As high inflation leads Mexican consumers to switch to mainstream and discount products Nestle and Preferred Popcorn show there is still a premium opportunity

Premiumization has provided the competitive Savory Snacks and Hot Drinks market in Mexico, collectively worth $238.5 million in 2022, representing a CAGR of 4.8%, from 2018 to 2022, with strong opportunities for growth, according to leading data and analytics company GlobalData.

However, rising inflation had a negative impact on the personal finances of Mexican consumers during 2022 and in the Mexican soft drinks market balancing household budgets resulted in consumers buying more mainstream and discount brands in a move away from premium products.

Despite this, Mexico’s premium soft drinks segment grew in volume by 2.2% and value by 10.2% between 2021 and 2022, when the average price of these products increased by 7.8%, demonstrating Mexican consumers’ continued desire for a premium offer even at a time of economic hardship. But price is only one factor in the consumer demand for premium products which also includes changing consumer preferences, increasing disposable incomes, and a desire for unique and differentiated experiences.

Macroeconomic changes driving premiumisation
One key driver of premiumization in the Mexican food and beverages market is a growing middle class supported by the recovery of GDP and employment rates to pre-pandemic levels. The country’s stable macroeconomic framework and manufacturing base are supporting continued economic growth. According to the World Bank, Mexico recorded real GDP growth of 3.1% in 2022 after recovering in 2021 with a 4.1% growth.

Alexis Becerra, Food & Beverages Consultant Consumer Custom Solutions – LatAm at GlobalData, commented: “Mexican consumers have a strong preference for brands which makes premiumisation a natural fit with shoppers who are willing to pay more for quality products. Look no further than the Mexican soft drinks market, with brands accounting for a volume share of 98.4% in 2022. Mexico’s middle classes are also willing to spend more on premium and higher-priced products that offer them superior quality, taste, and health benefits which has led to an increased demand for gourmet, organic, and artisanal food and beverages.”

Premium Innovation sustaining consumer spend
In response to the premiumization trend, both domestic and international food and beverage companies have introduced new product lines, changed ingredients, experimented with new flavors, and invested in marketing and branding strategies to expand their premium offerings. Brands in the Hot Coffee and Savory Snacks categories have been particularly successful at driving sales through premiumisation strategies in recent years.

Nestlé identified an opportunity in the instant coffee segment with the launch of two premium products – the relaunch of the Taster´s Choice brand in 2019 with four premium flavours in 48g jars and the launch of Nescafé iced coffee in 2023 in a 170g jar. These products helped Nestle change poor consumer perceptions about the quality and taste of instant coffee which helped the segment reach more than 8M litres of consumed instant coffee in 2022 achieving double-digit volume growth of 13.8% between 2018 and 2022.

The launch of Preferred Popcorn de México’s Slim Popcorn brand, in 2015, the first ready-to-eat popcorn product in Mexico disrupted the category with a healthy low-calorie snack that both kids and adults could enjoy. This launch met the demand for a premium product with quality ingredients, strong packaging, and a choice of flavors with health benefits which the company only sells in limited distribution to high-end outlets, further enhancing its premium credentials. Ready-to-eat consumed popcorn sales in Mexico have reached 13.4 million Kg in 2022, with a volume growth of 10.7% between 2018 and 2022, and the category is forecast for a volume CAGR of 4.3% during the period 2023 to 2027.

Premium dining experiences
Another factor contributing to premiumization is the influence of international cuisines and global food and beverage brands. As Mexican consumers become more exposed to international flavors and culinary trends, interest grows in premium and speciality products that offer unique authentic experiences. This has led to the growth of imported gourmet products and the emergence of high-end restaurants and cafes offering premium dining experiences. In retail, La Comer supermarket brands Fesko and City Market are capitalising on these trends by offering premium products and a premium fast food offer – which has helped to increase sales in La Comers 82 stores by 15% for the latest Q3 2023 earnings versus the same period last year.

Changing consumer preferences
Changing consumer preferences for healthier and more natural products has also fuelled premiumization in the Mexico food and beverages market. Consumers are increasingly seeking products that are organic, free from artificial additives, and made from high-quality ingredients. This has created opportunities for premium brands to offer healthier alternatives and cater to specific dietary needs, such as gluten-free, vegan, or lactose-free products.

Grupo Modelo recognised the premium health opportunity in the alcoholic beverages segment in 2014 with the launch of Michelob Ultra low-calorie beer, which offers less than 100 Kcal per 355ml bottle.  Sales of Michelob have outperformed competitors achieving a volume sales growth of 38% in 2022 versus 2021 with the brand holding a dominant 50% share of the Mexican low/no alcoholic beer category.

Beccera adds, “Overall, premiumization in the Mexico food and beverages market reflects evolving consumer preferences and their willingness to pay a premium for products that offer superior quality, taste, health benefits and experiences. This trend presents opportunities for both domestic and international brands to cater to a growing demand for value-added and premium products in the market.”

Note: Unless otherwise stated all data quoted is from GlobalData’s Consumer Intelligence Centre

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