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This week we spoke with Miguel Calvo, Director for Advantage Mexico, to understand how COVID-19 is impacting life and retail in the country.

Q1 - COVID-19 seems to have impacted Mexico slightly later than other markets, what (if any) best practices were retailers and suppliers able to learn and adopt from other markets to help with managing the crisis?

We could split this answer into two realities: one reality for small and local retailers; and a very different one for global and larger corporations.

During February and March, the news of COVID-19 by internet and media arrived much earlier than official information offered by the government, causing hesitation for some suppliers (i.e. local and family-owned companies). Meanwhile, many other businesses (mainly multinationals) were more alert to the spread of the pandemic and had already started to prepare for the work-from-home protocol. Only factory and logistics personnel would be required to be present at their places of work.

The same thing happened to the retailers as many of them were not clear about which direction to take. The lack of clarity offered by the federal government did not help them in their decision making. Some global retailers had already prepared a scenario that allowed others to apply some learnings. It is crucial to mention that retailers such as Walmart had been investing in the development of their e-commerce infrastructure for several years, so when this “wave” arrived and accelerated the process, they were more prepared for the switch to online.

Even so, the vast quantities of goods that people purchased at points of sale caused shortages because shoppers were seeking products that were not always considered “essential.” There was an example where a Cash and Carry POS was asked for up to eight times its inventory capacity in a single day. In addition to basic products, other categories were also in high demand. Logistical structures had to be made in coordination with suppliers to ensure the supply of nearly all supermarket categories.

The Mexican government’s position was the last announcement to be made as they minimized the situation throughout March. Thus, their official position on the crisis and advising of the necessary business protocol was delayed well into the spring. Despite this, retailers took matters into their own hands and quickly decided to apply clear hygiene measures so consumers could continue to visit their stores. In stores, hand sanitizer was available, temperatures were measured, and people were required to wear a face mask. In the beginning, this caused a severe shortage of PPE, which also caused more panic purchases.  During the various interviews that we have had with retailers, they told us about how several suppliers were surprised to see that their categories had started to improve for no apparent reason, leading to a shortage of certain products in the market.

Q2 - It appears infection cases are continuing to rise. Still, the Mexican government is looking to reopen much of the economy. How is the grocery industry reacting and responding as an essential service?

The Mexican government understands that their level of accountability is high, and they seek to reactivate the economy, but with great caution and with concise steps to avoid a new outbreak of infections.

As of March/April, the government has been creating strong relationships with banks to create credit solutions to help support consumers through this stage of economic crisis by increasing credit limits and making payment timing more flexible. Most retailers have chosen to maintain the levels of operation that they are currently using to attend to the infection. They have decided not to lower their guard nor reduce extra hygiene and security measures. Caution will be present in the stores as they are highly committed to maintaining the health of their employees and customers and, of course, not to provoke any additional panic above what already exists today. Additionally, they have kept the cafeteria and food areas at the point of sale closed. However, this is being reviewed daily, and perhaps in a week or two, this situation will change.

Suppliers have actively participated not only in equipping their employees with face masks and protective materials but also their most fragile customers, which are the millions of ‘Mom and Pop’ stores in all corners of Mexico.

Q3 - We know that a significant percentage of the Mexican population relies on traditional trade for their food needs. Has the pandemic led to a shift in turning to modern trade grocers instead? Has it led to any other changes in shopping habits?

Right now, there is a significant shift in purchases taking place from traditional trade to modern trade. This is mainly seen in our interviews where modern trade retailers confirm that their sales have grown enormously in the last three months. When we interviewed wholesalers, they commented on how their sales have progressively decreased.

The causes of this shift are obvious. Consumers do not feel comfortable going to places where the hygiene and cleanliness protocols are not as controlled as in those of modern trade, and this has caused a significant decrease in traffic. Additionally, the fact that the large retail chains have very strong credit capabilities and that wholesalers regularly rely on cash sales also generated an additional displacement of consumers towards the modern channel. There have even been announcements from state governments that recommend consumers maintain the frequency of their visits to traditional trade outlets so that this imbalance does not affect merchants.

Different management structures have strongly impacted traditional commerce, as they are regularly managed by families who were unprepared for how to react in this crisis. These owners do not typically use consultants from different disciplines to propose solutions, since owners regularly determine the steps to be followed in each strategy. This brought about significant confusion at the start of the pandemic and a considerable “crisis mode” delay.