A follow-up on Mexican consumer behavior

Extract of the article published on Plaza de Armas (http://www.plazadearmas.com.mx/), February 28^th 2011.

 This is a follow-up of my post published on November 16^th 2010.

At December 2010, retail sales had a 2.9% annual increase. The good news are that all the areas evaluated had an improvement during the year; the bad news are the existing gaps in different areas compared with 2008.

Dec. 2010 vs. June 2008 (Made with data from the Commercial establishments monthly survey, INEGI)
Retail establishments with growth		Retail establishments with decrease
Establishments	Change	Establishments	Change
Food, beverages and tobacco	13.8%	Home appliances, computers and articles for interiors decoration	-18.1%
Textile products, dressing accessories and footwear	6.9%	Motor vehicles, spare parts, fuel and lubricants	-11.6%
Supermarkets and department stores	4.6%	Stationery, recreation products and other personal-use products	-4.4%
Hardware and glass	1.7%	Health-care products	-4.1%

Although data shows improvement, consumers are still very sensitive to prices on their purchases. According to a study published by American Express, 68% of Mexicans make our purchases based on the cost (more than quality, and a lot more than the ecological impact of the products). This behavior is clearly identified by the big supermarket chains, as Walmart or Soriana, that are growing based on their low-investment and low-cost establishments (Bodega Aurrera Express, and Soriana Express).

The factor that Is having a clear influence on this behavior is employment. The national unemployment rate has been at levels of 4.9% to 5.7% on the last 6 months, way above the 2008 levels.

What is the outlook for 2011? There are three indicators that show a positive trend:

1. There are positive estimates of private consumption (where the families’ expense is included) according to International Monetary Fund (+4.7%) and Banco Santander (4.1%); that means it will be one of the motors for the estimated national economy growth.
2. Credit to consumers has had recently its biggest monthly increases in the last 3 years according to Central Bank (BANXICO) and the Banks and Securities National Commission (CNBV).
3. Consumer confidence is positive for 2011. TNS Research International identified in a recent study that optimism levels and intention to consume have increased for 2011. The confidence index calculated by INEGI had in January 2011 its second biggest level in the last 32 months, with good levels for those components that consider the economic perspectives for the next 12 months.

What are the risks? In the first instance, there are current inflationary pressures due to the increase on several commodities; the second risk is the slow rate in employment recovery we are having. Both issues can affect negatively the consumer’s behavior.

In brief, consumers begin to have more confidence and marginally more capacity to consume, what gives moderate growth perspectives with some uncertainties. Meanwhile, cost will be still an important factor in the purchasing decisions, so you will have to develop initiatives to reduce the cost of your product or service without compromising the basic quality elements that keep you competitive.