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Introduction. 4

Title 1. Analysis of the wine market in Mexico. 5

Chapter 1. Presentation of the wine market in Mexico. 5

Section 1. Production and consumption of wine in Mexico. 5

1.1.       Production of wine in Mexico. 5

1.2.       Increase of the wine consumption in Mexico. 6

Section 2. Export regulations in Mexico. 8

2.1.       Customs and fiscal regulation. 8

2.2.       Sampling, labelling and packaging regulations. 10

Chapter 2. Position of France in the Mexican wine market. 10

Section 1.  Wine market trends in Mexico. 10

1.1.       Size of the wine market in Mexico. 10

1.2.       Distribution network of wines in Mexico. 11

Section 2.  Competitive analysis of the French wines on Mexican market. 13

2.3.       Importers of wines in Mexico. 13

2.1.       Strengths and weaknesses of French wines. 16

Title 2. Implementation of an export strategy of French wines in Mexico. 17

Chapter1. Realization of an export diagnosis of a company. 17

Section 1. Qualification of the export project of a company. 17

1.1.       Objectives of the project. 17

1.2.       Key success factors in exporting to Mexico. 18

Section 2. Measures to be implemented by a company before exporting. 22

2.1.       SWOT analysis of the company. 22

2.2.       Actions to be adopted by the exporting company. 25

Chapter 2. Elaboration of the company’s export plan. 25

Section 1.  Strategy of entry in the Mexican market. 25

1.1.       Selection of the target and the distribution channel 26

1.2.       Selection of the product and definition of the promotion strategy. 29

Section 2. Financial analysis of the export project. 33

2.1.       Sales forecast, margin and export costs. 33

2.2.       Risks management. 37

Conclusion. 42

Bibliography. 44

 

Introduction

 

The French companies working at present in the wine sector face a very low growth of the market. The number of consumers of the wine gradually decreased in France of in various factors such as reduction of the purchasing power or the change in French consumer habits of the French. To continue to develop, French wine companies have to explore new international markets.

 

Mexico is one of the best potential markets for exporting French wines. Certainly, this country is heavily consumer of tequila and beer. Wine consumption has nevertheless gradually increased since recent years. This market is no longer a virgin market as it is a mecca for Spanish, Chilean or Argentinean wines as regards classic table wines.

 

This study thus focuses on the export by an enterprise of French wines in Mexico: « What are the steps to be undertaken by a French company that wants to export its wines in Mexico? ». It responds to following questions:

• what are the characteristics of the wine market in Mexico?
• what is the position of French wines on the market for Mexican wines?
• what are the key success factors for a successful export project in Mexico?
• what are the different actions and measures to be implemented by the French company?

 

This document is divided into two main parts:

 

• the analysis of the wine market in Mexico. This part gives an overview of the characteristics of the wine market and the regulations in force in this country.

 

• the implementation of an export strategy of French wines in Mexico. It focuses on the main issues while exporting: export diagnosis, distribution strategy, marketing and promotion strategy and financial projections.

 

Title 1. Analysis of the wine market in Mexico

 

Chapter 1. Presentation of the wine market in Mexico

 

Section 1. Production and consumption of wine in Mexico

 

• Production of wine in Mexico

 

Wine production in Mexico was limited for a long time to the production of communion wine. Wine consumption has increased in recent years, production has also increased. Mexico produces approximately 47% of wines consumed in the country in 2010. Mexican wine industry has 300 different types of red, rosé, white and sparkling and several varieties such as Merlot, Pinot Noir, Grenache, Cabernet Sauvignon, Sauvignon, Carinena, Chardonnay, chenin Blanc and Syrah.

 

Professionals are seeing a rise in quality of wines produced since few years. Mexican producers currently have a training school set up by a producer. They also invested in professional equipments such as oak barrels. They also appealed to renowned winemakers to get advise on wine production.

 

The wine production amounted to 18 million liters in 2010 (growth of 5.8% compared to 2009): 50 producers are involved in traditional and industrial production. This production does not increase steadily since 1995, the total wine production fell by 26%. The main constraints encountered by winemakers consist of climatic conditions, lack of water, dry land and sometimes salty in some areas, heavy taxation. Growers have had to develop modern irrigation systems that increase their production costs. Mexican wine producers also face competition from Chilean and Argentine producers who benefit from subsidies.

