National Brewers Association Craft Beer Market in Mexico 2015

Transcription

1 Craft Beer Market in Mexico

2 National Brewers Association Craft Beer Market in Mexico 2015 INDEX - INDEX 2 - EXECUTIVE SUMMARY 3 - RESEARCH METHODOLOGY 6 - COUNTRY OVERVIEW 7 - MEXICAN BEER MARKET 9 - LOCAL CRAFT BEER IN MEXICO 10 - IMPORTED CRAFT BEER IN MEXICO 12 - AWARENESS AND AVAILABILITY OF U.S. BRANDS IN MEXICO 12 - OPPORTUNITIES FOR U.S. CRAFT BREWERIES 13 - REGIONAL PREFERENCES 14 - CONSUMER PROFILE 15 - DISTRIBUTION AND REQUIREMENTS IN MEXICO 17 - COLD CHAIN IN MEXICO 20 - MEXICAN FEDERAL COMPETITION COMMISSION- 20 PRACTICES AND RESOLUTION - MAIN TRADE ACTIVITIES 21 - RECOMMENDATIONS 22 - ANNEX 1: QUESTIONNAIRE FOR INTERVIEWS MEXICO - ANNEX 2: TRADE CONTACTS MEXICO - ANNEX 3: PRODUCT AVAILABILITY AND PRICE CHECK MEXICO 2

3 EXECUTIVE SUMMARY National Brewers Association Craft Beer Market in Mexico 2015 A market research study was commissioned by the National Brewers Association (BA) to provide information about Mexican craft beer market and identify main opportunities and challenges for U.S. Craft Brewers interested in accessing this market. Following are the key points and findings of this research that are explained in detail in the rest of this document - Methodology. Imalinx researched consumption and market trends in Mexico and validated key contacts through formal sources; executed store visits to review product availability; prepared a list of relevant contacts for the study; conducted 70 interviews throughout the country with importers, restaurant and bar owners, trade specialists and domestic beer manufacturers to obtain a complete perspective of current situation and opportunities for U.S. brewers. Results were analyzed and discussed with BA for this report. - Mexico s Country Overview. Mexico is the second largest economy in Latin America with an annual GDP of 1.3 trillion USD and 3% annual growth expected for Exchange rate with USD increased from MXN/USD to MXN/USD in early May 2015, creating pressure on import prices indexed in USD however there has not been a relevant change in trade in Mexico s population of 120 million inhabitants has 73% of people living in urban areas of more than 100,000 inhabitants. There is high socioeconomic diversity, where 38% of population of medium to high segments have the education, discretionary expense and access to electronic media to try new products including craft beer. Main cities with higher than average GDP per person are Mexico City, Monterrey, Guadalajara and Queretaro, so sales and marketing efforts must be specific to these segments of the population instead of considering a massive approach. - Mexican Beer Market. There is a total of 63 million potential consumers in Mexico. Annual consumption per person in Mexico is of 62 liters, which is similar to Japan (57 liters) and Spain (66 liters), but lower than U.S. with 85 liters. There is high preference towards beer as 78% of consumers will prefer it vs. other alcoholic beverages and beer is the entry beverage of young consumers. Industrialized beer has a developed distribution network through direct delivery to consumption centers and through convenience stores and supermarkets such as OXXO with over 40,000 stores. Craft beer complements this market and holds only 1% of total market share it is growing rapidly in specific segments of population and larger cities that have discretionary expense and look to try new beer from different origins. - Craft Beer Industry in Mexico. Industry is driven by domestic brewers that produce around 30,000 hectoliters per year and has a 50% growth rate for the past 10 years. Craft beer production started around 1995 with Cosaco beer with took the U.S. microbrewery model and has been followed by entrepreneurs in different regions of the country. Mexican brewers have developed Stout, Lager, IPA and other traditional varieties, but some have developed beer adding chocolate, chili, fruits and many other ingredients that are part of the local gastronomy and folklore with good results. Craft beer is listed in more premium restaurants, even having renowned Mexican winemakers entering this industry. 3

