintaining afleet of refrigerated trucks. However, most chain storerepresentatives interviewed by members of theresearch team remarked that their firms did not main-tain an independent fleet of refrigerated trucks andquestioned whether their current merchandiseturnover justified such an expensive investment.

Cost does not appear to be the only constraint tothe more widespread adoption of refrigerated trans-portation in Mexico. Other apparent constraintsinclude cashflow concerns and lack of driver account-ability. According to the produce growers and packersinterviewed by research team members, growers andpackers who ship their goods without using a brokerare generally expected to arrange for the transporta-tion and pay the costs in advance of delivery andoften before receiving payment for their merchandise.

One prominent tomato and tomatillo grower andpacker in the state of Sinaloa—whose firm packsabout 85 percent of its production for export—com-mented in March 1988 that he customarily pays toship his merchandise to local wholesale markets priorto delivery. He said, however, that he has no way ofmaintaining contact with the vehicle’s driver once thevehicle leaves his packing shed. Thus, he generallyhas no idea of what has happened to the merchandiseduring transit and has no assurances that a driver of arefrigerated truck will take the precautions necessaryto preserve the quality of his products. Someunscrupulous truck drivers will turn the refrigerationdown or off to save on diesel fuel. (Given the financialcommitments and risks involved in arranging trans-portation individually, many producers in Mexico,especially smaller ones, feel obliged to use a broker, asthe broker generally assumes responsibility for makingtransportation arrangements and paying for them.)

The high level of integration between firms thatprovide agricultural transportation and companiesthat produce agricultural crops may also contribute tothe limited use of refrigerated transportation services.According to the administrator of the “Star” wholesalemarket in Monterrey, Lic. Francisco Reyna Garza,approximately 25-30 percent of the trucking firmsthat transport perishable agricultural commodities areintegrated with an agricultural producer. If transporta-

100Dollar/peso equivalency based on an exchange rate of 8.535 pesos for one U.S. dollar onMarch 23, 1998, the date of the interview. Exchange rates obtained from “Daily Mexican Peso RateAgainst U.S. Dollar” chart, located at www.jeico.co.kr/cnc57mxc.html, and reflect the noon buyingrates as certified by the U.S. Federal Reserve Bank.

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tion resources are heavily or exclusively devotedtoward the production of the affiliated firms duringpeak harvest periods, the overall shortage in refrigerat-ed transportation services may be accentuated.

Below are selected comments from produce pack-ers, wholesalers, brokers, and retail buyers gatheredby members of the AMS/ERS/Texas A&M Universityresearch team during field interviews in March andDecember 1998. The comments underscore theinconsistent use of refrigerated vehicles to transportfresh fruits and vegetables throughout Mexico, espe-cially between rural production regions and wholesalefacilities/retail distribution centers in urban areas.

Monterrey/State of Nuevo León. Large retailers inthis region indicated that they depend heavily ontheir own (or rented) fleet of refrigerated vehicles totransport merchandise between wholesale marketfacilities and their produce distribution centers/ware-houses. (It was not clear whether refrigeration wasused consistently to transport fresh produce fromretail distribution centers/warehouses to individualretail stores.)

Representatives of a Monterrey-based chain storefirm with convenience stores throughout Mexicocommented to AMS/ERS/Texas A&M interviewers inMarch 1998 that they obtain about 70 percent oftheir fresh produce from central wholesale marketsand the remainder from brokers. The firm uses itsown fleet of refrigerated trucks to pick up all of itsperishable merchandise from suppliers. Although thefirm would like to move toward more direct buying, itdoes not usually purchase produce directly fromgrowers or grower associations because of the “limitedavailability of refrigerated trucks capable of handlingperishables properly.”

Another supermarket chain based in Monterreyindicated that it used its own refrigerated trucks totransport about 85 percent of its perishable produceitems from its grower and wholesale suppliers to itslocal produce distribution centers. The remainder wastransported at ambient temperature.

The use of refrigeration and the emphasis on coldchain maintenance by wholesale produce handlers inMonterrey appear to be less frequent than amonglarge chain store produce receivers. Most merchantsat Monterrey’s premier wholesale market for produce,the “Star” wholesale market, maintain some type ofrefrigerated storage for highly perishable fruits andvegetables at their stalls. However, the general admin-istrator of the Monterrey market, Francisco Reyna

Garza, remarked in a March 1998 interview thatmany perishable (but relatively durable) fresh produceitems, such as oranges, papayas, pineapples, jicamas,watermelons, potatoes, and onions, are usually notreceived, handled, stored, and delivered to retail cus-tomers under temperature-controlled conditions. Thiswas true, he said, regardless of whether the final retailbuyer was a representative of a chain store that main-tains a temperature-controlled produce warehouse ordistribution center or a small retail merchant/shop-keeper who stores and markets all of his/her produceinventory at ambient temperature.

Many of the produce items typically stored atambient temperature were among the most popularitems traded at the “Star” wholesale market. Oranges,onions, watermelons, and potatoes, along with toma-toes, chile peppers, mangoes, and bananas, accountfor an estimated 60 percent of the market’s annualvolume in fresh produce. Consequently, only about50 percent of the market’s total fresh produce inven-tory is believed to be stored in a temperature-con-trolled environment at any time. Even those productsthat are typically stored in cold storage are frequentlyexposed to ambient temperature during the receivingand delivery process on open loading docks. (Mr.Reyna noted that the efficiency of the receiving anddelivery process at the “Star” wholesale market variedsignificantly from commodity to commodity. Whilevirtually all tomatoes received at the market were pal-letized and fairly easily transported between loadingdock and storage warehouse, bananas were far moredifficult to handle because the 30-year-old ripeningrooms on the market were designed to handle smallbunches of bananas rather than palletized cartons.)

Guadalajara/State of Jalisco. As in Monterrey, theextent to which fresh fruits and vegetables are trans-ported to the local wholesale market in refrigeratedvehicles and held in cold storage depends on thecommodity in question. However, the use of refrigera-tion to store fresh fruits and vegetables appears to beless widespread than in Monterrey, where the majorityof the market’s produce (approximately 70 percent) isdistributed to large chain stores.

Wholesale market administrators and merchants inDecember 1998 identified only a handful of freshfruits and vegetables sold on the Guadalajara centralwholesale produce market that were routinely pack-aged in well-insulated cardboard cartons, transportedto the Guadalajara wholesale markets in refrigeratedtrucks, and held in cold storage by wholesale opera-

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tors. The most notable items included apples fromChihuahua state (which compete with importedapples from the United States), limes from Veracruzstate (which are sold for export as well as domesticuse), and imported temperate fruits.

One wholesale merchant of limes on the market,whose firm produced its own lime crop in Veracruzand operated a packaging plant, commented that 95percent of his inventory is delivered in refrigeratedvehicles. (Not coincidentally, this producer/whole-saler, who now focuses exclusively on the domesticmarket, had previously been a lime exporter, and hispacking facilities had been designed to support hisexport business.) Another fruit wholesaler, who sellshis firm’s Chihuahuan apple production, in additionto imported grapes, pears, and other temperate fruitfrom the United States, Chile, and New Zealand,commented that he almost always transports andstores his inventory under temperature-controlledconditions.

Nevertheless, most perishable produce items han-dled at the Guadalajara wholesale market—especiallyvegetables—were said to be delivered in nonrefrigerat-ed trucks and stored at ambient temperature. A largetomato, zucchini, and chile pepper wholesalerremarked that he didn’t use refrigerated storage at allbecause “he only buys what he can sell.” While thismerchant occasionally received deliveries from thenorthernmost reaches of his supply zone in refrigerat-ed trucks (from places such as Ensenada in northernBaja California state, which is nearly 2,400 kilometersor approximately 1,500 miles away), most of the mer-chandise he received was transported in nonrefrigerat-ed vehicles. Another produce wholesaler noted thathis entire inventory of oranges was delivered in bulkin nonrefrigerated trucks and stored in nonrefrigerat-ed warehouse space.

In terms of dependence on supermarket and chainstore business, there appeared to be little differencebetween the produce merchants at the Guadalajarawholesale market who routinely practiced cold chainmaintenance and those who handled perishable prod-ucts at ambient temperature. The lime merchantremarked that “he never sold [merchandise] to super-markets.” The wholesaler of domestic apples andimported fruit commented that he only sold “smallamounts” to supermarkets, and thetomato/zucchini/chile pepper wholesaler estimatedthat supermarket and chain store business accountedfor “less than 10 percent” of his annual volume.

Demands by supermarket and chain store procure-ment officials that they be allowed to return “unac-ceptable” merchandise to suppliers and routinedemands for price discounts generally appear to havediscouraged merchants at the Guadalajara wholesalemarket from catering to large retail firms.

In December 1998 the team interviewed a groupof small vegetable producers from the state of Jaliscowho were engaged in a cooperative marketing venturefor chayote squash. These growers independently pro-duced and marketed a host of other vegetable crops,such as white onions, tomatoes, cabbage, cilantro,parsley, and zucchini. The interviews revealed that thegrowers shipped all of their domestic-oriented pro-duction to destination markets in nonrefrigeratedtrucks. Even their export-oriented production wasshipped in a nonrefrigerated truck to the deliverypoint in Guadalajara (a journey of about 2 hours).However, the merchandise was then packed for exportand transported in refrigerated vehicles to its finaldestination (primarily Los Angeles at that time).

State of Veracruz. Local lime producers and pack-ers in the northern citrus production center ofMartinez de la Torre interviewed in December 1998indicated they typically used two forms of transportfrom production areas to destination markets:enclosed refrigerated tractor-trailers (mostly but notexclusively for product headed for export markets)and open trucks covered with a tarpaulin. About 40percent of the limes were shipped in refrigerated vehi-cles (and were primarily but not exclusively headedfor export markets). In contrast, pineapple growersfrom southern Veracruz noted that virtually all of theirpineapples—including those headed to distant loca-tions—were shipped in bulk condition in nonrefriger-ated trucks. The only pineapples that were routinelyshipped to destination markets in refrigerated vehicleswere those relatively few destined for export sale.

Villahermosa/State of Tabasco. Antonio de laTorre, general manager of the Villahermosa centralwholesale market, remarked in a December 1998interview that the high cost of refrigerated transporta-tion is considered prohibitive by most of the producemerchants who sell merchandise at his market. Hesaid his market facility has been known to receive per-ishable fruit and vegetables in nonrefrigerated vehiclesfrom as far away as Sinaloa, a distance of nearly 2,300kilometers (approximately 1,400 miles). During thehottest part of the year, from April through July, theVillahermosa central wholesale market receives most

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of its produce from nearby regions because suppliersdo not want to expose their products to the punish-ment of long-distance transport in a nonrefrigeratedvehicle.