 

The wine industry occupies an area of ​​35,000 hectares (representing 0.5% of the area cultivated vineyards in the world). Domestic  production is concentrated mainly in five wine regions.

 

 

 

Table 1 : Geographical distribution of the wine producers in Mexico

 

Wine-producing zones	% of production
La Basse Californie	83%
Le Queretaro	8%
Le Coahuila	4%
Le Zacatecas	3%
L’Aguascalientes	2%

 

 

Wine production in Mexico is mainly divided between three companies:

 

• The Madrileða was ranked as the first wine producer in 2010 with a production level amounting to 24% of total wine sales. This company is the leader of the market regarding the production and the sales of strengthened wines through its brand Tres Coronas. It is in second position regarding the light wines through its brands E & J Gallo, Carlo Rossi and Tarapacá.

 

• Casa Pedro Domecq was ranked as the second wine producer with 13% of the sales volume. It is the leader in the production of light wines through its brands XA Domecq, Padre Kino, Calafia, Marqués de Riscal and Chateau Domecq. It ranks in third place regarding the production of sherry.

 

• The companies Digrans SA de CV and VINICOLA LA Cetto are respectively ranked third and fourth largest Mexican producer of wines with a production level of each amounting to 8%. Both companies are specialized in the production of light and still wines.

 

In 2011, 75 % of the Mexican wine-producing production was consumed locally and 25 % was exported towards the European Union, Japan and the United States (1,15 million liters, that is a 7 % increase compared with 2010).

 

• Increase of the wine consumption in Mexico

 

Mexicans were always big consumers of alcoholic drinks with an ascendancy of tequila and beer. In 2010, 156 new alcoholic drinks were launched on the market: 28 % of them are constituted by tequila, 27 % by beer, 15 % by rum, 10 % by vodka, 5 % by whisky, 5 % by wine and cider.

 

Mexico has 110 million inhabitants: it is ranked 11th country in the world in terms of number of inhabitants. 65% of the population is aged 15 to 64 years with a median age of 26 years. More than 60% of the population receives a minimum income of US $ 5,000 per year reflecting a net evolution of the middle class. According to data provided by DataMonitor, the population aged in the segment 35-65 years is expected to increase 2.8% from 2010 to 2014.

 

Formerly, wines were exclusively consumed in restaurants. Mexicans consume more at home, but mainly during major holidays. The end of the year is the period of greatest consumption. A low level of consumption is observed in March, April and May.

 

Wine consumption is growing gradually in Mexico. The increasing number of population and the development of the middle class in Mexico favor the growth of the wine market. This upward trend is due to the different promotional activities carried out by importers (sessions of tasting in restaurants, training of the servers about wines …). People aged 40 to 65 from the middle and upper classes (about 22 million) with a high purchasing power currently consume wine at 5 bottles per year. There is also an emergence of a new group of amateurs of wines composed of educated youth 20 to 45 years.

 

There are thus three types of consumers in Mexico:

 

• People over 50 years who had a clear preference for spanish brand wines.
• young professionals aged 25 to 35 who have a high purchasing power and who wish to consume new brands.
• customers from the middle class with middle-income who pay attention to the prices.

 

According to the results of a study carried out by Mexican council of the wine sector, wine consumption in Mexico should be tripled by 2020 if local producers and importers continue to carry out continuous advertising campains. According to Hans Backoff, general manager of Monte Xanic in the Valley of Guadalupe, « People are just starting to drink wine and to know this product. Wine promotion, training and such events are essential to strengthen our confidence.  »

 

Section 2. Export regulations in Mexico

 

• Customs and fiscal regulation

 

Selling alcoholic drinks is free in Mexico, whether locally manufactured or imported. The importation of alcoholic beverages is subject to prior registration in the Ministry of Health. This registration must be done by the representative of the exporter in Mexico. It is valid for a period of five years. A new application must be submitted beyond this period.