4 Imported craft beer is a growing market dominated by European and Asian beer that follows the Craft Beer Movement and has two main characteristics: most importers start small and informal through gray imports to later formalize operations; and the majority of product is managed without cold change due to handling complexity and additional cost. Members of Mexican Craft Beer Association (ACERMEX) and Importers are eager to obtain information about U.S. Industry, quality control management, new varieties and explore commercial opportunities for U.S. Craft Beer. - Awareness and Recognition of U.S. Brands. There is limited awareness of the U.S. Craft Beer Industry. Trade training and electronic communication is highly recommended. Interviewed Importers recognize popular craft brands, showing interest on representing them in Mexico, but only few have contacts from the U.S. - Importers and brewers think that having new U.S. brands in Mexico is positive and can strengthen craft beer movement. On the other hand, there is the general opinion that potential consumers have a perception that U.S. craft beer is similar to industrial beer and they can be better informed. - U.S. Product Availability. U.S. craft beer supply in Mexico is irregular and small compared to other countries, finding around 20 different U.S. labels in different outlets. There are few labels that have constant and formal distribution in Mexico using large distribution channels such as The Beer Box, owned by Grupo Modelo. This limited distribution is due to two causes: On the demand side, importers cannot ensure cold chain; on supply, there is limited interest and follow up from exporters and operations are not completed. This has made importers to look for alternate channels such as brokers to bring beer into Mexico without the knowledge or quality control from brewers. - Consumer Profile. Consumer preferences vary considering age, income, weather and region. It is said that the Mexican consumer is increasing its purchasing power but that applies to specific sectors in the country. As mentioned, target markets of medium, medium-high, high-income consumers only represent 25% of the total population, and they are located in several cities in the country. We were able to map these preferences by defining three regions in the country (North, center, and south), identified main varieties consumed per region and define three main types of consumer (Tourist, connoisseur and young consumer). This will assist BA and its associates to focus efforts when looking for importers or defining educational or promotional activities. - Cold Chain in Mexico. Only few local breweries manage cold chain and/ or kegs in regular basis because they are part of restaurant chains and have they have cold distribution to offset costs. Current market conditions have beer (craft and industrial) managed at room temperature and only refrigerated to offer immediate consumption. The Mexican industry assumes that cold chain will not be guaranteed due to poor infrastructure, cost and handling and low entry volumes that can increase distribution costs up to 25%. However, we have been able to identify at least four importers that are able to ensure cold chain in the distribution process to Mexico. Current importers consider cold chain as an unnecessary cost that does not affect beer quality in the short term, so high training on quality control can be provided by U.S. Brewers Association. 4

5 - Non-competitive practices from International brands. Although Mexican competition commission limited exclusivity contracts with large breweries, it has not been implemented or enacted in trade. On the other hand, large breweries provide strong financial support, equipment and promotional material to establishments (food service mainly) through verbal contracts, under the condition of using only their brands, restricting the entrance of new labels. This would restrict the access to some restaurants and bars but the craft beer market targets specific consumers, do not commit as strictly to these conditions and is growing steadily. In fact, the most recognized Chef and Restaurant operator in Monterrey stated that he has more craft beer than wine listed in his menus and is looking for new options. - Main Trade Activities. Mexican Brewers Association (ACERMEX) coordinates most trade activities. There are six main events that are focused on domestic craft beer with increasing attendance and participation from other countries, also each large city is hosting a Beer festival at least once a year. They are combine product display and sale with seminars for brewers, distributors, importers and media. It is highly recommended to create an educational program to increase awareness of U.S. industry and create trade opportunities. Other alternative is to provide closed events for importers, distributors and brewers with seminars and tastings of U.S. craft beer in Mexico, Monterrey and Guadalajara complemented with a communication and electronic media program. - Recommendations. Following are the main recommended actions from this study. 1. Educational seminar for Mexican importers and brewers and participation in Cerveza Mexico 2. Training for U.S. craft beer exporters on Mexican market via webinar 3. Translation of QC BA Guide and distribution to key members in the Mexican industry 4. Development of Cerveza Artesanal Norteamericana (U.S. Craft Beer) marketing strategy. 5. Social media (Facebook, Twitter, Instagram), Website Spanish. 6. Ensure intellectual property compliance and recommend breweries to register their brands in Mexico 5

