GOOD AND PLENTY

Mexico 2017 | INDUSTRY | FOCUS: FMCGS

Despite the economic uncertainty that has come about due to a shifting US political climate, an economic environment conducive to both production and demand indicates that the FMCG sector will continue to grow and be a major part of Mexico's economy.

Fast-moving consumer goods (FMCGs) make up one of the cornerstones of the modern economy. The labor and logistical requirements needed to keep the FMCG chain flowing have led to a geographic clustering of operations, and Mexico's high supply of labor, proximity to large markets, and well-established transport links with key global chains have made a it natural fit for the FMCG sector from the production side. At the same time, increased prosperity has increased domestic demand for these goods, and the combination of the two has made Mexico one of the most important markets for FCMG firms.

Spurred on by massive expansion in emerging markets, the FMCG industry has seen significant growth in recent years. Much of this has been the result of demographic shifts. While developed countries have seen salaries stagnate amid widening inequality, emerging markets have seen millions of people rise out of poverty. According to data from Mexico's National Population Council, the number of Mexican households earning between USD900 and 1,200 per month (classified as middle-income) increased by 3.1% per year to become just under a third of the population, and this trend is expected to only increase in speed over the next few years. This growth has had a tremendous impact on the FMCG industry, as new wealth has generated new consumption patterns that have turned the sector into one of the fastest growing in the country.

Mexico's position with regard to the FCMG sector is unique in that its population characteristics render it both a major consumer and producer of consumer goods. On the production side, Mexico's strong logistical ties with the US and Latin America, low labor costs, and appealing business environment make it a popular choice for foreign investment. Long linked with the US and Canada, the 1994 passage of NAFTA supercharged flows, creating new industrial zones for assembly and manufacturing that have transformed numerous urban regions. The ensuing rise in manufacturing boosted Mexico's exports and, by lowering the cost of FCMGs for the Mexican market, indirectly contributed to the rise in the Mexican middle class.

Recent years have seen an increase in Mexican investment by some of the largest participants in the global FMCG sector. In 2004, PepsiCo announced a USD5 billion investment in Mexico, noting that its Latin American foods division was the strongest-growing sector in the company. This move, expected to create more than 4,000 jobs, represents the Mexican market's ability to serve as a hub for developing FMCGs and its strategic importance to some of the most significant companies in the world. Similarly, Nestlé also announced a plan to invest USD1 billion in Mexico by 2019 via the construction of two new factories and the expansion of a third. Nestlé, the world's largest food maker, said that its plans called for Mexico to become a regional distribution center for Latin America, with products such as baby foods, pet foods, and cereals to become key products for distribution.

So what does the future hold? While consumer confidence has fallen since the election of Donald Trump, a falling unemployment rate and continued positive demographic trends have continued to boost consumption. NAFTA renegotiations have been delayed, and a strengthening peso has reflected growing investor confidence that the sector will be able to withstand whatever may come. Moreover, the Mexican government has redoubled its efforts to strengthen trade ties with other Latin American countries as a way to mitigate possible disruptions in US trade and solidify its place as a regional frontrunner in the industry. The combination of strong internal demand and stable production due to foreign investment should allow the FCMG sector to remain one of Mexico's chief economic drivers for years to come.