The limited availability and inconsistent use ofrefrigeration during transportation and distribution,the use of poor packaging materials, and the ofteninefficient routes used to ship products to their finaldestination predictably lead to sizable merchandiselosses at both the wholesale and retail level. Somemarket observers in Mexico estimate that 50-60 per-cent of the domestic harvest of perishable agriculturalproducts is lost between production and delivery tothe consumer.101

Based on anecdotal evidence collected by theAMS/ERS/Texas A&M University research team, this50-60 percent appears plausible with the inclusion oflosses at the farm level. Wholesale market managersand produce receivers throughout the country report-ed that losses in fresh produce inventories typicallyranged between 15 and 30 percent. Certain com-modities, such as bananas, mangoes, Maradolpapayas, and locally popular tropical fruits such aszapote and guanabana, were often vulnerable to moresevere handling damage because of their fragility.

At the retail level, most chain store produce buyersreported that product losses at their regional producedistribution centers/warehouses averaged between 5and 7 percent of total arrival volumes (the lowest levelof product loss cited was 4 percent). They claimedthat losses in individual commodities could reach ashigh as 20 percent on occasion, depending on thecommodity and on weather conditions.

Legal Obstacles to Direct Shipments. Aside frominstitutional and infrastructural barriers, the develop-ment of direct business transactions between Mexicanproduce growers and retailers in urban areas is under-mined by the absence of straightforward, accessiblelegal mechanisms that clearly define acceptable termsof trade and permit an inexpensive resolution of com-mercial disputes. One of the primary difficulties thatgrowers and retailers in Mexico face when attemptingto develop long-distance transactions in perishable isthe fact that there are no commonly understood,accepted, and enforced definitions of quality gradesand standards for fresh fruits and vegetables in

Mexico. Although the Mexican government has devel-oped quality norms for fresh fruits and vegetables,they are rarely if ever used, largely because growers forthe domestic market consider them impractical andprospective buyers do not believe that they measurerelevant product attributes. (This represents a markeddifference from the existing system of fresh fruitgrades and standards in the United States, where gov-ernment standards for individual fresh fruit and veg-etable commodities are initiated and developed byindustry request and are structured and adjusted toreflect the interest of growers and handlers.)

As a general practice, produce items destined fordomestic consumers are sorted by a packer or whole-saler into simple broad categories such as “first,”“second,” and “third” quality.

In the United States, a “number 1” grade or a“number 2” grade on a fresh fruit or vegetable com-modity indicates the item conforms (or is supposedto conform) to a number of officially certified and pre-cisely defined quality characteristics (usually involvingsize, color, and other appearance/physical conditionfactors) and meets explicit tolerances for defects ordecay.

In contrast, a “first” or “second” quality grade onMexican fresh fruits and vegetables has no suchintrinsic meaning. The classification of “first” or “sec-ond” is frequently determined arbitrarily by the grow-ers or wholesale operators themselves, with the attri-bution of a “quality” category most frequently deter-mined by an individual product’s size or weight,rather than other pertinent quality aspects such asoverall appearance, maturity, or condition.Consequently, many of the produce wholesalers andretail produce buyers interviewed by members of theAMS/ERS/Texas A&M University research teamreported that they frequently received deliveries of"first quality" produce with large percentages ofunripe, deformed, or rotten items. According to amajor tropical fruit handler at the “Star” wholesalemarket in Monterrey, it wasn’t unusual to receive aload with 10-percent defects.

In this context, it should be acknowledged thatsome local producer organizations in Mexico, such asthe association of tomato growers in Sinaloa, areworking to combat the problem of unreliable productreputation by creating their own private quality stan-dards. Nevertheless, without the official backing andenforcement of government regulators, the establish-ment of voluntary quality standards by isolated indus-

101“La Central de Abasto de la Ciudad de México: Redes de Frio y Modernización,” GuillermoTarrats Gavidia, Enlace, Mexico City, vol. 2, no. 7, 1997, p. 3.

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try groups and participants is likely to have only alimited effect in encouraging widespread adoption ofdirect buying programs.

Some supermarkets and chain stores report modestsuccess in obtaining uniform products from a handfulof Mexican tomato and citrus suppliers who alreadyhave a strong presence in the export market and areaccustomed to meeting stringent export product qual-ity requirements. In general, however, retailers report-ed extensive variability in the quality of products theyreceive directly from growers and find it difficult toobtain produce that consistently meets their internalquality standards. Representatives from one promi-nent supermarket firm operating in northern Mexiconoted that their firm postponed plans to market aportion of its produce under a private label because itwas so difficult to regularly obtain certain fresh fruitsand vegetables from domestic growers that met theirinternal product quality standards.

In addition to problems in applying produce quali-ty standards in Mexico, the development of directlinkages between fruit and vegetable growers andlarge retailers has been further impeded by theabsence of a uniformly accessible legal mechanismsuch as the Perishable Agricultural Commodity Act(PACA) in the United States. PACA facilitates the arbi-tration of contract disputes between produce buyersand sellers. It requires most commercial produceshippers, handlers, and receivers to be licensed by theFederal Government, provides a forum for disputesbetween produce buyers and sellers to be arbitratedoutside the courtroom, and authorizes USDA’sAgricultural Marketing Service to punish contract vio-lators with fines or commercial license removals.

In Mexico, however, it would be difficult to achievethe comprehensive regulation of the entire fresh pro-duce distribution channel under the authority of oneindividual government agency even if desired, giventhe current division of government responsibility foragricultural product marketing. The MexicanSecretariat of Agriculture, Livestock, RuralDevelopment, Fisheries, and Food (SAGARPA) is gen-erally responsible for overseeing and regulating agri-cultural marketing activity at the farm gate and region-al assembly level. On the other hand, the MexicanSecretariat of Commerce and Industrial Development(SECOFI) is generally responsible for overseeing andregulating agricultural product marketing activity atthe wholesale and retail level. Without an easy legalresolution of contract disputes, Mexican growers and

retailers are likely to remain cautious about conduct-ing transactions with unfamiliar buyers and suppliers.

Producer Resistance to Direct Shipments. Thepsychological barriers on the part of many Mexicanfruit and vegetable growers toward servicing thesupermarket and chain store trade may be as much ofan obstacle toward the development of direct ship-ments as any other factor. As outlined earlier, mostsmall fruit and vegetable growers in Mexico are accus-tomed to selling their merchandise to an intermedi-ary—either a broker or produce wholesaler—whotypically pays cash at the time of delivery and takesfull responsibility for arranging and paying for trans-portation to destination markets.

The dependence of growers on intermediaries formarketing product involves certain disadvantages forthe grower, most notably the fact that brokers andother intermediaries usually charge a flat commissionfor their services and have little incentive to obtain ahigh price for a grower’s merchandise. Most of thesmall Mexican growers interviewed by members ofthe AMS/ERS/Texas A&M University research teampreferred to market their products through an inter-mediary rather than directly to retail producereceivers.

U.S. retail produce buyers frequently use a “free onboard” (f.o.b.) contract, whereby they assume respon-sibility for all subsequent marketing charges after theproduct is placed by the transport vehicle in “suitableshipping condition.”102 In contrast, Mexican retail pro-duce buyers generally expect growers to arrange andpay for the transportation of their merchandise them-selves. Moreover, they also expect growers to wait 30-45 days (in an inflationary environment) beforereceiving reimbursement. Consequently, the idea ofshifting away from dependence on intermediaries infavor of direct marketing channels with chain storeoperators is understandably seen by many small grow-ers as a difficult and unrealistic goal.

The reluctance to engage in direct shipments withsupermarkets and chain stores appears to be a wide-spread phenomenon. This is the case even among themost sophisticated produce growers, who possess a

102Marketing and Performance Benchmarks for the Fresh Produce Industry, Edward W.McLaughlin, Kristen Park, and Debra J. Perosio, Cornell University, Ithaca, NY, 1997, p. 31.According to this report, retail produce buyers in the United States reported using f.o.b. terms oftrade for produce purchases an average of 42.5 percent of the time, compared with 41.4 percentfor “delivered sale” terms of trade (which normally extend the legal responsibility of the shipper formerchandise and transportation charges to the wholesale/retail delivery dock). The larger the retailfirm, the more frequently the firm was likely to purchase produce on an f.o.b. basis; companieswith annual sales of over $1.5 billion reported using f.o.b. terms of trade 63 percent of the time.

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strong track record in the export market, are accus-tomed to stringent buyer requirements for productquality and uniformity, and presumably would becompetitive in meeting the product specifications ofMexican supermarket and chain store procurementofficials.

Several fruit growers from Veracruz state inter-viewed in December 1998 spoke frankly about theirunsatisfactory experience selling merchandise directlyto large food retailers and gave the distinct impressionthat they were not particularly interested in—or con-cerned about—strengthening their business relation-ships with supermarkets and other chain store firms.The growers cited the adverse impact on short-termcashflow as the primary barrier to shipping productdirectly to large chain stores. Supermarket and chainstore firms were said to demand unusually liberalcredit terms by local standards, ranging from a mini-mum of 15 days to as long as 45 days after delivery.In contrast, brokers and wholesale merchants usuallyoffered immediate cash payment.

The growers also stated that supermarkets andchain stores who purchase produce directly usuallyexpect the grower to arrange and pay for transportingtheir merchandise, a practice that is completely con-trary to the usual arrangements with brokers andwholesalers. Additionally, the growers were skepticalabout the overall volume of merchandise that thesupermarket and chain store sector—still a compara-tively minor retail outlet for fresh fruit and vegetableitems in Mexico—would be able to consume. Theysaid they were also concerned that supermarkets andchain stores might be quick to eliminate them as asupplier if they weren’t able to comply with certainproduct specifications during a particular delivery or ifthe firm made changes in its procurement staff.103

Consequently, these growers continued to rely on thecentral wholesale market facilities in urban populationcenters as the primary market outlet for their domesti-cally oriented product. Excerpts from some of theseDecember 1998 interviews are provided below.

Lime growers, packers, and exporters inMartinez de la Torre (northern Veracruz). One rep-resentative of a lime packing firm noted for its excel-lent product quality and strong export orientationcommented that only 1-2 percent of his firm’s busi-

ness was targeted toward the emerging Mexicansupermarket/chain store sector. At the time of theinterview, his firm shipped about 10-15 percent of hisannual output to Europe, 5 percent to Japan, 10-15percent to the domestic Mexican market, and theremainder to the United States. A few years prior tothis interview, this individual had conducted businesswith a major Mexican supermarket firm, but he lostthe account when the buyer he worked with left hisposition. To him, the incident illustrated "the [over-riding] importance of personal relationships" inMexican business transactions.

Since losing that initial chain store account, he hadnot felt any particular urgency about pursuing othersales opportunities with Mexican supermarkets andchain stores. In his opinion, such stores in Mexicowere still “only capable of absorbing a limited vol-ume” of largely low-quality and inexpensive merchan-dise, and the terms of sale weren’t very attractive.Chains typically paid him 40 days after delivery, andhe had to arrange and pay for transporting his mer-chandise to the firm’s distribution center. Despite hisdisappointing experiences with supermarkets in thepast, however, he also mentioned that he was begin-ning to toy with the idea of resuming sales to chainstores after having recently received a phone call froma multinational retail firm, especially since “in 3 or 4years. . .the Mexican market might be capable ofabsorbing more volume and quality.”