6 RESEARCH METHODOLOGY Imalinx researched economic information, consumer profiles, consumption and market trends in Mexico from trade and official statistics and reports; created a questionnaire to guide the research and interviews intended for key players (Annex 1) and defined a market research list, choosing 10 cities with different consumption patterns to cover most of Mexican market as follows: Brewers Association Market Research Mexico Cities List AVERAGE GDP PER CAPITA MEXICO (TOTAL COUNTRY): 10,300 USD STATE CITY GDP PER CAPITA (USD) DESCRIPTION D.F. MEXICO CITY 23,130 Country s capital and largest city as well as it is the most important most important political, cultural, educational and financial center. Largest density of restaurants, bars, importers and breweries. NUEVO LEON MONTERREY 33,342 GUADALAJARA JALISCO 14,631 MÉRIDA YUCATÁN 7,160 Largest city of the northern region of Mexico and third largest metropolitan area in Mexico. It has a highly industrialized economy, modern trade and is close from the U.S. It is home of most of craft beer importers with cold chain capabilities. Located in the Western-pacific area of Mexico, is the second largest city in Mexico. It has a traditional environment that is quickly evolving with immigration of younger consumers due to renowned universities and young families due to its good quality of life. Cerveceria Minerva, largest craft brewery in Mexico is settled here. One of the main cities in Southeast Mexico. It has a traditional environment and society but also has immigration of young families, mostly focused in trade. Consumers seek to pair traditional food with local brewed beer. Distribution of other craft beers is limited. QUINTANA ROO BAJA CALIFORNIA SUR CANCUN AND PLAYA DEL CARMEN CABO SAN LUCAS 20,342 17,820 This corridor is the largest tourism destination in Mexico, accounting for 27% of total visitors. 70% of tourists come from U.S and 80% of the hotels offer an all-inclusive service. Craft beer was only identified in restaurants outside hotels. There is high opportunity for craft beer due to tourism and reduced distribution of domestic craft beer. West coast resort mainly recipient of U.S. travelers. It is a place for vacationing, where most visitors stay at all-inclusive resorts. Strong positioning of local brewers. Similar to Cancun, there is limited offering of national brands but it offers a distribution challenge as it is located 1,600 miles from the border and freight is expensive and limited. 6

7 BAJA CALIFORNIA MEXICALI 16,365 Border city located in Northwestern Mexico. Mexicali maintains a highly educated population with national and international industries investing in the area. It has a long beer tradition as many of the industrial and craft beers are well positioned and established in the area. PUEBLA PUEBLA 6,091 Located in East-Central Mexico. The capital city named Puebla is ranked second in higher education in Mexico with 57 technological colleges and 110 research centers. It ranks fourth in the number of universities and colleges in the nation. Young consumers can be targeted as they look for new varieties besides the local produced. QUERÉTARO QUERÉTARO 14,940 Querétaro is located in North-Central Mexico, but has the highest growing rate in the country with several industries establishing in the area and having the highest immigration rate of the country with 27 new families establishing in the city every day, creating new consumer base and required services. It is home for Tempus brewery. In parallel, we created a contact database including importers, restaurant and bar owners, trade specialists and domestic beer manufacturers for interview (Annex 2). A total of 70 interviews were conducted to obtain a complete perspective of current situation and opportunities for U.S. brewers during an eight weeks period. During the research project, Imalinx was in contact with trade members and attended to three craft beer events in the country to review and validate information. COUNTRY OVERVIEW Mexico has a $1.3 trillion free market economy, oriented towards international trade since the 1990s. It is the second largest economy in Latin America just behind Brazil and the third in the Continent. Mexico has become the United States' second-largest export market and third-largest source of imports. In 2013, binational trade reached nearly $507 billion. Mexico has free trade agreements with over 50 countries. According to the World Bank, as of 2014, Mexico has 122 million inhabitants with half of them under 25 years, which combined with the changing and faster lifestyle is modifying consumption patterns closer to those in U.S. and Europe. Three out of four people (72.3%) live in Mexican cities (CONAPO and SEDESOL, 2012) with over 100,000 inhabitants per city. This is influenced by increases in services, urbanization and economic activity. However, even with a steady increase of GPD per person in the country (Fig. 1), there is high disparity between socioeconomic segments of population, with Only 21% of total population corresponding to medium to high populations representing potential consumers for craft beer (fig 2.) 7

