I have been writing a lot recently about Mexico’s economy and why it has been doing so well despite slow growth in the U.S. and all the problems in Europe. I have cited a number of reasons, like the solid economic policies and competitive currency that have fueled Mexico's industrial boom, but there is one important aspect that I have overlooked: the growth of Hispanic population in the United States.
Mexican companies are following Mexican and other Latin American immigrants into the United States and making a big profit.
The Financial Times’ Adam Thomson covered it well in a recent article about Mexico’s economic relationship with the U.S.:
Over the past five years or so, Mexican companies have poured billions of dollars into the US as they ramp up the purchase of assets that range from banks to broadcasting companies and building-material suppliers. The push, which has gone largely unnoticed, has extended the reach of Mexican businesses that once looked exclusively to domestic customers.
The US has usually proved the obvious destination however – not only because the two countries share a 2,000-mile border with plenty of rail and infrastructure links, but also because the US has increasingly offered Mexican companies a chance to market to their own people.
He is referring to the fact that U.S. Hispanics are the fastest-growing ethnic group in the country and now represent 16% of the entire U.S. population. They come from all over Latin America but 63% have Mexican origins and Mexican companies have proved rather adept at catering to them. Knowledge of Mexican and Latin American consumers has allowed some Mexican companies to break into the U.S. market in a big way.
The key to Mexico’s success here is growth. In the U.S., Mexican companies started off not by targeting the biggest market but the fastest-growing. While average U.S. demand is relatively stagnant, demand from U.S. Hispanics is expanding at a steady pace. During the next five years, the buying power of Hispanics is forecast to grow by 48.1% to $1.6 trillion compared to 27.5% growth for the entire U.S.
This growth is fueling the expansion of Mexican telecoms, food, banking and retail companies in the U.S. While U.S. companies were debating about how and when to target this market, the Mexicans moved right in.
The strategy of Mexican companies in the U.S. has generally mirrored the experience of Hispanic immigrants. They started out small in places like California or Texas and often their marketing was primarily in Spanish. But once they built up a consumer base they steadily (and in some cases rapidly) spread out across the country and into the mainstream.
Here are a few interesting examples.
Bimbo Bakeries USA, the U.S. subsidiary of Grupo Bimbo, started by selling Latino brands like Tia Rosa and Marinela to Hispanics in California in the late 1990s. Bimbo expanded first north along the west coast and then east. In 2010 it purchased the iconic U.S. brand Sara Lee for nearly $1 billion and became the largest bakery company in the U.S.
Carlos Slim’s América Móvil bought Tracfone Wireless in 1999 and targeted Hispanics with pre-paid mobile services. It used its knowledge of the pre-paid wireless market in Mexico and Latin America to quickly become a market leader in the U.S. Tracfone now has more than 20 million subscribers nationwide and 30% of the fragmented pre-paid market.
Gruma entered the U.S. in the late 1970s, first operating in California and then Texas, producing and selling tortillas to the Hispanic market. Today Gruma is the major producer of tortillas and wraps in the U.S. and has operations in China, the U.K., Central America and Venezuela. It operates 25 bakeries and flour mills in Texas, California, Indiana and Kentucky.
Grupo Modelo, the Mexican brewer of Corona Extra, and Televisa, the Mexican media giant and minority stakeholder in Univision, have followed a similar pattern in the states.
The growth of the Hispanic population has helped Mexican companies get established in the U.S. and increase their profits despite a weak U.S. economy. In turn, the success of these companies and brands has helped create jobs in the U.S. and encourage more trade.
But the secret is out. The Mexicans have proven that the U.S. Hispanic market is lucrative and that it can be a gateway to mainstream success.
I wonder if U.S. companies and brands will catch on.