Another lime producer from Martinez de la Torre,one of the first in Mexico to pursue the possibility ofshipping limes to Europe and Japan, had been export-ing limes for 10 years. He noted that he primarilyships limes to the Monterrey Central de Abastos thesedays because of his negative experience shipping mer-chandise directly to some chain stores. The chains heworked with in the past would only pay their suppli-ers on a 30-day credit cycle and also expected theirsuppliers to arrange and pay for transporting mer-chandise to their distribution centers.

A pineapple grower in Isla (southern Veracruz).This gentleman, a self-described “medium-sized”pineapple producer with a 350-hectare (approximate-ly 865-acre) farm, commented that he had “given up”on selling products directly to large retailers after adisappointing experience a few years ago with a largeMexican supermarket firm. When he sold directly tothe supermarket chain, he had to arrange and pay fortransporting his merchandise to the firm’s distribu-tion center in Monterrey (a distance of approximately

103 According to Tendencias en México: Actitudes del Consumidor y el Supermercado, 1998,Food Marketing Institute, Washington, DC, 1998, p. 72, only 21 percent of the Mexican house-hold food shoppers surveyed indicated that they usually purchased fresh fruit and vegetable itemsin a supermarket.

The resistance to formal contracts may be furtherexacerbated by the fact that in Mexico, contract termsfor produce sales traditionally have been based on afixed sales price. The contracts haven’t allowed for theinfluence of future market fluctuations on the finalselling price, as often occurs with contract pricing inthe United States. Thus, Mexican produce supplierswho might otherwise consider participating in directshipments with chain stores, may be concerned thatthey inherently forfeit any possibility of benefitingfrom a price move in their favor. Mr. Barrera observedthat it might be somewhat easier to implement adirect buying program for a commodity such asoranges, where supply, demand, and prices tend to berelatively stable throughout the year (owing to thevariety of regions where oranges are grown inMexico). However, he thought that implementingdirect buying programs over the short run is veryproblematic when it involves commodities that typi-cally experience greater price volatility.

Chain Store Gravitation Toward LargeProducers. Because many fruit and vegetable produc-ers in Mexico are not accustomed to delivering prod-ucts in a format that can be easily received by retailbuyers and may be reluctant or unable to conductlong-distance sales transactions without advance pay-ment, it comes as little surprise that Mexican super-markets and mass-merchandise chains have most fre-quently established direct shipment contracts with arelatively small group of large producers and well-organized producer associations. Such producers andproducer associations are accustomed to using formalcontracts and are familiar with the quality standardsof the export/international market or, in the case ofChihuahuan apple growers, are used to competinghead-to-head with imported product in the domesticMexican market. Veracruz-based agricultural businessconsultant Alberto Barrera notes that supermarket andmass merchandise chains may also lean toward forg-ing business relationships with larger Mexican agricul-tural producers because these producers often main-tain farming operations in more than one region,which enables them to take advantage of differentharvest seasons and supply product for an extendedperiod of time.

Below are some of the comments obtained fromvarious chain store produce buyers interviewed bymembers of the AMS/ERS/Texas A&M Universityresearch team in March and December 1998. Therespondents outlined the extent to which their firms

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700 miles). He did not receive payment for his mer-chandise until at least 30 days after delivery. In con-trast, when he sold product to a produce wholesaler,he not only got paid more quickly, but the wholesalerassumed the responsibility of making transportationarrangements and paying the costs of transporting hismerchandise to a retail buyer.

At the time of the interview, the pineapple growerestimated that he was selling about 40 percent of hisannual production to wholesale market merchants inMonterrey, 40 percent to wholesale market merchantsin Guadalajara, and 20 percent to wholesale mer-chants in Puebla and Mexico City. Despite theenhanced risk of product deterioration during transit,this grower preferred to ship most of his merchandiseto wholesale markets in Monterrey and Guadalajararather than the more geographically convenient mar-kets in Puebla and Mexico City. The reason was thathe “trusts the wholesalers more” in Guadalajara andMonterrey, another testament to the important rolepersonal business relationships play in Mexico.

Even the basic idea of using formal contracts tocarry out business transactions is a relatively new con-cept for many Mexican agricultural producers, espe-cially smaller ones, who have long transacted salesbased on verbal contracts. At the Bascula San Manuelin Martinez de la Torre, Veracruz, the largest auctionmarket in Mexico for citrus and the second largestauction market in Mexico, members of theAMS/ERS/Texas A&M University research team wit-nessed the typical process of negotiation betweenproduce growers and buyers in rural production areasduring a visit in December 1998. Coyotes (the nick-name for brokers who act as an intermediary betweengrowers and wholesale/retail buyers) would jump onthe back of incoming trucks and yell out competingoffers for merchandise, and sales would be settledalmost immediately on a cash basis without any writ-ten contract or sale receipt. According to AlbertoBarrera, a local agricultural business consultant wholed the team members on a tour of the auction mar-ket, most of the producers who sell their merchandiseat the market “don’t know who they sell to. . .anddon’t care.” He said that everything at the auctionmarket is bought and sold on a strictly cash basis.Most suppliers won’t even accept checks from trustedcorporate accounts. According to Mr. Barrera, the auc-tion market “is a totally speculative market. . .and theaverage producer—who only focuses on short-termgains—does not want to sell at a fixed price.”

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obtained fresh produce directly from Mexican growersand the barriers that exist in extending the spread ofdirect supply procurement.

Foreign-owned supermarket chain with primarysales territory in northern Mexico. Approximately30-40 percent of the fresh produce this firm purchas-es for its retail stores in Mexico was shipped directlyfrom individual growers or grower associations to thefirm’s produce warehouses/receiving centers. Theremaining 60-70 percent was obtained from terminalmarket sources, including growers who operate theirown wholesale stalls at terminal markets. The com-modities that were most frequently received directlyfrom individual growers and grower cooperatives werebananas, pineapples, tomatoes, lettuce, sweet pep-pers, and citrus fruits. Most of these commoditieswere procured from large growers who already had astrong presence in the export market and were accus-tomed to meeting uniform standards for productquality and packaging. A small quantity of sweet pep-pers and limes was procured from grower coopera-tives. The reliance on direct procurement from grow-ers fluctuated significantly depending on the specificcommodity. For example, virtually all of the orangeswere shipped directly from local Mexican producers,whereas direct shipments accounted for only about50 percent of the firm’s watermelon purchases andpractically none of the firm’s mango purchases.

At first, the company had some problems receivingproduct that met its desired specifications. For exam-ple, the firm initially asked growers to ship “full-ripe”produce. It took some time before growers were ableto comply with this request because this was the firsttime most of them—largely accustomed to shippinghardier produce to distant export markets—had everbeen approached about shipping a less durable prod-uct. However, over time and with constructive feed-back from the company’s procurement officials, thesituation changed, and domestic growers were begin-ning to pack product more in line with what the firmwanted to receive.

To increase efficiency and reduce produce losses(by limiting the number of people handling the pro-duce), the firm had recently embarked on an aggres-sive campaign to boost the volume of fresh fruits andvegetables it received directly from Mexican growers.The campaign was especially targeted to the small tomedium-sized producers who were largely missingfrom the firm’s regular supply channels. In this vein,the firm had recently hired a Mexican national with a

background in category management who wasassigned specifically to strengthen the firm’s relation-ships with small and medium-sized fruit and veg-etable producers. Nevertheless, development of thesedirect buying channels was very gradual and a bit of achallenge. Some prospective suppliers were still nerv-ous about selling product directly to the companybecause the firm wouldn’t pay in advance of ship-ment but waited at least 10 days after delivery beforeissuing a check. Once the company developed aproven track record for prompt payment, however, itwas beginning to receive calls from Mexican growersasking to participate in direct buying programs.

Mexican-owned convenience store chain withstores throughout the country. Practically all of thefresh fruits and vegetables purchased by this firmwere obtained from intermediaries, with about 70percent purchased directly from wholesalers at thecentral terminal market and the remainder from otherintermediaries. The company usually didn’t purchaseproduce directly from growers because, according toits produce procurement manager, it is too difficult tocoordinate produce shipments from different regions,especially given the limited availability of refrigeratedtrucks capable of handling perishables properly. Atthe time of the interview, the company used its ownfleet of refrigerated trucks to pick up all of its mer-chandise from suppliers. However, the produce pro-curement manager envisioned moving toward moredirect buying in the future if individual growersbecome capable of delivering larger volumes of prod-uct to the company’s distribution centers.

Mexican-owned mass-merchandise retail chainwith primary sales territory in northern Mexico.Procurement officials at this company indicated thatthey purchased between 60 and 70 percent of theirproduce items "directly" from a handful of growersand grower cooperatives. (The cooperatives were pri-marily relied upon for only two commodities, limesand prickly pear cactus.) However, these self-described “direct” purchases included transactionswith [relatively large] growers who maintained whole-sale stalls and sold their own production at terminalmarkets. As a result, far less than 60-70 percent ofthis company’s produce needs were actually shippeddirectly from farms and rural packing sheds to thefirm’s distribution centers. The firm’s dependence ondirect procurement of fresh produce varied greatlydepending on the individual commodity. Using thefirm’s definition of “direct” purchases, which includes

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contracts with producers who may choose to delivercontracted supplies through their affiliated operationson terminal markets, the procurement officials indi-cated that the proportion of “direct” shipments variedby commodity as follows:■ Potatoes. All of the firm’s domestically grown pota-

toes were purchased from local produce whole-salers because in Mexico, unlike the United States,consumers strongly prefer buying a washed potato.Because washing potatoes greatly reduces theirshelf life, washing can’t be performed at shippingpoint (at least not under current infrastructuralconditions in Mexico), and potatoes are typicallywashed after being received by produce whole-salers at terminal markets located in urban popula-tion centers.

■ Tomatillos. Fifty percent of the firm’s domesticallygrown tomatillos were purchased “directly” fromproducers (including the percentage of the grow-er’s production that was distributed to the retailfirm from the grower’s stall on the local terminalmarket). The remainder were purchased from otherintermediaries.

■ Onions. Seventy percent of the firm’s domesticallygrown onions were purchased “directly” fromgrowers (including the percentage of the grower’sproduction that was distributed to the retail firmfrom the grower’s stall on the local terminal mar-ket). The remainder were purchased from otherintermediaries.

■ Oranges. From 70 to 80 percent of the firm’sdomestically grown oranges were purchased“directly” from growers (including the percentageof the grower’s production that was distributed tothe retail firm from the grower’s stall on the localterminal market). The remainder were purchasedfrom other intermediaries.