8 Fig 1. GDP per Capita (Source World Bank) Fig 2. Socioeconomic levels in Mexico (Social Investigations Institute- Mexico) A/B: Upper Class (6.8% total population) This is the segment with the highest life standards in the country. The family head is composed by individuals with Bachelor s degree or higher. They live in high quality houses or apartments; have access to travel to U.S. and other countries. Usually the trendsetters, they are well informed and are most likely to try new products to incorporate them into their regular consumption. They assign a high discretionary expense portion to entertainment, leisure and dining out. C+: Upper Middle Class (14.2% total population) This segment include individuals with Bachelor s degree and some access to U.S. products. Although they do not travel as often, have access to information and imported products, usually paying a premium to purchase them in Mexico. Generally, they live in houses or apartments of their own. A more rational consumer that care value of items and perceive craft beer as a gourmet product that they would like to consume. Luxury items are saved for personal nurturing and saved for special occasions C: Middle Class (17% total population) This segment contains individuals working for companies or with small businesses. Their homes are houses or apartments that can be owned or rented with some amenities. In addition to this category, young consumers are also included due to their income level. They all tend to buy craft beer to be socially accepted Exchange rate increased from MXN/USD to MXN/USD (fig. 3) in early May 2105, creating pressure on import prices indexed in USD however there has not been a relevant change in international trade in 2015, however it is expected a trade-down or substitution effect in some non-essential items including beer. According to analysts, exchange rate will reach and surpass 15 MXN/USD on regular basis during the year. Fig 3. Exchange rate trend MXN/USD March through May 2015 (OANDA) 8

9 MEXICAN BEER MARKET According to FEMSA, Mexico represents a 63 million consumers market with one million beer younger consumers joining each year. Annual consumption per person in Mexico is of 62 liters, which is similar to Japan (57 liters) and Spain (66 liters), but lower than U.S. with 85 liters. (Fig 4). Fig 4. Beer World Consumption per Capita There is high preference towards beer as 78% of consumers will prefer beer it vs. other alcoholic beverages and it is the entry beverage of young consumers due to its low alcoholic content and high distribution in Mexico. This provides Mexico with the highest preference rate for beer in the American continent, with a rate even higher than the U.S. Fig 5. Beverages Preference in American Continent 9

10 Industrialized beer has a developed distribution network through direct delivery to consumption centers and through mom and pop stores and convenience stores such as OXXO owned by FEMSA with over 40,000 selling points. Craft beer complements this market and holds only 1% of total market share it is growing rapidly in specific segments of population and larger cities that have discretionary expense and look to try new beer from different origins. Official Mexican data show that U.S. is the largest exporter of beer into Mexico but it is mainly through large brands. Belgium, Germany, Guatemala and Netherlands follow in total exports. According to information obtained from interviews and trade visits, a large percentage come from craft beer. LOCAL CRAFT BEER IN MEXICO According to Mexican master brewers interviewed, Gustavo González owner and creator of Cosaco Microbrewery is the pioneer of craft beer in Mexico. He was inspired by U.S. brewers and started in 1995, taking him 5 years to master the art of craft beer production. In 2000, he created a malty, creamy and pure beer that could fulfill a gap in the market that big companies were not reaching in regards to quality and taste. Many entrepreneurs followed into his footsteps and started the creation of new and complexes varieties of beer to respond to the Mexican consumers demand. In 2011 domestic production went from 22,000 to 30,000 hectoliters with a 36% growth rate as a result of increasing demand influenced by increasing offering and an international trend mainly influenced by the U.S. Many of the Mexican craft brewers are well positioned among their consumers and in their respective regions, having a large consumer base close to their origin but slowly expanding to largest cities in Mexico. Cervecería Minerva leads the market with estimated sales of 1.5 million liters in 2013, followed by Andreu Primus with estimated sales of 0.68 million liters that ACERMEX (Mexican Association of Beer) has 153 listed brands of artisanal beers in Mexico being the states of Baja California Norte and Baja California Sur in the North of Mexico as well as Mexico City and Estado de México the cities where most of them are based. A diagram of representative brands is shown below (Fig 6) 10

11 Fig 6. Domestic Craft Beer in Mexico According to Mexican Brewers Association, craft beer market has expanded at a 50% annual growth rate in the last 10 years. Mexican brewers create traditional varieties such as Porter, Stout, Lagers, IPA, among others as their base portfolio to include traditional consumers are more conservative when trying craft beer for the first time. However, they also innovate by creating craft beer that preserve the old and traditional European techniques incorporating a Mexican twist by adding chocolate, chili, fruits and other ingredients that are part of the Mexican gastronomy and folklore. These new ingredients have been accepted by the Mexican consumer and every year new varieties are created in order to surprise its taste preferences. 11