 

To export its products in Mexico, the exporter must complete a customs declaration which includes the tax registration number of the exporter in its country of origin. The following documents are attached:

• a commercial invoice the,
• a bill of lading,
• a packing list,
• a certificate of analysis that mentions the Gay-Lussac degree and the alcohol degree,
• a certificate of Free Sale issued by the DGCCRF
• and a EUR 1 certificate of origin

 

Thanks to the entry into force of the Agreement between the European Union and Mexico, all categories of alcoholic beverages are exempt from customs duties. The importer is obliged, however, to pay other taxes such as:

 

• taxes of 0% if the export value is greater than or equal to about € 3.64 per liter and on presentation of a EUR 1.
• taxes of 2.4% if the value is less than about € 3.64 per liter and on presentation of a EUR 1
• a special tax on products and services from 25% to 50%, plus a custom duty of 0.8% plus a 15% VAT. The special tax on products and services applies to alcoholic beverages is:

– 25% for the beverages with alcohol degree lower than 13,5%

– 30% for the beverages with alcohol degree between 13.5% and 20% alcohol

– 52% for alcohol degree exceeding 20%.

• a fiscal stamp printed by the Ministry of Finance shall be placed on each imported bottle neck. The cost of the stamp is about 0.13 €.

 

In case the document EUR 1 is missing in the shipping documents. Customs duties payable by the exporter are as follows:

• between 49.50% and 73.65% of the value of the goods if the alcohol content is less than 14 °
• between 56.40% and 80.60% of the value of the goods if the alcohol is included between 14 ° and 20 °.

 

All imported alcoholic beverages must carry a tax ticker. Beverages sold in bulk shall also bear a tax stamp issued by the Ministry of Finance.

 

Exporters can encounter huge bureaucracy with Mexican customs and tax administrations. Bureaucracy constitutes an administrative habit that however, differs greatly from one office to another. Sometimes, Mexican officials appear so zealous that slightest mistake leads to long discussions and delays. In 2008, a number of legislative initiatives have been taken to simplify import procedures but these are usually quite complex.

 

Language may also be a problem for exporters. Many customs offices refuse documents (EUR 1, …) in a language other than Spanish and the intervention of the central government is sometimes necessary for the goods to be released. Such difficulties often lead to delays and require additional costs. Given the fact that Mexico is a member of the WTO and the country concludes free trade agreements with major trading partners, entry fees cannot protect the local producers. Then, Mexico often uses technical provisions and labeling rules to protect its industry.

 

• Sampling, labelling and packaging regulations

 

All products that will be sold in Mexico must bear a label in Spanish. Products must comply with commercial and commercial/sanitary information as mentioned in the labeling guidelines NOM. Following information must be precised:

The business name and the address of the importer,

• The business name of the exporter,
• The commercial name brand of the product,
• The net contents,
• The use, handling, and care instructions for the product,

 

 

Chapter 2. Position of France in the Mexican wine market

 

Section 1.  Wine market trends in Mexico

 

• Size of the wine market in Mexico

 

Mexico is the oldest wine region of the United States. Indeed, the wine industry was born there in the sixteenth century after the arrival of Spanish missionaries who imported Spanish varietals from Europe and who produce communion wines. Although the local production is low, it continues growing. However, the demand for quality wines is much greater than the supply of local wines. Mexican consumers consider that the local wines are sold at an excessive price given their quality compared to other wines of similar quality from countries such as Chile, Argentina, France and Spain.

 

Although Mexican consumers are beginning to look for locally produced wines, Mexicans still prefer imported wines. These are considered as an expensive product and are intended primarily to a higher class so exclusive, so they are better.

 

Beer consumption in Mexico is 60 liters on average per year per capita; spirits consumption is about 2 liters per capita per year; and wine consumption amounts 0.5 liter per year per capita. Regular wine consumers drink about 9 bottles per year. There would be 1 million regular consumers, 5 millions occasional consumers. There is also a potential of more than 10 millions out of a population of nearly 110 millions.

 

Mexico appears as a small market as regards the wine, it is a small part of the alcoholic beverage market (about 2%). The wine market in Mexico is, however, a market in a phase of growth  (consumption wine increased by 45% and the number of consumers has increased by 12% in 5 years).

 

Most wine consumers in Mexico prefer European wines to California ones. More than 50% of imported wines are European varieties and about 35% of imported wines come from the United States. However, Californian white wines (such as Chardonnay) are more appreciated than California red wines. Spain, Chile and Argentina also have a particularly large share of the wine market in Mexico in recent years.