■ Avocados. All of the firm’s domestically grown avo-cados were purchased “directly” from growers(including the percentage of the grower’s produc-tion that was distributed to the retail firm from thegrower’s stall on the local terminal market).Mexican-owned mass-merchandise retail chain

with primary sales territory in northwesternMexico. This firm reported spectacular growth indirect procurement of fresh fruits and vegetables overthe previous few years. Until about 4 years prior tothis interview, the company purchased 60-70 percentof its produce from wholesalers and brokers, mostlyfrom the Guadalajara terminal market. Since then,

however, the percentage bought from wholesalers andbrokers had dwindled to 20-30 percent due to greaterreliance on direct deliveries from producers. Part ofthe reason that the firm’s supply channels shifted sorapidly was the fact that the company had finallyexpanded its operations and its turnover of fresh pro-duce merchandise to the point at which it was capa-ble of receiving a greater volume of individual pro-duce commodities directly from growers.

According to the head of produce procurement,the primary motivation for increasing direct ship-ments was the cost savings realized from shorteningthe supply chain. This was done by eliminating thecost of using intermediaries and by minimizing theamount of handling and transportation required tomove perishable merchandise from origin to destina-tion, thereby reducing product losses. In addition, bybuying a greater portion of its produce needs directlyfrom growers, the head of produce procurementfound that it became easier to negotiate with andexert influence over suppliers and receive the exacttype of supplies the company needed. The firm madea special effort to buy “locally grown” produce to takeadvantage of the products’ lower transportation costand comparative freshness. The firm found that theselocal procurement strategies worked well for certainitems like cilantro, bean sprouts, radishes, scallions,and potatoes. At that time, the firm was not maintain-ing any formal long-term marketing contracts withindividual growers, nor did it contribute directly togrowers’ planting and harvesting costs.

The head of procurement noted that there werestill some products, such as bananas, which werenext to impossible to buy directly from growers withthe desired quality. To more easily control the qualityof its bananas, the firm was planning to build somebanana ripening rooms at its produce distributionwarehouse.

Representatives from two retail firms (onenationally owned, one with majority foreign-own-ership) operating conventional supermarkets andmass-merchandise retail stores, primarily in cen-tral Mexico. The produce items these retail buyersindicated they were most likely to purchase directlywere tomatoes, onions, avocados, citrus fruit, pota-toes, cucumbers, chile peppers, bananas, and pineap-ples. (Most of the suppliers of these produce itemswere simultaneously involved in the export trade.)Dealing with Mexican grower associations to arrangedirect shipments was considered very difficult and

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was avoided wherever possible. Exceptions were thecomparatively well-organized banana, apple, tomato,and avocado grower associations. While direct ship-ments have made significant inroads into produceprocurement strategies in recent years, representativesof both chain organizations remarked that the over-whelming majority of their firms’ fresh produce inven-tory—at least 90 percent—was still obtained fromwholesalers on the terminal market.

Attempts of Retailers and GovernmentAuthorities To Help Mexican Growers EnhanceDirect Delivery Capabilities Through TechnicalAssistance. Despite current grower reliance onwholesale and other intermediary marketing channels,the aggressive expansion of chain stores in Mexico—and the growing capacity of prominent retail firms toaccommodate direct deliveries of perishable prod-ucts—is beginning to be viewed by government poli-cymakers in Mexico as a potential threat to the long-term viability of domestic small-scale horticulture. Astheir scope of operation expands, a growing numberof supermarket and mass merchandise chains can beexpected to construct and operate independent pro-duce distribution centers throughout their operationalterritory. As a result of their additional capacity toreceive truckloads of product directly from growers,retail dependence on local wholesale markets for freshproduce supplies can be expected to diminish overtime, while direct supply contracts with large, export-oriented producers and well-organized producergroups—including U.S. and other foreign shippers—are likely to become more prevalent. (Long-term mar-ket opportunities for shippers and exporters of U.S.-origin fresh fruits and vegetables are addressed morecomprehensively in chapter 4.)

By the same token, domestic fresh fruit and veg-etable producers who lack the capacity to ship mar-ket-ready products directly to retail warehouses—andsatisfy buyer demands for product volume, qualityand uniformity—can be expected to lose their exist-ing access to the retail market. This will happen aschain stores eliminate using wholesalers, who current-ly make it possible for small producers to sell perish-able merchandise indirectly to large retail firms byconsolidating deliveries, sorting products, and repack-aging products to make them suitable for retail deliv-ery. The probable erosion of the small producer’sshare of the retail grocery market over time is exacer-bated by the fact that, if current trends continue,

supermarkets and mass merchandise chain stores canbe expected to capture a growing portion of Mexicanhousehold spending on fresh produce, further reduc-ing potential retail outlets for small farmers by reduc-ing the volume of fresh produce absorbed bysmaller/independent produce retailers.

In the wake of this threat, the past few years haveseen the emergence of new private and government-sponsored technical assistance initiatives in Mexicothat seek to counteract the growing influence of larg-er/foreign firms as suppliers of fresh produce to thedomestic retail grocery sector. By forging strongerlinkages with retailers, enterprising grower associa-tions and government agencies in Mexico are attempt-ing to expand market access for small producers andboost farm income. In addition, some chain storeretailers are developing their own outreach programswith farmers as a way to diversify their local supplybase and procure products at competitive prices.Some of the most promising initiatives uncovered bymembers of the AMS/ERS/Texas A&M Universityresearch team during field interviews in March andDecember 1998 follow:

Retail investment and management of localrepacking facilities. To source product more effec-tively from smaller Mexican produce growers whomay not be able to handle, sort, and pack raw materi-al in a manner that is acceptable for direct retail deliv-ery, an international supermarket chain with stores innorthern Mexico opened a facility for repacking freshproduce in the Guadalajara region in the fall of 1998.The facility is designed to supply both the firm’s retailstores in Mexico and its retail outlets in the UnitedStates. The firm intends to use its own trucks to pickup cargo from the Guadalajara repacking facility andmake deliveries either to its own produce distributionwarehouse or directly to individual retail stores.

Seed money and technical assistance to selectedrural cooperatives. Alberto Barrera, an agriculturalbusiness consultant in Veracruz state, observed thatmany of the smaller producers who have managed todevelop direct linkages with supermarkets and massmerchandise chains in Mexico are members of asociedad producción rural or SPR, a federally recognizeddesignation for a small cooperative marketing organi-zation that typically consists of eight to ten members.He attributed the relative success of these SPR organi-zations to the fact that their members are often relat-ed to each other and tend to have a stronger sense of

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commitment to the organization and the mutual ben-efits received by each member than an ordinary grow-er organization.

Regardless of whether Mr. Barrera’s theory was cor-rect, members of the research team witnessed themarketing success of at least one SPR organizationduring a December 1998 visit to a farming communi-ty near the town of Tizapan in the state of Jalisco,about 2 hours away from Guadalajara. This particulargroup of 14 small producers with a total of 30hectares (74 acres) under cultivation had not yetdeveloped direct shipment contracts with local retailchains. However, they had been quite successful,breaking into the export market during the previous 2years with their production of chayote squash, whichis grown and harvested throughout the year. EmilioDiaz Rivas, one of the members of the marketingcooperative, commented that the cooperative’s entryinto the export market was initiated with assistancefrom Mexico’s Banco Nacional de Comercio Exterior(BANCOMEXT), the Mexican Bank for Foreign Trade.

The cooperative operated two packing lines forchayote simultaneously: one for export-oriented prod-uct and one for domestic-oriented product (equiva-lent at the time to any product that did not meetexport standards). In the export-oriented packing line,which took place under shaded conditions in a smallpacking shed, pieces of chayote were hand-selected fortheir relatively uniform [small] size and lack ofdefects. Once it was determined that a piece of chay-ote met the cooperative’s standard for export-gradeproduct, each piece received a price look-up sticker,was insulated with a separate plastic bag, and waspacked by hand into heavy, well-insulated cardboardcartons that listed the contents of each box and thename of the cooperative (figure 3.6). In contrast, theleftover pieces of chayote that didn’t meet export grade(because of size, scarring, and/or other visible defects)were field-packed without any protection from thesun, wrapped with thin layers of newspaper, andstuffed into noninsulated wooden crates without anyregard to differences in product quality (figure 3.7).

Figure 3.6—Assembling chayote squash for export market, Tizapan, Jalisco

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Virtually all of the domestic-oriented product is dis-tributed to the internal Mexican market throughwholesalers at the terminal market in Guadalajara.

The success of the Productores AgropecuariosTizapan in cracking the export market is testament tothe fact that—with guidance and financial assis-tance—small producers with access to only rudimen-tary infrastructure can substantially improve their abil-ity to prepare products for retail sale. Nevertheless, itshould be acknowledged that the marketing coopera-tive would not have been as successful without thestrong commitment of an intermediary. In this case,the intermediary was the cooperative’s business part-ner in Guadalajara, who makes all necessary arrange-ments pertaining to insurance, transportation, border-crossing documentation, and contracts with importbrokers in the United States and furnishes the coop-erative with materials to pack its export-orientedproduct. (Members of the cooperative have noinvolvement with the export cargo once it is shippedto their business partner.)

Government initiatives to promote direct link-

ages between small farmers and retailers. The gov-ernment of Veracruz state, through the efforts of theFruit and Vegetable Trade Program at the stateMinistry of Agriculture, recently launched an initiativeto strengthen ties between small local producers andretail buyers from Tiendas Chedraui. The firm is ahypermarket chain headquartered in Xalapa, Veracruz,and is one of the most prominent food retailers insouthern Mexico. (At the beginning of 1998, TiendasChedraui was reported to be operating 40 retail storesin 11 Mexican states, all within the central and south-eastern portions of the country.104)

The Ministry of Agriculture provided assistance byidentifying and recruiting potential participants in adirect delivery program for fresh produce. It was envi-sioned that local small producers would eventuallysupply 12 locally grown produce items directly to theChedraui group, including oranges, mandarinoranges, grapefruit, Persian limes, “Manila” variety

Figure 3.7—Fresh chayote squash packaged for domestic Mexican market, Tizapan, Jalisco

104Data obtained from the 1998 Directory of the Asociación Nacional de Tiendas de Autoservicio yDepartamentales, the chief Mexican trade association representing chain store retailers.

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mangoes, pineapples, watermelons, plantains, chayotesquash, wax peppers, and Chinese winter melons. Asof December 1998, five agricultural firms and growerassociations based in the state of Veracruz werealready participating in the program, supplying ninedifferent produce items directly to Tiendas Chedraui.When the pilot program is fully implemented, 17local growers/grower associations are expected to shipfresh produce directly to the retail chain.