12 Mexican brewers consistently import malt, hop and yeast from U.S., U.K., and Germany; while bottles, caps and other packaging materials are purchased with local suppliers. There is a general concern about hop supply for the industry and they consistently requested supplier contacts. This represents an opportunity to develop closer relationship between BA and local brewers. Mexican brewers openly welcomed the idea of contributing to this market assessment and do not perceive foreign brands as a competition. In turn, they believe that if the Mexican market grows in terms of brands and labels they will be benefited in the short term by increasing craft beer consumption reinforcing the market. They are interested in obtaining training and exchange ideas to increase craft beer consumption in Mexico, consider distribution through of U.S. craft beer through Mexican breweries, evaluate collaborative craft beer projects between Mexico and the U.S., also increasing awareness and word of mouth of U.S. industry in Mexico. IMPORTED CRAFT BEER IN MEXICO Importing beer into Mexico is a business that has worked well for Mexican entrepreneurs. Most importers started importing small quantities beer from different origins to experiment, formalizing their business only after years of success. Most of them have been over ten years in business and are mainly located in Mexico City and Monterrey (Full list in Annex 2). There is a higher offering of origins different from U.S. mainly due to lower quality controls and the lack of cold chain, resulting in competitive prices and increasing distribution. AWARENESS AND AVAILABILITY OF U.S. BRANDS This research study identified around 50 U.S. craft beers in the country that are listed in Annex 3 of this document. Unfortunately, it is assumed that most are imported informally and without the knowledge of the brewery, with few exceptions. Interviewed importers showed interest on having U.S. craft beer in their portfolio, since it is considered as a high-quality and sophisticated product that has good response in the market. Most of them have imported or distributed U.S. craft beer at some point because the market demands it but efforts have not been structured or consistent through time. There is potential to train them to understand the benefits of cold chain and explore trade alternatives with U.S. craft brewers that can be benefited from their knowledge, contacts and distribution. Most of U.S. craft beer exports to Mexico have been through gray imports that have been coincidentally caused by three main reasons: 1. Informal Test Market in Mexico, No Interest of U.S. Craft Brewery The first contact that U.S. craft beer establishes with the Mexican consumer is through people residing in border cities who illegally bring the product into the country in trunk of their car in different occasions. This way the consumer tries the beer for the first time and starts looking for points of sale in which he can finds it. Main entry points are Tijuana, Monterrey, Mexicali and Mexico City. After this first contact occurs, the illegal importer looks for the way to bring it into the country through formal procedure and in larger volumes. They first attempt to contact the brewery in U.S. and from the information gathered, the breweries do not show interest in having a Mexican importer as a client and rather supply their local demand or expand within the U.S. before exporting their product to another country and Mexico is usually not the first option. 12

13 2. Interest of U.S. Craft Brewery, No Compliance of Cold Chain into Mexico If a U.S. brewer decides to sell craft beer to a Mexican importer, they set requirements to the importers to execute the first operation. As negotiations advance, the parties review in detail the requirements set to keep the quality, image, values and reputation of the brewery. Until this point, they realize that the biggest constraint that the importer will face is the inability to manage cold chain due to the lack of infrastructure in Mexico and the high costs related to this requirement. Once the importer research all the associated costs and realizes that the final price is above the average of an imported beer, they will drop negotiations, usually without notifying the other party. Then, importer will look for a similar craft beer from other origin (mainly Europe) with lower quality and price that will not set requirements and that can be transported without the use of cold containers. 3. Indirect Sales through Brokers in the U.S. Another way to legally import beer into Mexico is by not having direct contact with the U.S. brewery directly and import using a U.S. distributor or broker that will be more permissive on quality, temperature control and expiration dates. According to interviews, this is the most common practice for bringing U.S. craft beer due to demand of specific labels by Mexican clients. Importers will get a quotation from broker, no matter how this affects the final price having average U.S. craft beer at excessive prices (up to 15 USD per bottle). There are several labels in the Mexican market that were found during this research that may be imported without the knowledge of its manufacturer. Details in Annex 3 of this document. OPPORTUNITIES FOR U.S. CRAFT BREWERIES We identified at least four importers mostly in Monterrey that able to follow a cold chain and willing to have the representation of U.S. breweries in Mexico (Found in Annex 3). These importers have a good understanding of the market, know all the imports procedures and have a strong feel of sensitiveness to read consumers needs and meet them. One of them established the largest Craft Beer store in the country with almost 2,700 Square feet called Beer4us. We also identified other importers open to having U.S. craft beers in their portfolio, but will not provide cold chain because they find it expensive and an unnecessary added cost in a price sensitive market. Although they are also candidates for training, they will be longer-term prospects if cold chain is a requirement but are able to manage room temperature product. One key finding during this research relates to credit to Mexican importers. These importers are aware that U.S. breweries will not offer credit because it takes time to build a long-term relationship where trust is the main player and then credit can be granted and is a common practice to pay up front. 13