 

Price, quality, availability and brand awareness are important factors that Mexican consumers consider when buying imported wines.

 

Table 2 : Characteristics of the Mexican wine market

Consumption	Consumption per color of wine	Distribution channel	Entrance fees	Production	Imports	Imports of french wine
380 mhl 0,5 l/hab 0,2%*	65,5% 33,5% 1,0%	40,0% 30,0% 30,0%	0 25%	180 mhl 0,4%* 47,4%**	453,9 mhl 115,7%**	24,6 mhl 5,4%***

 

mhl : milliers d’hectolitres            l/hab : liters per inhabitants

: red wine ;   : white wine ;   : rosé whine

: supermarkets ;   : hotels/restaurants ;   : other distribution network ;

: customs fees ;    : excise duties

* : world market ; ** : % of the consumption ; *** : % of imports

 

 

• Distribution network of wines in Mexico

 

Alcoholic beverages, including wine, are sold mainly in two distribution channels: independent stores and major retailer distribution (supermarkets, mega markets and discount chains). Wines sold in major retailers in the distribution are subject to competition since the costs are extremely negotiated.

 

Wines sold within independent stores do not experience such intense competition because they offer more imported and rare brands. They are also specialized on some products mostly required by retailers. These stores also combine their offers with advisory services to clients for the selection of wine: this service is particularly appreciated by the buyers of luxury products. However, they are facing increased outlets of major retailers and grocery stores, in part because of the number of their outlets.

 

Mexican consumers generally prefer to buy their products in major retail outlets (superstores, mega market) rather than in small supermarkets.

 

Distribution of wines in Mexico is assured by:

 

• department stores which often import directly wines under their own brands or sometimes use an importer. Wal-Mart (Bodega Aurrera, Wal-Mart Supercenter, Superama, Sam’s Club); Soriana, Comercial Mexicana Controladora (Comercial Mexicana, City Market and Costco), Gigante and Chedraui control 80% of the Mexican market supermarkets. There are also two main chains department stores in Mexico: Liverpool (Liverpool, Fabricas de Francia) and El Palacio de Hierro.
• specialized stores that offer wines produced in Mexico and imported wines such as Madero, La Cetto Santo Tomas, or Monte Xanic. These stores cater to a more affluent clientele. 60 and 80 specialty shops have been opened in the last five years.
• department stores who import directly and offer high quality products.
• duty free shops.
• wine clubs which import small quantities of wine and is particularly directed to an audience of connoisseurs.
• wine bars.
• cafes, hotels and restaurants: they constitute important distribution points as they introduce wine into the habits of Mexicans. There are two types of restaurants: traditional and informal restaurants which are an important distribution market for Spanish wines.

 

The retail distributions accounts for nearly 70% of the market (40% retail, 20% for specialty stores, 10% were split between the other types of retail stores). Hotels, cafes and restaurants account for 30% of the market. Distributors and retailers must pay a « special One-Rate Tax »:  18% tax calculated on the value of the inventory held by these distributors. This tax has changed the habits of major distributors: they maintain a stock level and frequently refuel products instead of buying large quantities of inventory in advance.

 

Wine importers in Mexico consist of:

 

• importers such as Bodegas la Negrita, Cesarfer, Gourmet Club Del Comercial Hispana Douro Exclusivas Benet, La Madrileña and Marinter.
• wholesalers composed essentially of fifteen companies located mainly in the larger cities (Mexico City, Guadalajara, Monterrey, Leon, Tijuana and Merida).
• specialty stores affiliated to an importer or holding an import company (eg. La Europea). They usually have outlets all over the country.
• department stores and large retailers that have the ability to import directly.

 

Section 2.  Competitive analysis of the French wines on Mexican market

 

• Importers of wines in Mexico

 

Imports of wines to Mexico in 2011 amounted to 45.39 million liters worth US$ 186.4 million They rose 3.2% in volume and 15, 3% in value compared to 2010. Mexican importers imported less quantity of wines but paid higher prices.