Visits to Tiendas Chedraui stores in Boca del Río,Veracruz, and Villahermosa, Tabasco, by members ofthe AMS/ERS/Texas A&M University research team inDecember 1998 revealed that the firm was promotinglocally grown fruit very aggressively. It was doing thisboth by the use of signage (e.g., "Oranges fromVeracruz") and by extremely competitive pricing onselected items that were produced locally and maywell have been procured from local suppliers. At bothstores, for example, chayote squash was being adver-tised on special for 1.25 pesos per kilogram (less than6 cents per pound), compared with 4.40 pesos perkilogram (approximately 20 cents per pound) atanother large retail chain store in Villahermosa(Bodega G) during the same week.105

The Mexican Farm-Retail Price Spread forFresh Produce and Its Implications for theEfficiency of Produce Distribution

The farm-retail price spread, a widely used indica-tor of marketing efficiency, is the difference betweenthe price producers receive and the price consumerspay for the equivalent amount of a particular com-modity. When markets are functioning properly,adjustments in prices are quickly reflected throughthe distribution system from the farm gate to theretail level, resulting in a farm-retail price spread thatclosely represents the costs of marketing services.

As agricultural products move from the farm gateto retail outlets, a series of marketing services areoften performed that add to the final retail price. Inthe case of fresh produce, these marketing servicesmight include product assembly, sorting, grading,cleaning, packing, transportation, and storage. Thefarm-retail price spread also reflects any profits thatmight have been obtained by marketing agents (e.g.,brokers, wholesalers, retailers) above the actual costs

of providing marketing services, as well as the cost ofproduct losses sustained during the distributionprocess. Consequently, analyzing the farm-retail pricespread is often useful in understanding how efficientlya particular market operates.

It is difficult to accurately measure the farm-retailprice spread in Mexico because farm-gate prices forindividual fresh fruit and vegetable commodities arenot systematically collected by government agenciesor private entities. In the United States, the U.S.Department of Agriculture collects monthly producerand retail price statistics for major produce commodi-ties, which allows for a fairly precise analysis of mar-keting margins. In Mexico, however, very few system-atic attempts have been made to collect the data nec-essary to estimate marketing margins in freshproduce.

Some isolated efforts to estimate fresh producemarketing margins were performed between 1987 and1989 by the Coordinación General de Abasto yDistribución del DDF (COABASTO), the primarymunicipal government agency responsible for oversee-ing food distribution practices in Mexico City. Manyof the findings, representing probably the most com-prehensive attempt to date to analyze the farm/retailspread for fresh fruits and vegetables in Mexico, aredepicted in table 3.2. Included are additional farm-retail price spread estimates for individual fresh fruitand vegetable products, developed separately by fac-ulty members from the Centro de InvestigacionesEconómicas, Sociales, y Tecnológicas de la Agroindustria yla Agricultura Mundial (CIESTAAM) at ChapingoAutonomous University. Equivalent U.S. farm-retailprice ratios during the same period have been provid-ed for comparison.

As might be expected, the least perishable prod-ucts—potatoes, onions, and serrano chile peppers—were the ones that generally appeared to earn farmersthe highest share of the retail price. Presumably, thisis because these relatively durable products requiredless handling and repacking in the distributionprocess—and experienced less degradation in quali-ty—than other, more perishable commodities.Conversely, farmers who sold products with particu-larly short shelf lives—such as tomatoes and avoca-dos—generally obtained smaller percentages of thefinal retail price.

In what might initially appear to be a surprisingfinding, the farm-retail price ratios for most Mexicanfresh produce items during the early 1990s were

105Peso/dollar conversion based on midday U.S. Federal Reserve exchange rate for December16, 1998, of 9.8850 pesos per U.S. dollar.

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roughly comparable to or even modestly higher thanthose in the United States during 1987-89; i.e., 26percent on average for fresh fruit commodities and 30percent for fresh vegetable commodities. However, itis important to note that most fresh produce flowingthrough the U.S. distribution system during 1987-89most likely benefited from a much more elaborateand expensive array of marketing services (e.g., sort-ing, grading, packaging, cold storage, and refrigeratedtransportation) than produce distributed in Mexico.Also, very little fresh produce in Mexico was beingsold in supermarkets and chain stores—outlets thatrequire the greatest amount of market preparation forperishable commodities—at the time that the datawere collected. These facts actually serve to illustratethe relative inefficiency of Mexican produce distribu-tion during the period studied.

Mexican researchers who study the domestic pro-duce market have often blamed Mexico’s relativelylow farm-retail price ratios on the fact that intenseconcentration in the domestic wholesale industryenables wholesalers to exert an unusual amount ofmarket power in relation to agricultural producers.The continued dominant role of the wholesaler as a

supplier to both large and small Mexican retailers cer-tainly supports the allegation that produce wholesalersretain strong leverage in determining produce prices.As noted earlier, most chain store produce buyers inter-viewed in December 1998 said that the vast majorityof their products came from one of Mexico’s threemajor wholesale markets in Guadalajara, Mexico City,and Monterrey.

However, the interpretation that high concentrationin the Mexican produce wholesale industry is primarilyresponsible for the low percentage of retail pricesreceived by Mexican fruit and vegetable growersappears to be overly simplistic. First, this interpretationdoes not take into account the large role intermediariesplay in produce distribution before products ever reachan urban wholesale distributor. For example, accordingto COABASTO’s 1991 study on fresh tomato distribu-tion, nearly 50 percent of the volume of tomatoes han-dled in the domestic Mexican market were distributedthrough channels that included two or more local andregional intermediaries between the grower and thewholesaler at an urban terminal market.

Second, the market power argument obscures thefact that heavy intervention of intermediaries to consol-

Table 3.2—Mexican and U.S. fresh produce farm price/retail price ratios

U.S.Item Mexico (1989-93)

COABASTO SAGAR/studies 1987-1988 (a) Chapingo 1994 (b) Chapingo 1992 (c) TAMRC 1989-93 (d)

Tomatoes .29 .25 .31 .37 (d)

Avocados .23Onions .20 - .40 .55 .36 (d)

Potatoes (Alpha) .59 .32Serrano chile peppers (e) .20 - .50 .51 .33 (d)

Oranges .30 - .40 .38 (f)

Papayas .31Limes .28 .24 (f)

Carrots .10Squash .35 .21 (d)

Cucumbers .52 .27 (d)

Fresh vegetable average (1987-89) .30 (g)

Fresh fruit average (1987-89) .26 (g)

(a) From “Sistema-Producto,” a series of booklets published between 1987 and 1991 by the Coordinación General de Abasto y Distribución del DDF, Servicio Nacional deInformación de Mercados y Banco Nacional del Pequeño Comercio.(b) Sistema Producto Tomate Fresco—Problemática y Alternativas. Universidad Autónoma Chapingo and Secretaría de Agricultura y Recursos Hidráulicos, México, September1994.(c) El Consumo de Hortalizas en México. Reporte Investigación 07, CIESTAAM, Universidad Autónoma Chapingo, Chapingo, México, November 1991.(d) “U.S. and Mexican Fresh Vegetable Markets: A Descriptive Analysis,” Jaime Malaga and Gary Williams, International Research Report IM 5-96, Texas AgriculturalMarketing Research Center, Texas A&M University, November 1996.(e) U.S. indicator corresponds to winter bell pepper prices between 1988 and 1993.(f) “Marketing California’s Agricultural Production,” California Agriculture Issues and Challenges, Hoy F. Carman, Roberta Cook and Robert J. Sexton, Giannini Foundation,University of California, August 1997.(g) Agricultural Outlook, Economic Research Service, U.S. Department of Agriculture, January-February 1991.

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idate, sort, and assemble fruits and vegetables at vari-ous stages of the distribution process is often a neces-sary service, given the system’s logistical, infrastruc-tural, and regulatory challenges. Consequently, thecreation of government policies and programs toimprove such areas as rural road infrastructure, ruralaccess to transportation, and postharvest handlingpractices might serve to narrow the differencesbetween producer and retail prices just as effectivelyas policies focused on eliminating monopolistic ten-dencies in the produce wholesale industry.

Third, while chain stores still represent a compara-tively minor share of fresh produce sales in Mexico,the share continues to climb, especially in selectedregions of the country. This is likely to diminish therole of produce wholesalers in the distributionprocess over time. Between the late 1980s and early1998, for example, the percentage of produce sold onthe Monterrey central wholesale market to small retailfirms dropped from 90 to 40 percent, while sales togrocery chains became the primary source of marketrevenue.106

As a growing number of Mexican supermarket andmass merchandise chains attain sufficient economiesof scale to operate proprietary distribution centers inmost or all of the regions they serve and gain thephysical capacity to receive and store direct ship-ments from producers, they are likely to reduce theirtraditional dependence on central wholesale markets,thereby reducing the influence of wholesalers on pricedetermination.

Summary

Prospective suppliers of fresh fruits and vegetablesto the Mexican retail food sector need to rememberthat most retail food stores in Mexico—includingsupermarkets and hypermarkets operated by promi-nent multinational firms—are rarely able to imple-ment the efficient supply chain management andpractices that distinguish North American andWestern European food retailing, with the result thatproduct condition may suffer by the time perishablemerchandise reaches Mexican retail shelves. Unlikethe standard practice in the United States, directlong-distance shipments of fresh fruits and vegetablesbetween agricultural production areas and retail pro-

duce distribution centers remain the exception inMexico rather than the rule, with the vast majority offresh produce destined for domestic retail sale stillhandled by wholesalers and/or brokers before beingshipped to retail warehouses or stores, even merchan-dise destined for large multinational chains.

To some extent, the continued reliance on interme-diaries in the distribution process reflects the fact thatmany food retailers, including large chain retailers,don’t always have the capacity to receive full contain-ers of produce items. Even chain store firms inMexico that operate independent produce distribu-tion centers don’t necessarily have a distribution cen-ter in every region where they operate stores, sincethe construction of chain store produce distributioncenters has necessarily lagged far behind the rate ofchain store expansion. However, even if every super-market and hypermarket firm operating in Mexico hadsufficient physical capacity to accept direct producedeliveries, wholesalers and other intermediaries couldstill be expected to play a key role in the distributionof fresh produce between grower and retailer, espe-cially in the case of domestically grown produce.Inadequate access to and the high cost of refrigeratedtransport, coupled with poor rural road conditionsand the frequent use of nonprotective packaging formerchandise destined for domestic consumption,often result in high spoilage rates during the ship-ment process and make it necessary to sort andrepack fresh fruits and vegetables near destinationmarkets in order to make them acceptable for retailsale. Many Mexican fruit and vegetable growers arealso disinclined to sell merchandise directly to chainstore buyers because chain store buyers tend to rejectdeliveries of imperfect merchandise far more frequent-ly than produce wholesalers and brokers and typicallypay for merchandise several weeks after delivery,unlike the standard “cash in advance” paymentschedule of produce wholesalers and brokers. Otherimpediments to the creation of direct business trans-actions between Mexican producers and retailersinclude the absence of well-defined and enforced pro-duce quality standards and legal mechanisms to arbi-trate contract disputes (such as the PerishableAgricultural Commodity Act in the United States),which discourages Mexican retail buyers from engag-ing in long-distance transactions out of concern thatthe merchandise they receive will not conform totheir desired specifications. The prevailing inefficiencyin the distribution of Mexican-grown produce to

106Based on information obtained during meeting with Lic. Francisco Reyna Garza, GeneralAdministrator, “Star” Wholesale Market, Monterrey, Nuevo León, Mexico, Tuesday, March 24,1998.