14 REGIONAL REFERENCES Mexican market consume craft beer from five main origins: Mexico, Belgium, Germany, Guatemala and Netherlands. Mexico is welcoming intense and deep flavors, with increasing demand for IPAs; women prefer sweet flavors such as Lambic styled. Fig 7. Regional Beer Preferences in Mexico 14

15 CONSUMER PROFILE It is said that the Mexican consumer is increasing its purchasing power but that applies to specific sectors in the country. Consumer preferences vary considering age, income, weather and region. As mentioned, target markets of medium, medium-high and high-income consumers only represent 38% of the total population, and they are located in several cities in the country. During research in Mexico, while visiting Mexican cities we identified three main types of consumers, which are below described. Fig 8: Craft Beer Consumers 15

16 A. Young consumers Between years old, independent, from medium to high social economic status and is able to afford a beer that costs the equivalent to a six-pack beer in addition to the latter. They willing to pay a beer of $30 to $100 MXN ($2-$6 USD) in addition to their regular industrial brand. They look for this product at a venue that gathers people form his same age and prefers to try an exotic flavor than a regular one; some types of beer that he looks for is a Lambic, IPA, Stout, Porter and beers which bottle calls his attention because its innovative or jazzy look. Gender is equally distributed between men and women. This consumer can be found in cities such as Mexico City, Monterrey, Guadalajara, and Puebla. Fig 9. Popular beers for young consumers Left: (Lucky Buddha, China) Right: (Hipster Joe, Mexico) B. Connoisseur From years old and belongs to a medium high to high social economic status, does not care about the beer s price but its quality. This type of consumer travels, have tried craft beer abroad and have basic knowledge of varieties. They look for a better version of its favorite variety instead of trying new ones, some of the popular styles are Lagers, Stout, IPA (British style), and Wheat. They are not trying a risky new flavor but a deep traditional style flavored beer. These consumers usually attend specialized stores and craft-beer only venues in Monterrey, Mexico City, Playa del Carmen, Guadalajara and Mérida. There is a strong movement around beer in Mexico held by women; this niche of market is increasing every year. Observation and comments expressed by beer distributors led us to an estimated 35% of female consumers. A National Female Beer Sommelier Association was created grouping women for guided tours, tastings and conferences that could be a good target for training seminars provided by Brewers Association. Fig 10. Popular styles consumed by connoisseurs (Sierra Nevada) 16

17 C. Beer Tourist This type of consumer is a national or foreign traveler that will ask for local craft to pair with food at a restaurant. The age rank starts at 30 years old belonging to medium-high to high social economic status, visiting high-end restaurants and local pubs or breweries seeking a local brewed beer or craft beer they have already tried either national or imported. They behave differently than other two type of consumers as they modify their consumption patterns in a different location than home. In touristic destinations such as Mérida, Los Cabos, Cancún, Playa del Carmen, and Puebla in which local gastronomy plays an important role that can be considered for pairing and variety definition. Fig 11, popular beer among tourists Left :( Ceiba, Mexico) Right: (Pedernales, U.S.A.) DISTRIBUTION AND REQUIREMENTS IN MEXICO FREIGHT AND IMPORTS COSTS Focusing on beer coming from U.S. into Mexico, the most common method is ground freight based on EXW Incoterm. Below you can find reference cost analysis for one full container of beer. Please note that these are reference costs and any evaluation must be consulted with a customs agent appointed by Mexican importer: - Inland freight origin to border Mexico (San Diego, CA to Laredo, TX) 2,500 USD - Inland freight border Mexico to Monterrey 1,500 USD - Added Value Tax 16% total product cost and freight U.S. - Special Tax Products and Services (IEPS) a) 25% total product cost and freight U.S. If alcohol content below 14% GL B) 30% total product cost and freight U.S. If alcohol content below 14% GL - Imports tax Exempt with U.S. Certificate of Origin 17