 

This growth in imports of wine is detailed as follows:

 

• imports of sparkling wines have experienced strong growth between 2010 and 2011 with an increase in volume of 22.3% and an increase in value of 24.9%.
• imports of bottled wines showed a smaller increase in volume of +9,7% and an increase in value of 15.3%, which shows that Mexico imported more expensive wines then in better quality.
• imports of still wines in bulk have declined with a volume decrease of -29.7% and -21.1% in value.

Table 3 : Evolution of the wine imports

	2010	2011	2012
Total • Value (millions USD)	161,70 43,97	186,41 45,39	190,62 –
Still wines in bottles • Value (millions USD)	132,16 32,68	152,34 35,86	156,39 –
Bulk still wines • Value (millions USD)	6,16 8,24	4,86 5,79	2,94 –
Sparkling wines • Value (millions USD)	23,38 3,05	29,21 3,73	31,28 –

                                                                                                Source : Comtrade

 

There are five largest importers of wines in Mexico. The table below summarizes the distribution value of wine imports in Mexico in 2012.

 

Table 4 : Main importers of wine in Mexico (in value in 2012)

 

	Value (millions USD)	Part of imports (%)
Spain	58,94	30,92
France	34,74	18,22
Chile	33,82	17,74
Italy	25,67	13,47
Argentina	17,77	9,32
Others	19,68	10,33
Total	190,62	100,00

                                                                                                            Source : Comtrade

Spain :

Spain is the leading supplier of wine in 2011, it accounts for about 30% of the country’s wine imports (by value and by volume).

 

Chile and Argentina :

In 2011, the major importers of Mexico were constituted by Chile (second supplier by volume and value), and Argentina (5th supplier of the country regarding the value and the quantity).

 

Chilean wines enter in Mexican without customs duty (following agreements free trade agreements between Mexico and Chile), making them attractive in terms of price. Chile also conducts an intense promotional campaign to promote the development of Chilean wine. These features make the popular Chilean wines in Mexico.

 

Argentina also conducts an aggressive sales policy in the Mexican market, although its market share is less than that of Chile or Spain. Its market coverage has increased annually by 38.8% over the past five years. Argentina wines represent 10% of the market against 1% ten years ago. Mexico imports mainly cheaper wines and therefore of lower quality from Chile and the United States.

 

France and Italy :

France and Italy in 2011 were the third and fourth wine suppliers in Mexico. The market shares of these countries (on terms of value) exceeding those on terms of volume. Mexico imported French and Italian quality wines, which are more expensive on the market.

 

In 2011, France was the third largest supplier of Mexico in value (17.5%). Mexico has imported 2.2 million liters of French wine in 2011 for a value of 21.7 million USD. French wine consumption represents 3.8% of the total wine consumption in Mexico. It should be noted that French wines have lost market share to the benefit of Spanish wines. To win new market share, France should be present in the segment of mid-range wines.

 

According to data from the French customs, imports of French wines are detailed in the table below.

 

Table 5 : Details of the wine imports in Mexico

 

	2011	2012	2013
Total • Value (thousand euros) • Volume (thousand liters)	8.761 1.505	10.640 1.600	10.753 1.688
White • Value (thousand euros) • Volume (thousand liters)	1.420 244	1.811 317	2.098 355
Red • Value (thousand euros) • Volume (thousand liters)	7.341 1.260	8.829 1.283	8.655 1.333

                                                                                                Source : French customs

 

 

• Strengths and weaknesses of French wines

 

Known and recognized around the world, French wine has a flattering reputation of a craft product flirting with the world of luxury. Wines and spirits were the second sector with surplus in export in 2012, just behind the aircraft, with a positive balance of € 9.5 billion, up to 10.5%. France is seen worldwide as the land of luxury fashion, perfumes, food and wine. Mythical names like Lafite-Rothschild, Cheval Blanc, Petrus or Romanee-Conti are considered the world’s best wines. They are subject to expensive prices in auctions worldwide. The record of the most expensive wine in the world is in fact owned by an Imperial of Cheval-Blanc 1947 sold 223 967 € by Christie’s in Geneva in 2010. On the luxury market, French wines reign supreme and have no competitors in this category. However, they face a problem of counterfeiting from China.

 

It should be noted, however, that if the value of French wine exports grew well, quantities have declined by 12% in 10 years. France exported less wine than its competitors in terms of quantity but more in terms of value. The country is known for its high quality wines such as Bordeaux or Bourgogne that are more than ever regarded as the best wines in the world. The advantage of France is that it benefits from a traditional long-time know-how and from various soils quality which allow producers to diversify their offers. Some local products are sometimes difficult to be copied.