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Mexican consumers may actually give a marketingadvantage to U.S. fruit and vegetable suppliers whoare capable of supplying high-quality, well-sorted fruitand vegetable products to Mexican chain store opera-tions under temperature-controlled conditions, espe-cially in highly perishable product categories such aspackaged salads.

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he Mexican economic environment haschanged rapidly in recent years duemainly to structural changes in placesince the mid-1980s and direct and indi-

rect effects of the North American Free TradeAgreement (NAFTA). The changes are considerablyaltering the Mexican fresh produce distribution andmarketing system, creating a range of new challengesand opportunities. The changes should continue inthe future due to the overall free trade and investmentpolicies in place; market integration with the UnitedStates and Canada; and the consequent rapid indus-trialization, modernization, and urbanization of thecountry. This trend will translate into rapid growth inper capita income, more women at work, betterequipped homes, less time available for food shop-ping and preparation, and changes in food consump-tion patterns. Increased demand for food quality,service, and convenience will provide additional basesfor modern chain store expansion. This expansionshould benefit from improvements in infrastructureand logistics and from new economies of scale inducedby the regional and multinational distribution centers.The expansion of U.S.-based retail food chains inMexico should open new opportunities for U.S. sup-pliers of quality fresh produce to compete in theMexican market.

Dynamic Changes in the MexicanEconomic Environment

Since the mid-1980s, Mexico has been steadilyevolving from an inward-oriented, highly protectedcountry with strong government intervention towarda more open and modern market-oriented economy.An important turning point was the negotiation and

subsequent admission to the General Agreement onTariffs and Trade (GATT) in 1986, which marked thebeginning of Mexico’s unilateral trade liberalization.At the same time, Mexico began gradually deregulat-ing and dismantling its extensive market interventionsystem that had crippled its private-sector initiative.The signing of the NAFTA agreement in 1993 markedthe beginning of an economic integration process thatwould lock up the structural changes in Mexico andprovide the basis for steady trade and rapid economicgrowth. This whole process of reform and moderniza-tion is gradually reaching all levels of the Mexicaneconomy, including the agriculture and food distribu-tion sectors.

NAFTA implementation started in January 1994with an immediate drop in the agricultural trade-weighted Mexican tariff with the United States from10 to 5 percent. The tariff average will gradually reachzero by 2008. Most importantly, the complex systemof Mexican licenses and other nontariff barriers wasabandoned. NAFTA goes beyond direct trade liberal-ization and includes agreements on key aspects ofinvestment, intellectual property, harmonization ofsanitary/phytosanitary policies, transportation, envi-ronmental conservation, and labor issues.

Following Mexico’s rapid recovery from the 1995peso devaluation, the increase in trade propelled byGATT and NAFTA and the prospects of future eco-nomic integration with its northern neighbors haveinduced an environment in which confidence in long-term stability and growth is accelerating foreign anddomestic investment. By 1999, Mexico’s trade hadtripled pre-NAFTA levels, and the country was export-ing more than the rest of Latin America combined.Mexico has also experienced the highest economicgrowth rate in the Latin American region in recent

CHAPTER 4: Long-Term Prospects forOpportunities Associated with the Expansion ofSupermarkets/Mass Merchandise Chain Storesin MexicoDr. Jaime Málaga, Texas Tech University, formerly with the Texas Agricultural Market Research Center, Texas A & M University

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years and is expected to sustain this superior econom-ic performance in the foreseeable future. Partly inrecognition of this new business environment and itsenvisioned economic performance, Mexico was admit-ted to the Organization for Economic Cooperationand Development (OECD), the exclusive club ofdeveloped economies that includes Europe, theUnited States, Canada, and Japan. The flow of directinvestment to the Mexican economy has soared inrecent years to all sectors, including food distributionand retailing. Attracted by the new economic andbusiness environment in Mexico, the annual flow offoreign direct investment tripled between 1994 and1999. In many cases, this foreign investment flow hasbeen accompanied by technological innovation andknow-how, as well as modern business practices.These innovations are inducing and forcing changesin the traditional structures of production andmarketing.

Effects of Changes on Fresh ProduceDistribution

More open markets, increasing per capita incomes,growing urbanization, and facilitation of foreigninvestment have created conditions for importantchanges in the Mexican fresh fruit and vegetable mar-keting system. They are altering the traditional struc-ture of marketing channels and generating new chal-lenges and opportunities for participating agents.

The economic and business environment inducedby the modernization of the Mexican economy andthe implementation of NAFTA has also brought for-eign investment to the food services and food retail-ing sector. In recent years, U.S.- and European-basedretail store chains (Wal-Mart, Price Club, H-E-B,Auchan, Carrefour, and others) have been arriving andexpanding operations in Mexico.

These store chains arrived with many years of expe-rience and development in the very competitive envi-ronments of their respective countries. Their extensiveexperience includes modern technologies and know-how regarding supply chain management, procure-ment arrangements, stock optimization, quality stan-dard control, cold storage maintenance, product han-dling, shelf-life preservation, and consumer services.

Mexican consumers enthusiastically received theunprecedented services and quality provided by thesenew multinational chains. The competition forcedlocal firms to enhance their services and efficiency,

generating a chain reaction of improved services andmodernization throughout the Mexican retail grocerysector. At the same time, the spread of the chain storeformat in food retailing encouraged and reinforced theunderlying trend toward increased consumption offruits, vegetables, and meats in Mexico (see chapter1) by permitting enhanced consumer access to anever-wider variety of perishable products.

The success of the supermarket/mass merchandisechain store format in food retailing triggered a remark-able expansion of retail outlets and consumer marketpenetration in Mexico (see chapter 2). Chains thatformerly targeted only high-income households inmajor metropolitan markets began to extend theirreach to medium and even lower income householdsby the late 1990s and to expand their operations intoless urbanized population centers.

Primarily because of the phenomenal success ofthe chain store format among Mexican food shoppers,the Mexican food distribution system is undergoing amajor structural change in terms of how perishableitems reach the consumer. While small/independentproduce vendors (who typically depend on centralwholesale markets in urban centers for their supplies)are still responsible for distributing the bulk of freshproduce to Mexican consumers, the traditional waysof distributing perishable products are beginning togive way to modern methods, especially in the north-ern states of Mexico. The widespread growth of chainstore food retailing in supermarket and mass mer-chandise store formats is quietly forcing improve-ments in quality standards, cold chain management,and centralized inventory control. Supermarkets andmass merchandise chains are also increasinglyattempting to purchase produce directly from agricul-tural regions, threatening the traditional dominantrole of the central wholesale markets as a primarysource of perishable merchandise.

The United States and other industrialized coun-tries gradually achieved a similar change between the1920s and the 1960s. That process resulted in theestablishment of a modern food distribution systemcharacterized by:■ Increases in regional concentration of agricultural

production;■ Increased assembly and packaging of products at

shipping point rather than at destination markets;■ Widespread development of private chain distribu-

tion centers capable of receiving truckloads of agri-cultural products directly from shipping points; and

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■ Reduction in the importance of urban wholesalemarkets as a retail distribution mechanism.In Mexico, this evolution is occurring far more rap-

idly than it occurred in the rest of North America inthe mid-twentieth century, with the sudden explosionof chain stores forcing changes along the entire pro-duction-marketing supply chain. However, the slowresponse of some market agents and some institution-al rigidities are creating bottlenecks where state-of-the-art supermarket outlets coexist with anachronisticmarketing practices by intermediaries. This dynamicprocess and the challenges generated by it weredescribed extensively in chapter 3. Given the currenteconomic, business, and policy landscape in Mexico,outlined below are some potential scenarios for thefuture development of Mexico’s produce distributionsystem, based on current forecasts of Mexico’s eco-nomic performance and anticipated near-term policychanges in the domestic and international tradespheres.

Long-term Macroeconomic Trends inMexico and Their Potential Impact onMexican Produce Imports

Despite the direct and indirect impacts of NAFTAalready observed in Mexico, the treaty is not expectedto reach the final implementation stage until 2008,when all tariff and nontariff barriers between theNorth American partners are scheduled to end. Notonly will existing barriers to trade be phased out, butother areas governed by the agreement, such asinvestment legislation, transportation, border crossinglogistics, and harmonization of sanitary/phytosanitaryregulations, are expected to be fully implemented in2008. Therefore, it can reasonably be expected thatthe full implementation of NAFTA will stimulateincreased levels of trade between the United Statesand Mexico even beyond today’s current sizablelevels.

Moreover, as some economists like to point out,trade liberalization is just one step ahead of the nextstage, which is market integration. The market inte-gration stage implies a series of adjustments in busi-ness practices that include horizontal market integra-tion of products and vertical integration of the entirefood chain across national boundaries, a process thathas yet to be accomplished. Also, it is relevant to notethat Mexico’s involvement and support for free tradegoes beyond the confines of North America. By early

2000, Mexico had signed bilateral free trade agree-ments with 27 countries, including almost all LatinAmerican nations. The free trade agreement signedwith the European Union in March 2000 will gradu-ally reduce tariffs through 2007 and is expected todouble Mexican exports to Europe in the next fewyears. Mexico is now in the unique position of beinga free trade partner in the two largest markets in theworld, North America and Europe.

Free trade and market integration with the UnitedStates and Canada are expected to stimulate strongeconomic growth in Mexico in the medium and longterm. Because Mexico is starting the integrationprocess from a lower economic level than other devel-oped countries, its national income is expected togrow at a faster rate. For example, the Food andAgricultural Policy Research Institute (FAPRI) esti-mates that long-term (10 years) growth in MexicanGross Domestic Product (GDP) will be almost twiceas rapid as that in Canada and the United States andabove the rest of Latin America (table 4.1). Anincreased share of GDP is expected to be representedby the manufacturing and services sector, while theshare of GDP contributed by the traditionally impor-tant industrial sectors of agriculture, mining, andpetroleum is expected to decline. The types of newjobs generated by the manufacturing and services sec-tor will almost certainly reinforce the existing trendstoward further industrialization and urbanization ofthe country.

As in the United States, Canada, and other indus-trialized countries, higher per capita incomes anddemographic changes induced by this type of eco-nomic growth will have important long-term effectson the evolution of Mexico’s food distribution sys-tem. The main avenues through which this incomegrowth would influence the Mexican produce con-sumption and distribution systems are:■ Higher per capita incomes would imply a modifica-

tion of Mexican diets in favor of fruits, vegetables,and meat over more traditional food staples.