18 LABEL REQUIREMENTS All foreign products coming into Mexico need to comply with the Official Mexican Standards (NOM) which are regulated by the General Health Law (Ley General de Salud) In the case of beer, the sanitary control of all alcoholic beverages ARE under the NOM-142-SSA technical regulation (published in the Official Gazette of Mexico on July 9, 1997). Label compliance IS RESPONSIBILITY OF IMPORTER. Alcoholic beverages between 2% and 55% GL must include the following information in Spanish: Name/brand name of the product Type of product (e.g. wine, malt beverage, etc.) Net content (in metric units) Country of origin Name/company name and address of the importer Alcohol content (followed by % alc. vol. ) Lot number (identification number) Warnings (Abuse of this product is hazardous to your health / El abuso en el consumo de este producto es nocivo para la salud ), as per Article 218 of the General Health Law. Fig 12. Compliant label in Spanish DISTRIBUTION CHANNELS As mentioned, craft beer is imported by smaller or regional importers that have an established clients base that include different distribution channels: - Foodservice. A clear recovery of tourism and restaurant industries is triggering demand of gourmet, craft and foreign ingredients and products. Restaurants, hotels and distributors have modernized and are looking for products that can ensure consistency, reduce preparation times and increase margin while providing the best experience for a more demanding tourist or client. Renowned chefs and opinion leaders have increased their craft beer listings and paired with menus, creating an opportunity for U.S. craft beer. - - Specialized Bars and Pubs. They specialize in craft beer, usually offering local or regional beer but also complementing from popular brands from around the globe. They bring U.S. beer irregularly and there is not consistent supply compared to other origins. This can be a consequence of lack of cold chain mentioned before in this document. 18

19 - Specialized Stores and Retail. Specialized and known outlets such as The Beer Box are common and increasing in Mexico. They are independently managed and do not offer consistent distribution. On the other hand, high-end retailers such as City Market focused in gourmet and high-end products are increasing offering of craft beer from many origins different that U.S. and it is attributed to lack of cold chain and availability of cheaper brands. An emerging sector of specialized high-end beer stores has started in Monterrey and it is expected to increase coverage if successful. One issue to consider when selling direct to retailers are trade terms that can extend payment up to 60 days form delivery High-End Supermarket Hypermarket /Megamarket Specialized Stores Independent Restaurants/Pubs 19

20 COLD CHAIN IN MEXICO All formal sources, studies and interviews indicate that Mexico does not have a developed cold chain infrastructure and this issue is not exclusive to craft brewery industry. According to International Association of Refrigerated Warehouses, U.S. counts with 2.5 billion cubic meters of refrigerated warehousing while Mexico has only 47 million. There is a fragmented market and independent contractors own 63% of all refrigerated fleet and only 37% is owned by companies or vertically integrated organizations. According to Mexican Transportation Institute 78% of total refrigerated transportation is concentrated in Mexico City, Monterrey, Guadalajara, Tijuana, Toluca and Tijuana. Transportation companies establish regional routes that are profitable, usually ignoring lesser routes that increase cost dramatically due to inability to use transportation on the way back. Craft beer in general is only found cold in points of sale to fulfil consumer s preferences and to facilitate immediate consumption but quality is not associated with this practice. Importers mentioned that only U.S. suppliers have this requirement and there is a wide number of brands and labels from many origins, such as U.K., Germany, Belgium, Estonia, China etc. that offer high-quality craft beer without a refrigerated transportation condition. Importers relate cold chain to quality but would not commit because the cost increases by 25%, resulting in reduction of margin and product rotation. On the other hand, as mentioned before, there are few importers that understand the quality factor in craft beer and there are respectable cold chain suppliers in Mexico such as Frialsa and Frigologics. It is important to provide education to importers that are considering cold chain so they can evaluate options to import U.S. craft beer. MEXICAN FEDERAL COMPETITION COMMISSION- PRACTICES AND RESOLUTION The two main complaints that Mexican Federal Competition Commission has dealt with, concerning the leading beer companies are the following: a) Namely, Grupo Modelo and Heineken México bought all the barley that the Economy Secretary allowed with tax exemption due to quotas, leaving the levied barley to the artisanal smaller breweries, increasing cost and reducing operational margins after paying taxes. Finally, this complaint resulted in the Economy Secretary increasing the quota of unlevied barley three times larger to help artisanal brewers. b) The second one relates to a U.S. brewer that complained the monopolistic practices and exclusivity contracts that InBev and Heineken where signing with distributors in which they offered a large list of benefits through incentive programs under the condition of only handling their labels. The Mexican Federal Competition Commission ordered a reduction in their number of contracts signed, but this has not been resolved, they reduced the number of contracts extended and they delivered a letter in which they stated that distributors where now free to handle any beer brand. However, after this resolution came out they continued offering incentive programs through verbal contracts managed by sales teams, committing people to continue selling only their brands implying that incentives and promotional material would be no longer offered if they receive support from other brewers. 20