 

The weakness of French wine is the smallness of their plantation and their firm. One winemaker cannot enhance its production capacity and thus achieve economies of scale. To remedy this, the wine companies group together, they produce basic wines with excellent  quality and carry out strong marketing efforts. It is the case for example of Castel group Vranken-Pommery, Advini group, Paul Masse, or Gérard Bertrand …

 

Entry-level french wines entry and mid-range wines undergo quite hard the competition from other countries which produce equivalent quality wines with a much lower cost. They face intense competition from Italian and Spanish wines. Italian wines, for example became more famous with the popularity of Italian cuisine that has become known with the opening of Italian restaurants in the world.

 

According to the winemakers, the wines are expensive to produce in France because of the cost of labor, expenses and taxes. About 60% of the turnover of a creative wine is allocated to payroll. However, Chilean competitors have such a labor cheaper work, a perfectly suitable climate, lack of vine disease which further reduces their production costs compared to those of French producers. Labor in South Africa is also lower. The high degree of mechanization of the production of wines in Australia allows its winemakers to lower costs of production.

 

According to a study carried out by the firm IWSR for Vinexpo, the French production is forecasted at 502 960 000 crates of 12 bottles over the 2012-2016 period, which represents a decrease of 3.9% compared to average from 2007 to 2011. The export of French wines to China keeps increasing. In view of the globalization, the situation of the French wines begins to be threatened by its competitors.

 

Title 2. Implementation of an export strategy of French wines in Mexico

 

Chapter1. Realization of an export diagnosis of a company

 

Section 1. Qualification of the export project of a company

 

• Objectives of the project

 

Export opens a wide range of possibilities and interests for a company:

 

• export can increase sales. It allows the company to find new markets and new customers. With export prices including positive margins, earnings growth is not negligible. With export, the company can overcome the constraints of a highly competitive domestic market.
• it increases the reputation of the company vis-à-vis competition and foreign markets.
• it allows the business to grow by expanding its business activities, markets and seeking to improve its commercial arguments.
• it can also boost the company: the arrival of new foreign customers and the establishment of a service export may increase the activity of the company. Export leads to review its business practices in adapting to foreign cultures. This openness to the world involves several changes both in the company (sales structure, recruitment, new strategy …) and in its involvement abroad (fairs, specific advertising, market research …).

 

• Key success factors in exporting to Mexico

 

Below are the key success factors of an export wine project in the Mexican market:

 

• Factors associated with price: Mexican consumers are sensitive to the price of the wines. This is a decisive purchase factors. Stores have concluded that larger volumes of sales are realize in the segment of wines costing less than 150 pesos and in the segment if wines costing above 400 pesos price.

 

• Factors associated to the image of French wines: French wines enjoy a reputation of excellent quality but also expensive wines. The exporter must provide the image of its wines through communication within the outlets and communication to consumers. The label is a key vector image of a wine. Mexican consumers are more attracted by labels with more eye-catching and colorful unlike French modern style labels which reflected austerity and tradition.

 

• Factors associated to operations: Facing the diversity of French wine offer, retail outlets (especially restaurants) base their purchases on the proposals of specialized importers. An exporter of French wines may submit samples for testing and restaurants for tasting. The wines are tasted by customers: when they enjoy them, they will ask for the same types for their next orders. Restaurants end up placing frequent orders with retailers.

 

• Factors associated to the specificity of French wines: French producers can adopt two different approaches vis-à-vis their offer of wines. Indeed, they should consider whether they should adapt their wines to follow the taste liked by Mexican consumers or otherwise, ensure that the consumers adopt the French wines offered in the market.

 

Wine production in France is highly heterogeneous due to the fragmentation of plantations. French producers should emphasize on their own true identity, the particular taste of their wine and the history of its plantation while marketing.

 

 

For a successful export project in Mexico, the company must meet a set of specific rules deduced from past business experiences of companies that have marketed their products in Mexico:

 

• Adapting to the Mexican market and know the Mexican culture: the exporting company must control the operation of the wine market and the codes used in the business in this country.