■ Higher average incomes will also translate into bet-ter equipped households (refrigeration,microwaves) and increased access to automobiles.

■ Women will increase their participation in theworkforce.

■ More urban manufacturing and service industryjobs will translate into less time for food shopping.Dietary Changes. As described in chapter 1,

Mexican consumers are moving away from a diet

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based predominantly on corn and beans to a morediverse one that includes fruits, vegetables, andmeats. Expenditure elasticities for traditional fooditems like tortillas and beans are very low (e.g.,increases in per capita income do not translate intoadditional consumption of these items), but theexpenditure elasticities for fruits and vegetables arehigh. This means that higher per capita income overthe long term can be expected to translate intoincreased consumer purchases of produce and meatproducts. Recent research indicates that per capitaconsumption of fresh vegetables in Mexico is growingat a faster rate than in the United States and is corre-lated to income levels.107 Additionally, the health-relat-ed concerns that promoted more fresh produce con-sumption in the United States are also spreading inMexico. The “5 a day” campaign that promoted freshfruit and vegetable consumption in the United Statesis also emulated in Mexico by public and privateagencies.

Changes in Household Purchasing Power. Theavailability of home refrigeration and family-ownedautomobiles played a critical role in the developmentof the U.S. retail chain store system. At present, notall Mexican households have refrigerators, and therate of automobile ownership is one car for elevenpeople (compared to one car for every two people inthe United States). However, rapid growth in per capi-ta income over the next few years should allow grow-ing numbers of Mexicans to afford refrigerators andautomobiles, which, in turn, may change their foodpurchasing habits.

Growing Female Participation in the MexicanWorkforce. The modernization of the Mexican econo-my, the disproportionate expansion of jobs in themanufacturing and service sector, and improvements

in educational attainment are creating new job oppor-tunities for women. In recent years, the number ofwomen in the labor force has expanded considerablyand this trend is likely to continue as long as Mexicomaintains its rapid pace of economic growth.

Scarcity of Time. As Mexico becomes more urban-ized, work commutes grow longer, and the proportionof women and two-income families in the labor forcecontinues to grow, households are likely to devoteless time to food shopping and food preparation.Already by the late 1990s, the average number offood shopping trips by Mexican household shoppershad declined sharply from 11.5 per week in 1995 to7.5 per week in 1998, according to a Food MarketingInstitute survey. Since this number of weekly foodstore visits is still very high by North American stan-dards (the comparable figure for the United States is2.2 trips per week), the downward trend in foodshopping frequency for at-home preparation/con-sumption will likely continue alongside future eco-nomic growth and household income improvements.

In summary, the same income, demographic, andinstitutional forces that shaped the modern food dis-tribution system in the United States are already atwork in Mexico and can be expected to continue.These forces will increasingly influence the way inwhich Mexican consumers purchase fresh produceand other perishable food items, as well as the varietyof items they choose.

Retail Store Trends

Despite a slight decline in returns per square footin recent years, most Mexican and foreign supermar-ket and mass merchandise chains operating in Mexicohave aggressive near-term expansion plans. Not onlydoes there appear to be room for substantial furtherdevelopment of the geographic territory that will beserved by chain food stores—and the number of

Table 4.1—FAPRI long-term real GDP projections (percentage change from previous year)

Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

World 3.3 3.3 3.2 3.2 3.2 3.2 3.2 3.3 3.3 3.3Mexico 4.4 4.9 5.1 5.4 5.3 5.2 5.1 5.1 5.1 5.1U.S. 3.4 3.3 3.1 3.0 3.1 2.9 2.8 2.6 2.6 2.6Canada 2.8 2.7 2.7 2.6 2.6 2.6 2.6 2.6 2.6 2.5EU 2.6 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5Japan 2.3 2.4 1.8 1.7 1.7 1.7 1.7 1.7 1.7 1.7Argentina 5.6 5.4 5.1 5.0 4.9 4.8 4.7 4.7 4.7 4.7Brazil 3.6 3.8 3.7 3.7 3.6 3.5 3.4 3.4 3.4 3.4

Source: FAPRI 2000 World Agricultural Outlook.

107“U.S. and Mexican Fresh Vegetable Markets: A Descriptive Analysis,” Jaime Malaga and GaryWilliams, International Market Research Report IM5-96, Texas A&M University, November 1996.

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chain food stores that operate in any single geograph-ic area—but the logistical and distribution infrastruc-ture supporting the supermarket and mass merchan-dise food retail sector can be expected to receive addi-tional attention over the next few years. With severalsupermarket and mass merchandise chains reachingthe point of development where they can afford tooperate their own proprietary distribution centers inmore than one region of the country, the constructionof new regional distribution centers for perishableproducts can be expected to proliferate, with enor-mous implications for the future shape of food distri-bution practices in Mexico. The expansion of distribu-tion facilities should permit a growing number ofsupermarket and mass merchandise food retailers totake advantage of additional economies of scale, reducedependence on intermediaries, and lower their pro-curement and inventory management costs, potential-ly increasing their price-competitiveness in the localmarketplace. Firms that operate such proprietary dis-tribution facilities—and begin to receive a greater vol-ume of fresh produce directly from shippers—canalso be expected to be more concerned about propertemperature control maintenance in the supply chainto ensure that an increased reliance on direct ship-ments does not result in a degradation of producequality and shelf life. These trends may well open upnew marketing opportunities for those fruit and veg-etable producers, including U.S.-based producers,who can efficiently provide the required combinationof quality and price to the growing number ofMexican supermarket patrons.

Square Footage in Mexico for Chain Store FoodRetailers Still Behind U.S. Levels. In 1998, per capi-ta supermarket square footage in the United States(3.3 square feet) was more than four times larger thanthe Mexican average (0.78 square feet) (table 4.2).Moreover, there was great disparity among individualMexican states, suggesting that there was tremendouspotential for future grocery chain expansion in certainareas of Mexico, especially in the southern regions ofthe country. The northern border state of BajaCalifornia Norte led the country with 1.74 square feetof supermarket retail space per capita, a level 29 timesgreater than the state with the lowest amount ofsupermarket square footage, Tlaxcala (with 0.06square feet per capita). Indeed, the northern states ofBaja California Norte, Nuevo León, Sonora, Coahuila,Tamaulipas, and Sinaloa, along with the DistritoFederal (Mexico City) and Quintana Roo (which

includes the major population center/tourist destina-tion, Cancún), completed the short list of Mexicanstates that had more than 1 square foot of supermar-ket space on a per capita basis in 1998. The rest ofMexico—including virtually all of the central andsouthern states—continued to lag far behind insupermarket square footage, suggesting that super-market penetration is strongly linked to the regionaldistribution of per capita income in Mexico. If theMexican economy continues to grow rapidly over thenext few years, as is currently predicted, it would bereasonable to expect substantial additional growth ofchain store food retailing in Mexico from present lev-els, especially to the extent that the benefits of thiseconomic growth are felt outside Mexico City and thenorthern border states. As the publication BusinessLatin America recently observed, although Wal-Martde México operated in 53 Mexican cities with 80,000or more inhabitants as of early 2002, there were stillnearly the same number of cities with the same popu-lation size in Mexico (49) with no Wal-Mart to date,suggesting enormous potential for futuredevelopment.108

Retail Chains Gear Up for Expansion. The recentsuccess of the supermarket/mass merchandise formatfor food retailing in Mexico appears to have inspired a

Table 4.2—Mexico’s supermarket footage in selectedMexican states, 1998

State Square feet per capita

Baja California Norte (Tijuana) 1.74Distrito Federal (Mexico City ) 1.66Nuevo León (Monterrey) 1.65Sonora 1.48Coahuila 1.36Tamaulipas (N. Laredo) 1.29Sinaloa 1.23Quintana Roo (Cancún) 1.18Chihuahua (Ciudad Juarez) 0.91Jalisco (Guadalajara) 0.88Yucatán (Mérida) 0.74Veracruz 0.47Puebla 0.45Michoacán (Morelia) 0.22Chiapas 0.20Tlaxcala 0.06

Mexico average 0.78

U.S. average* 3.32

*Obtained from Progressive Grocer Annual Report, April 1999. Source: Calculationsbased on information from Asociación Nacional de Tiendas de Autoservicio yDeparamentales, Mexico City, D.F.

108“Wal-Mart—Mexico’s Retail Goliath”, Economist Intelligence Unit Briefs, March 26, 2002,located at http://biz.yahoo.com/ifc/mx/news/32602-2.html.

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new round of retail expansion plans. Several super-market and mass merchandise chains in the Mexicanmarket, including prominent U.S.-based firms such asWal-Mart and H-E-B, have near-term plans to expandthe number of their food retail stores well beyond thepace of anticipated population growth. Wal-Mart deMéxico, Mexico’s largest food retailer (which operatesWal-Mart, Sam’s Club, Bodegas Aurrera, andSuperama stores) recently announced plans toincrease its retail sales space 15 percent annuallybetween 2000 and 2005.109 Within the 18-monthperiod from April 2002 to October 2003 alone, Wal-Mart de México projects that it will open 62 newretail stores at an estimated cost of US$700 million.Most of these new retail establishments (37 stores)will be supermarkets or mass merchandise retail out-lets: fifteen Bodegas Aurrera outlets, eight Wal-MartSupercenters, seven Sam’s Clubs, and sixSuperamas.110 H-E-B, the Texas-based supermarketchain which operated 18 stores in northern Mexico asof mid-2002, has also announced aggressive expan-sion plans. The chain’s director in Mexico, HowardEdward Butt III, recently reiterated his firm’s commit-ment to open an additional six stores per year, at anannual cost of about US$70 million, for the foresee-able future.111

The surge of new store openings in Mexico is notrestricted to foreign-owned retail firms. ComercialMexicana, Mexico’s second largest Mexican food retailchain, opened 13 new stores in 2000, representing a7.8 percent increase in retail selling space from theprevious year’s levels, and announced in early 2001that it intended to open 10 additional stores in thecoming year.112 Meanwhile, Soriana, the largest foodretail chain in northern Mexico, opened an additionaleight retail hypermarkets in 2001 and has earmarked2 billion pesos in 2002 to open 12 new stores,upgrade existing stores, acquire land, and improveinformation systems.113

Impact of Logistical Improvements onFuture Expansion of Produce Imports inMexico

The ongoing expansion of retail square footage forsupermarkets and mass merchandise food retailchains in Mexico represents only one dimension ofpotential growth opportunities for marketingincreased volumes and varieties of fresh produce—including U.S.-origin produce—to an ever-broadersegment of Mexican consumers under temperature-controlled conditions. An equally important issue toconsider is the fact that many potential gains in logis-tical efficiency have yet to be accomplished on severalfronts, including:■ Improved economies of scale brought about by the

construction of additional chain distribution cen-ters that will serve new regions and in the case ofH-E-B, possibly facilitate efficient trade in perish-ables on both sides of the U.S.-Mexican border;

■ Reduction in produce losses and improved qualitymaintenance brought about by better handlingmethods throughout the supply chain (such asmore prevalent use of refrigeration for storage andtransport of perishable commodities, tighter coldchain management in the delivery and shipment ofperishables from distribution points, and the use ofbetter insulated and properly ventilated packagingmaterials); and

■ Transaction efficiencies induced by the establish-ment and enforcement of market-defined qualitystandards.As participants in the Mexican produce distribu-

tion system begin to address these issues—and abun-dant evidence exists to suggests that they are movingin this direction—Mexico’s capacity to efficientlyreceive and market imported fresh produce shouldimprove markedly. Listed below are some examples ofhow retailers, government officials, and growers serv-ing the domestic Mexican market are attempting toenhance the efficiency of current distribution chan-nels and pave the way for further expansion of U.S.fresh produce exports to Mexico.

