Wal-Mart’s Long Game Poised to Reap Rewards in Mexico

Howard Lake

This article was published in the September 2016 issue of STORES Magazine.

Mexico is a retail market fast reaching its developmental peak. As such, competition is ramping up, with local players like Soriana eager to make up ground on market leader Wal-Mart. Having absorbed domestic rival Comercial Mexicana, Soriana has set an ambitious growth plan from 2018 onwards. Wal-Mart, however, is unlikely to be seriously challenged any time soon, as its multi-format strategy — hypermarkets/discount-bodega stores/warehouse clubs — ensures it covers a broad swath of the population.

This does not mean that Walmart of Mexico and Central America, or Walmex, is resting on its laurels. Previous commitments to enhance areas like logistics and the integration of its digital platforms are beginning to bear fruit. Walmex has been busily sustaining funding across its diverse portfolio to ensure its various offerings are properly differentiated. This is becoming increasingly important as the Mexican market matures and changing demographics shift consumer habits and needs.

With the consumer price index forecast to remain stable for the near term and both overall and per capital gross domestic product predicted to climb significantly through 2020, this is a market where shopper expectations will see significant change. More sophisticated assortments will become far more prized by Mexican consumers as tastes mature. Health and wellness, too, will likely become a particular concern to shoppers, especially in the fast-growing middle class segment.

With its multi-format proposition, Walmex is ideally placed to take advantage of changes in the consumer landscape.

With its multi-format proposition, Walmex is ideally placed to take advantage of changes in the consumer landscape. It has the lower-income segment well covered with its Bodega Aurrera formats (1,406 outlets, including Mi Bodega Aurrera and Express minimart) while its standard big-box and Sam’s Club format saw solid second quarter growth through price rollbacks and its ‘Rebajas para Todos’ (Sale for All) campaign, which sought to establish a greater emotional connection with shoppers.

The relatively recent arrival of Amazon in Mexico has undoubtedly heightened Walmex’s immediate focus on its digital offering. E-commerce saw good growth, driven largely by improved Walmart GM and Superama mobile apps. In the United States, Walmart is largely playing catch-up with Amazon. In Mexico, however, the situation is almost reversed: It will take Amazon some time to build out its logistics infrastructure and this will enable Walmex to leverage its extensive store base to establish an online-to-offline network and foster digital shopper relationships. Moreover, apps are unquestionably the way to go in this market and will only grow in importance as Mexican smartphone usage increases.

Online grocery is one area in which Walmex has an almost unchallenged market position, with few competitors — Costco being a notable exception — having made any meaningful moves to date. With convenience likely to become a key differentiator going forward, the ability to offer a click and collect service is likely to be significant.

It seems likely that Walmex will eventually seek to leverage its entire estate in such an endeavor. This will bring its Superama supermarkets into play. Expansion into lower-tier Mexican cities is becoming a common theme for most retailers and format flexibility will be critical for such growth. Superama is ideal for towns too small to handle a dedicated big-box outlet and can be positioned as the premium store in smaller municipalities.

The past few quarters have seen Walmex shed several peripheral businesses, such as the banking arm and the Suburbia clothing division. In doing so, it has repositioned itself to power its core grocery proposition without unnecessary distractions.