21 This is a constant conflict between the two largest breweries in the country that interferes by blocking distribution channels for small breweries and this barrier is usually faced by local craft beer importers that intend to sell product in high volume outlets. Mexican brewers state that they do not feel threatened by the big companies, they are aware that even though they manufacture the same product, but craft beer belongs to another category that targets a different niche of the market and a comparison between their product and a commercial beer is like comparing fast food to gourmet food. It is food, but is made out of different ingredients and under other processes that ends up on a high quality and unique product that sells to a certain number of consumers which is lower than the whole market size. MAIN TRADE ACTIVITIES The Mexican Brewers Association (ACERMEX) coordinates most trade activities. There are six main events that are focused on domestic craft beer with increasing attendance and participation from other countries, also each large city is hosting a Beer festival at least once a year. They are combine product display and sale with seminars for brewers, distributors, importers and media. It is highly recommended to create an educational program to increase awareness of U.S. industry and create trade opportunities. Other alternative is to provide closed events for importers, distributors and brewers with seminars and tastings of U.S. craft beer in Mexico, Monterrey and Guadalajara complemented with a communication and electronic media program. Name Date Place Website Ensenada Beer Fest March, 2016 Ensenada, Baja California Cervefest March, 2016 Mexico D.F. (Xochimilco) Copa Cerveza April, 2016 Mexico D.F. Cerveza Mexico September, 2015 Mexico D.F. (WTC) Oktoberfest September, 2015 Quintana Roo (Playa del Carmen) Soy Cerveza April, 2016 Quintana Roo (Playa del Carmen) 21

22 RECOMMENDATIONS 1. Training Seminars to Mexican Industry. To increase awareness of U.S. craft beer it is recommended to participate as exhibitor in Cerveza Mexico Trade Show from September 4th to 6th, 2015 from 12 p.m. to 10 p.m. at Pepsi Center, WTC Mexico City. The event gathers Mexican craft beer industry for three days, where microbrewers and importers display more than 150 beers of different flavor, style and texture to encourage the consumption of craft beer in Mexico. The show expects 140 exhibitors in a trade show of 50,000 sq. ft., expecting over 20,000 attendees increasing five times the attendance in five years 2. Webinar for U.S. Craft Brewers on Mexican Market. Based on the results of this research study, it is recommended to provide a 45-minute webinar to U.S. craft brewers to educate them in exporting to Mexico and market information that may increase their opportunity to access this market successfully. The seminar can be executed using Brewers Association systems or through Imalinx provider. 3. Translation and Distribution of BA QC Guide. In order to provide training and technical information about beer quality we propose the translation of QC guide, editorial design and production of 100 booklets for importers and key members of trade; and one-page informational sheets for distribution among beer professionals. We also recommend the implementation of a BA website in Mexico to download electronic guide. Translation, materials design, printing and website can be finished in six weeks after authorization. 4. Communications and Electronic Media Strategy. It is recommended to establish a website and create a social media campaign to provide comprehensive information and news about U.S. Craft Beer industry, provide access to translated BA QC guide and provide contact to importers, media and public. 5. Membership to Mexican Brewers Association and Information Exchange Program. As mentioned, local brewers welcome U.S. craft industry and can influence a better acceptance of U.S. craft beer in the market. We recommend obtaining membership to the association; develop an information exchange program about brewing efficiency and techniques; and contact for hop and other ingredients suppliers from the U.S. 22

23 ANNEX 1: QUESTIONNAIRE FOR INTERVIEWS MEXICO Name: Position: Contact: 1.-Company s Profile a) Brewery s name: b) Craft producer: c) Time operating: d) Breadth: 2.-Production a) Year production in liters/hectoliters: b) Bottles produced: c) Styles produced: d) Why did your Company decide to produce these styles? e) Seasonal production? f) How does the Mexican consumer has responded to seasonal products? g) Distribution channel. Why? h) Where do your inputs come from? Have you presented shortage that affects your production? 3.-Consumer a) Which promotional activities can help to encourage craft beer consumption in Mexico? b) How does promotional/incentive programs held by the two largest industrial breweries affect craft beer consumption in Mexico? c) At the POS how does the consumer find the product, cold or at room temperature? d) Did you create your beer in order to be paired with a special kind of food or to be consumed only as a beverage? 4.-Logistics a) Are you currently exporting your product? b) Does your Company has any interest in importing beer from other countries c) Which kind of training does your Company could need? 23

24 ANNEX 2: TRADE CONTACTS MEXICO 24

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26 ANNEX 3: PRODUCT AVAILABILITY AND PRICE CHECK MEXICO 26

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