Development of regional distribution centersmay facilitate greater efficiency in the movement ofperishable products. In the United States, the con-struction of private distribution centers by food retailfirms played a key role in the development of themodern system of supply chain management byallowing chains to take control of procurement func-

109“Latin American Retail/Supermarkets’ Rough Ride,” Economist Intelligence Unit, February7, 2000.

110“Walmex Profits Up,” Lloyd Mexican Economic Report, April 2002, located atwww.mexconnect.com.

111“More Foreign Supermarkets?,” Lloyd Mexican Economic Report, August 2001, located atwww.mexconnect.com.

112Controladora Comercial Mexicana Annual Report 2000, located atwww.comerci.com.mx/press2001.

113Organización Soriana Fourth Quarterly Report, 2001, located atwww.soriana.com.mx/infofin_eng/401.asp.

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tions that were formerly the domain of wholesale andbrokerage firms. Large food retail chains in the UnitedStates built modern distribution facilities on the out-skirts of primary metropolitan destination markets sothat they could efficiently receive truckloads of mer-chandise shipped directly from production areas andtake charge of redistributing these products to indi-vidual retail stores. By taking steps to centralize pro-curement and improve the coordination of inventorymanagement, these chains were able to shorten distri-bution times, improve produce handling (by minimiz-ing the number of steps involved in distribution fromorigin to destination), and reduce per-unit marketingcosts.

The same revolution in distribution methods is juststarting in Mexico. Only a handful of chain-operatedfood distribution centers are currently operating inMexico, in part because chains require a certain criti-cal mass of retail stores in a region to operate a distri-bution center profitably (estimated at around 20stores in Mexico and 12 in the United States). Forexample, Soriana still relies on its distribution centerin Monterrey to supply product to its fiveGuadalajara-area stores from its distribution center inMonterrey, some 777 kilometers (or about 483 miles)away. Nevertheless, several food retail chains are mov-ing in the direction of constructing additional distri-bution centers to reduce their dependence on centralwholesale markets, and this process can be expectedto accelerate as the number of retail outlets increase.In 2001, Comercial Mexicana began construction ona new distribution center in Mexico City and in early2002, was believed to have earmarked an additionalUS$40 million for building up its distribution capabil-ities.114 Meanwhile, Casa Ley began construction on anew 143,000-square-foot distribution center for pro-duce and refrigerated/frozen meats and seafood in2001, which it is expected to occupy in the summerof 2002.115 H-E-B is even considering moving beyondthe traditional concept of the regional distributioncenter; it plans to establish multinational distributioncenters in the U.S.-Mexico border area that couldserve their stores on both sides of the Rio GrandeRiver.

Reaching a stage of development where regionaldistribution centers were easily accessible would sure-ly help retail food chains in Mexico to circumvent tra-ditional wholesale marketing channels. It would alsoincrease their volumes of direct purchases (therebygaining economies of scale) and improve produce han-dling and stock management as it did in the UnitedStates and other industrialized countries. The result-ing quality improvements and the reduction in per-unit costs and product loss can be expected to giveretail chains greater ammunition with which to com-pete against traditional produce markets. Therefore,despite recent stagnation in the proportion of freshfruits and vegetables purchased by Mexican con-sumers in supermarkets and mass merchandisechains, the share of produce reaching Mexican con-sumers through chain-affiliated stores is likely toincrease over the long term, an assertion also support-ed by ANTAD, Mexico’s chief retail trade association.

The expansion of retail distribution centers canalso be expected to encourage upstream changes insupply chain practices. As chain stores develop thecapacity to handle a growing volume of direct pur-chases of perishable products from growers/shippersand engage in a greater number of direct transactionswith agricultural suppliers, they are likely to exertgreater oversight and control over the use of appropri-ate refrigerated transportation, storage, and packagingat various stages of the distribution process.

Better enforcement of quality grades and stan-dards for fresh produce. Another source of potentialimprovement in produce marketing efficiency that hasyet to be realized by Mexican retail chains relates tothe clarification and enforcement of meaningful quali-ty grades and standards for fresh fruits and vegetables.While the Mexican government has developed an offi-cial series of quality grades and standards for manyfresh produce items (see chapter 3), they are rarelyused because produce suppliers to the domestic mar-ket find them cumbersome and impractical anddomestic produce buyers tend to believe that they donot measure relevant product attributes. Most pro-duce marketing agents along the distribution chainstill use ambiguous quality grades, such as “first, sec-ond, and third quality,” which do not provide anymeaningful information about a product’s cosmeticappearance or physical dimensions.

The use of ill-defined quality grades and standardsin Mexican produce marketing channels generates allsorts of problems and disputes between produce mar-

114From Controladora Comercial Mexicana Annual Report 2000, located athttp://www.comerci.com.mx/press2001, and “Wal-Mart—Mexico’s Retail Goliath,” EconomistIntelligence Unit Briefs, March 26, 2002, located at http://biz.yahoo.com/ifc/mx/news/32602.html.

115Obtained from the “The Stellar Report,” July 2001, located athttp://www.thestellargroup.com/newlsetter/StellarJuly%202001.pdf.

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ket agents. For produce growers and shippers, theabsence of strictly defined and enforced quality gradesand standards in the domestic Mexican market canmake it difficult to extract maximum revenue fromsales of well-segregated, higher quality produce.Meanwhile, for retail chain operations, the lack ofcommonly enforced quality grades and standards rep-resents a formidable obstacle to creating direct ship-ment programs by undermining confidence that deliv-ered produce will meet desired specifications.Following the successful experience of the UnitedStates and other countries in this regard, Mexico mayneed to implement a quality standard strategy thatincludes:■ Government standards initiated and developed by

industry requests, structured and adjusted toreflect the interest of growers and handlers; and

■ A credible enforcement mechanism that can facili-tate arbitration and dispute resolution.Some producer organizations, generally those that

are export-oriented (such as tomato growers), havedeveloped their own quality standards. Also, someretail chains like H-E-B or Soriana have developedinternal quality standards for particular produceitems. However, without government backing and alegal enforcement system, these isolated efforts mayhave limited relative success. One consequence of thesketchy nature of quality control mechanisms forfresh produce in Mexican commercial marketingchannels is that some retail chains operating inMexico have postponed plans to market a portion oftheir produce items under private label. They madethis decision because of the difficulty in obtaining cer-tain fresh fruits and vegetables on a regular basis fromdomestic producers who could meet their internalproduct quality standards.

Both the Mexican government and the domesticproduce industry are increasingly recognizing theimportance of having a well-defined and enforceablequality standard system for fruits and vegetables.Under the leadership of the Mexican Secretariat ofCommerce and Industrial Development, efforts inthat direction have already begun through the devel-opment of pilot projects, whereby members of pro-ducer associations and marketing agents work togeth-er to define quality standards for specific fruit andvegetable commodities based on relevant and desiredattributes. The successful implementation of such asystem, even for a handful of commodities, couldhave a tremendous impact on future prospects for the

expansion of direct procurement of Mexican-grownproduce by supermarket and mass merchandisechains operating in Mexico and will be an importanttrend for shippers of U.S. produce to Mexico toobserve over time.

Improvements in retail merchandising strate-gies. Retail chains may continue to adopt and refinemerchandising strategies aimed specifically at attract-ing and retaining traditional market shoppers andexpand their customer base beyond their coreupper/middle-income patrons. For example, most ofthe major chain food retailers in Mexico offer a massmerchandise rather than a conventional supermarketformat in most of their retail outlets, selling a wideselection of department store items (e.g., toys, elec-tronics, clothing) alongside fresh and dry groceryitems. This retail format is inherently familiar topatrons of traditional neighborhood street markets,since the eclectic assortment of merchandise found ata single retail location is similar to that typically foundat large urban tianguis. Other adjustments to the con-ventional food retail store format have been incorpo-rated to appeal specifically to the Mexican consumerwho may need additional inducements to patronizechain stores on a regular basis and may be unfamiliarwith the broader range of products offered on manychain store shelves. For example, Wal-Mart has begunintroducing a “fiesta type ambiance” at several of itsMexican-based stores that includes far more extensivefree sampling, product demonstrations, games, andfamily entertainment than is typically available in itsU.S. store locations.116

Summary

The growing prominence of chain stores in theprocurement and merchandising of fresh produce inMexico should continue to open up opportunities formarketing high-quality fresh fruits and vegetables inthat country by exposing Mexican consumers to awider range of new consumption alternatives. Thistrend will likely be reinforced by changes in Mexicanconsumption patterns, as expected economic growthpromotes increased diversity in dietary choices. Asper capita incomes improve, Mexicans can be expect-ed to modify their diets to include larger quantities offruits, vegetables, and meats.

116“Free Samples Part of the Fiesta,” Jenalia Moreno, Houston Chronicle, February 12, 2000,located at http://www.mexico-info.com/leadstories/fiesta.htm.

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The adoption of modern produce distributionpractices in Mexico; an expansion of the retail chainformat; and the increase in quantity, quality, and mixof the Mexican demand for fresh produce should gen-erate new opportunities for all potential suppliers,especially suppliers from the United States. The spe-cial marketing advantages accruing to the exporter offresh fruits and vegetables from the United States arerelated to the following factors:■ Mexican food retail chains will require increasing

numbers of high-quality, large-volume, year-roundfresh produce suppliers. Except for a handful oflargely export-oriented growers, these types of sup-pliers are not yet well established in Mexico.

■ The United States has a geographical advantagewith respect to Mexico, compared with somepotential competitors such as Chile and Argentina.

■ The United States has a free trade agreement withMexico that will eventually eliminate all remainingbarriers to cross-border produce trade.

■ Border crossings between the United States andMexico should become more fluid and less costlyfollowing the implementation of expected trans-portation, logistical, and legal improvements.

■ U.S.-based retail chains may carry over into Mexicosome of the long-term procurement relationshipsthat they have already established with U.S. suppli-ers, giving these suppliers a "foot in the door"because of their established reputation for quality,price, and reliability.

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