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The Mexican Food and Beverage Industry; a Taste of Doing Business on Both Sides of the Border

Mexican-U.S. Border Consumer Appetites Drive Growth for Chipotle Mexican Grill, Inc, and Nascent Wine Co, Inc.

BeverageStocks.com
July 2006

The Mexican food and beverage industry has transformed from the origins of Taco Bell and is now booming on both sides of the Mexican-US border. Appetites in North American markets have created mass consumption of Mexican and Hispanic foods and a changing younger consumer population in Mexico drives an import demand for North American brands. According to Market Research, (http://www.marketresearch.com) the Mexican food industry in the US is estimated at $52 billion and growing, with seven in ten surveyed households using Mexican food/ingredients. On the other side of the border, "Mexico posts the greatest export opportunity for every US beverage company large and small," according to MexicoBeverage.com. Public companies Nascent Wine Co, Inc. (OTCBB: NCTW), and Chipotle Mexican Grill, Inc (NYSE:CMG) discuss their strategy and influencing trends on doing business on the Mexican-US border.

Doing Business in Mexico – Demographics, Brands and Distribution

With a growing population of over 100 million, and younger consumer demographic dictating trends, a growing demand for North American name brands in the food and beverage industry is creating opportunity for companies with the right brands and strategy to penetrate the market .

According to a May 2006 report issued by Agri-Food Canada, “Mexico is the world's 13th largest importer of Agri-food products and nearly 70% of imports are intermediate or consumer goods .The nation's middle and upper classes are estimated at more than 20 million people. Producers and consumers are increasingly becoming more sophisticated about the foods they produce and consume. Low-income families, which comprise half of Mexico's population, spend 40% of their disposable income on food. Also, the population in Mexico is young, with 31.5% under 15 years of age.”

According to MexicoBeverage.com "Mexico is one of the largest consumers of beverages in the world per capita as a country including soda, flavored water, energy drinks and beer.”

Sandro Piancone, CEO of Nascent Wine Co, Inc. (OTCBB: NCTW), a growing distribution company in the beverage and food industry in Mexico, looks at trends and barriers to the south and explains, “The biggest barrier to entry to the Mexican food and beverage industry is obtaining the importation permits and also having signed exclusivities for major brands which ultimately keeps your competitors out.”

Nascent’s strategy has led to the Company’s acquisition of key companies with strategic locations to distribute all well known brands and exclusivity for certain products like Miller Beer for all of Baja California Mexico. Nascent also recently announced a deal to distribute the Ferrarelle brand beverages into the lucrative and growing Mexican bottled water market.

When discussing market expansion into the Mexican food industry Piancone commented, “There is a $46 billion food service market with over 25,000 independent distributors which the company plans to acquire. We are continuing to look for strategic acquisitions that will let us make advancements in this area “

MexicoBeverage.com also reports, “Mexico has a great infrastructure including roads and ports to ship truckloads of products, many beverage distributors selling to supermarkets and convenience stores and more than 500,000 stores willing and able to buy new products throughout Mexico."
Big players are seeing the opportunity and aggressively making inroads: according to Alberta Agriculture, Food and Rural Development, Wal-Mart is the largest food retailer in Mexico. The department reports that, "Mexican officials say Wal-Mart's aggressive discounting has actually helped contain the country's once chronic inflation. While other major chains may run 50 to 100 advertised circulars per year, Wal-Mart produces only 12-13 major annual circulars."

Mexico’s Influence on the North American Consumer

The increasing number of Hispanics living in the US impacts the demand for Mexican food, but when you see the growth trend of companies like Chipotle Mexican Grill, Inc (NYSE: CMG with over 500 locations, and annual profits averaging 199% growth from 2004 to 2006, you know the trend is more generalized into North American consumers and culture.

Mexican casual dining, a primary ethnic cuisine, faces aggressive competition from fast food and casual chains. Chipotle opened 80, 104 and 76 stores in 2005, 2004 and 2003 respectively and will open between 80-90 restaurants in 2006.

According to company spokesperson, Chris Arnold, “We base our success on the fact that we’re providing an experience that’s really relevant to a lot of people. That starts with serving really good food, made from real ingredients (not a bunch of processed food product). But other elements, including the atmosphere of the restaurants (we still design each one individually with no two exactly alike) and the service (genuine and friendly, not scripted or contrived) also contribute. It’s different than a typical fast-food experience. That was the design from the beginning; to show that something that’s fast doesn’t have to be a typical fast-food experience. At the time, there weren’t many alternatives to fast-food. Chipotle (and others) helped change that by carving out a new niche that’s now called fast casual. “

Mexican Restaurants, Inc. (NASDAQ:CASA), was just included on the sixth annual FSB 100 (July/August issue of FORTUNE Small Business) list of the fastest-growing small companies in America.

Evolving Markets

There is no doubt about it – everyone loves Mexican food with well known chains building their presence since the 1960’s. The growth of the industry is predicted to grow to $63 billion according to Market Research, www.marketesearch.com “The Mexican food market in the U.S. owes much to the growing Mexican population, but has also been influenced by a general increase in consumers’ interest in authentic cuisines of different cultures. This is spurred by the popularity of restaurant dining, cooking shows on television, and magazines and books that explore the food heritage of the U.S. and of other countries.”

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