 

‘Time is money’ is not a validated business dictum in Mexico. Mexican business operators favor trusted friendships first and then do business. Business persons must be prepared to carry out long negotiation process. Business meetings are often formal and hierarchical: business persons must then dress accordingly. The exporting company must ensure to be represented by the same status of Mexican hosts during these meetings. Discussions do not really follow the agenda: they mainly begin with general topics such as the family, the weather, the Mexico characteristics (nature, landscapes,..). Representatives of the exporting company must adapt and do not be arrogant. The leaders of these companies must find a way to involve whole their teams to succeed.

 

Business women benefit the same professional courtesies as the businessmen. Meetings are normally conducted in Spanish. They could be also done in English. It’s better for the exporting company to recruit a Spanish speaker who understands the nuances of the language in Mexico.

 

• Choose cautiously its importer or distributor with: the exporting company must carefully choose the importer according to its objectives and knowledge of the Mexican market in general and of the wine market.

 

When dealing with a new customer, the exporting company must ensure that it has the financial resources to pay for the goods and services bought. The company should contract with another company which and provide a comprehensive intelligence and constantly updated information on companies across the globe. It provides valuable insights into a prospective customer’s financial strength and stability.

• Plan a marketing budget: Major international groups spend about a fifth of their revenues on advertising. Face competition which is increasingly aggressive, French producers must realize important marketing efforts to gain market share.

 

• Have the sufficient production capacity: Exporting company must have a sufficient quantity of wine to export in order to meet market demand and to recoup costs (marketing, establishment of outlets …).

 

• Have great experience in exporting in mature markets: Addressing the Mexican market as the first international market is very risky because it is an immature and relatively difficult market. It is therefore essential to have experience in exporting. Exporters who have succeeded in the Mexican market very often previously succeed in other more mature markets such as the United States.

 

• Pay particular attention to contracts: the exporting company must use the services of legal counsel to ensure the clarity of contracts.

 

• Be sure to obtain payment before delivering the wines to importers: Exporters to Mexico mostly found that payment issues and insurance constitute the main barriers to export to Mexico. The most common problem is related to the payment. Many Mexican wholesalers operate on the principle of « just-in-time. » Thus, it often happens that the orders of goods are canceled at the last minute or on arrival of the boat in Mexico coastal. The exporter thus finds itself in a situation where he has to pay unanticipated transportation costs, as well as additional costs for product distribution in the Mexican market in a tight deadline. Most large Mexican chains like Soriana, Costco or Wal-Mart, guarantee payment of goods within 90 days, but it is not always easy to be paid on time by the chains and smaller wholesalers.

 

It is not uncommon for debts to be disputed in Mexico. It is more advisable to seek an amicable settlement through arbitration or mediation than going straight to court. In mediation, a third party negotiates with each party involved to the dispute in order to settle the dispute and to find solutions agreed by each other. Mediation is a non-binding process whereas an independent arbitrator’s decision is binding (case of arbitration). Both processes can be conducted in a very shorter time and they cost less than court process. Arbitration in Mexicao is based on mercantile law. Mediation is conducted by the Mexico City National Chamber of Commerce (CANACO).

 

• Control the labeling and packaging conditions: Labeling frequently presents difficulties in the export process. Mexican officials show no leniency for labeling errors and omissions. Prior to joining Mexico, a product must receive approval of its label. Labels must portray accurately the information required in order to avoid long delays in customs and additional costs for exporters.

 

It is therefore recommended for beginners exporters to use an agent who specializes in     labeling: he will approve the Spanish label to put on the bottles or containers. Labeling             agents can also change labels, reprint and put new labels on bottles of wine when the          shipment arrives in Mexico to comply with customs requirements.

 

• Resist the temptation of corruption: In the « Corruption Perception Index 2013 » Transparency International, Mexico ranks 106^th/177. Contacts with the Mexican government and authorities are not objective or neutral sometimes. Administration contact can be particularly sensitive.

 

Exporting companies do not generally master Mexican import and export provisions.        Any errors in the documents can be exploited by the Mexican customs administration.

