Marketing: CONSUMER GOODS
PITCHING TO PESO-PINCHERS
Late last fall, Carlos Canales was looking forward to ringing in a strong new year. With the personal-computer market booming, Apple Computer Inc.'s general director in Mexico expected sales to soar by as much as 70% in 1995. Now, he'll be lucky if he can hold the drop in dollar volume to 10%. Says Canales: "We're putting up a fight."
For U.S. marketers lured to Mexico over the past few years by the promise of an emerging middle class, December's 45% devaluation of the peso was a bruising reminder of the fragility of Latin American economies. Forecasts of 4%-a-year expansion have given way to warnings that consumer demand will fall by over 10% in 1995. With inflation raging at 70% and wage increases limited to 20% by government guidelines, purchasing power has shriveled. Middle-class Mexicans who just a few months ago could manage the downpayment on a car now struggle to pay the rent. The government expects that 750,000 jobs will be lost by midyear.
SWEET NUMBERS. Despite the turmoil, few U.S. businesses are abandoning the market. After upping their investment in Mexico by 50%, to $31 billion, since 1991, they're reluctant to walk away from the costly distribution systems and brand awareness they have built up. And the Mexican market still offers some irresistible numbers: a population of 90 million consumers, 60% of whom are younger than 25. "Long term, this is still a very good place to do business," says Peter Economides, CEO of McCann-Erickson's Mexican subsidiary, the country's largest ad agency.
But for now, marketers must reposition their brands for an economy gripped by austerity. They're raising the proportion of domestically produced goods as the price of imports soars, adjusting ad strategies, and working to help local distributors stay afloat. And with the peso stabilizing and purchasing power expected to begin a recovery by mid-'96, some companies see the crisis as a chance to seize market share. Market leader Coca-Cola Co., under fierce attack from PepsiCo, has gone ahead with plans to roll out Fresca, while Nestle is continuing a planned assault on the supermarket ice-cream segment.
Those who tough it out will face a newly tightfisted consumer. No longer flocking to expensive imports, Mexicans are turning to familiar names, core brands, and value for the money. "Now, it's smart to show you're with the people," says Ian M. Reider, president of pollster Gal-
lup Mexico. Wal-Mart Stores Inc., for example, which has 11 superstores and 22 Sam's Wholesale Clubs in Mexico, advertises products as "proudly Mexican." Fast-food chains, once positioned as a luxury for the working class, now show solidarity. Pizza Hut Worldwide pitched "crisis combos" while McDonald's Corp. offers a free burger with its McTrio Grande.
Sellers of big-ticket items probably face the biggest challenge. "I don't think this is the time to tell a Mexican to buy a new car," says Francisco N. Codina, director of marketing for Ford Motor Co. in Mexico. "It's a slap in the face." Ford, with 20% of the Mexican car-and-truck market, has postponed plans to introduce the Aspire, a Korean-made compact. For now, Ford is burnishing its image by sponsoring a Mexican cyclist. At BMW, newspaper ads emphasize the jobs the company is creating at its new assembly plant rather than its luxury image.
Maybelline Inc. is also working to beautify its image. It's giving free cosmetic makeovers in the general-merchandise stores that are its main outlet. "It's a way to feel good, even if it's only 10 minutes," says Mario Rubio, Maybelline's general manager in Mexico. "I'm investing to create loyalty." Maybelline started importing its cosmetics into Mexico two years ago after decades of local production under license. Although the peso's collapse has cut deeply into margins, Rubio says Maybelline, which sells only $10 million a year in Mexico, will continue to import.
Even companies that manufacture in Mexico are seeing costs rise. "Anybody operating in Mexico this year is going to operate under very, very difficult circumstances," says Catherine Moffatt, vice-president for consumer and trade marketing for Nabisco Mexico, which sells cookies, crackers, and other packaged foods. Still, Nabisco benefited from excellent timing. A month before the devaluation, it launched Mexican-made Oreos and Chips Ahoy! cookies--which sell at about half the price of their U.S.-made counterparts. A new cracker and cookie will follow this month.
"JUST A BUMP." Kraft Foods Inc. is also well positioned: It makes almost all the $200 million worth of products it sells in Mexico each year locally, importing only Post cereals and a few niche items. The cereals have been a problem. To stay competitive with market leader Kellogg Co., which produces locally, Kraft has had to sacrifice margins. But after selling cheese, margarine, and jam in Mexico for four decades, Kraft has learned to ride out boom-bust cycles. "It's just a bump in the road," says Ramiro Ceballos, general director of the grocery division at Kraft Foods Mexico.
For many marketers, the hardest task has been to maintain distribution. Maybelline's Rubio found his retailers preferred to run out of stock rather than carry inventory at triple-digit interest rates. So he began sending out his delivery trucks more frequently. "I'm distributing with an eyedropper now," he frets. To keep its more than 250 specialized dealers afloat, Apple is providing debt relief.
Franchisers, who have poured into Mexico since 1992, are giving beleaguered franchisees a hand. Dryclean USA, which opened 70 stores over the past 26 months, is accepting royalties at an exchange rate of 4.2 pesos per dollar, well above the market's 6 pesos--in effect, discounting by 30% the fees its franchisees must pay. "Growth has basically come to a screeching halt," says Eddie J. Rodriguez, president of Dryclean's franchise unit. "But the market is very viable." If he's wrong, Dry-clean USA won't be the only marketer in Mexico that gets taken to the cleaners.By Elisabeth Malkin in Mexico City