Customs legislation provides great freedom in principle to the administration, whether      to apply rules (customs may ask for clarification, may accept documents …) or take             sanctions (power deal ). – Foreigners often have difficulty defending themselves         against administrative arbitrariness (language, distance, costs …). Documents related            to procedures, language problems, differences in legislation between the exporting             country and the destination country, the lack of communication between the             administrations of the countries concerned constitutes main barriers to export.

 

Corruption and bribery are short-term solutions: those who want to invest in a long-          term presence in the Mexican market cannot afford to base its business on corruption.   Exporting company has to resist being involved in fraud schemes (under-invoicing,      fraud in the nomenclature …). If its trading partner made this choice, the exporting          company cannot always prevent it. It must take necessary measures to mitigate its      risks. To avoid facing the temptation of corruption, the exporting company should             strictly follow all instructions required by Mexican customs.

 

Section 2. Measures to be implemented by a company before exporting

 

• SWOT analysis of the company

 

The company which wishes to export must first make a diagnosis of the wine industry, of its business and the available resources. If this initial assessment confirms that the company has the necessary resources, it can work on the different elements of an export business plan.

 

This diagnosis allows the company to determine if its export targets in the Mexican market are realistic and whether the risks outweigh the expected gains.

 

Diagnosis of the French wine industry

 

The diagnosis of the wine industry aims to examine the current trends and the potential growth of the sector: is it a declining industry, a highly competitive industry, or a saturated domestic market? Trends of the market can motivate the search for potential growth in foreign markets.

 

France remains the first largest consumer of wine in the world, although the consumption per capita is declining since the 60s. It has stabilized at around 50 l / year / person. French consumers buy their wines in supermarkets: in 2012, they have purchased an equivalent of 9.6 million hectoliters of still wines (not sparkling) which is comparable to the volume bought in 2011 (+ 0.6%) and an increase in value by 3% for € 3.7 billion.

 

In a context of decline in the sales of other wines, consumption of rosé wine is going well: it has doubled in 20 years and continues to grow by 3.3% in volume and by 5.9% in value in 2012. Regarding still wines, red wines represent more than half of the volumes consumed, (55%), 28% consumed wines are rosé and 17% are white.

In 2012, exports grew by 5% in volume and 9% in value compared to 2011. Their values amounted to €7.83 billion.

 

Competition from “New World wines” impacted on the French exports in 2010, with a rebound of French wine exports: + 7% by volume (13 5 million hectoliters) and +14% in value (€ 6.3 billion). Exports of still wines recorded a slight decline in volume (- 3% for AOP with 5.3 million hectoliters; – 6% for not AOP wines with 6.7 million hectoliters). They rose in terms of value (+ 3% for AOC, to 3.1 billion euros + 10% for non-AOP wines at € 1.1 billion) thanks to higher average prices. Champagne exports in volume (1 million hectoliters) are against almost comparable to 2009 with a slight decrease in value (- 3% to 1.9 billion euros), while others are sparkling strong 18% increase in volume (0.5 million hectoliters) and 25% in value (€ 0.2 billion).

 

In 2012, France imports wines from countries in the European Union (90% of its wine import), particularly in Spain (62%) and Italy (25%). Their volume is down 13% compared to 2011.

 

French wines must look for new markets because the domestic market is slowing. Wine consumption by French people is decreasing regularly since fifty years. Regular wine consumers represent only 17% of the population, 45% of French consumers are occasional and 38% never consume. Growth prospects of the French side of the market are quite limited.

 

French wine is still a star product to export. Wine industry has a major advantage: its production cannot be relocated. However, even in France, the wines are now in direct competition with wines from Australia, South Africa, Chile, the United States …

 

The United Kingdom, which was always France’s first export market, passed to second position with 13.6%, behind the United States (17%) and ahead of China and Germany (8.5%). In Britain, for example, sales of French wines have declined by 13% since 2001, while over the same period, the UK market has jumped 38% and sales of New World wines have doubled. Within western markets, the French wines have a high market share so that when supply expands, this share can only decrease.

 

If the French companies want to benefit from increased global consumption of wine, they must give priority attention to the new markets composed of the BRIC (Brazil, Russia, India and China) as well as emerging markets such as Mexico and the countries of South East Asia … They can take advantage of the reputation of French wines worldwide.

 

Diagnosis of the company itself

 

The diagnosis of the company aims to assess the commitment of the management for the export project, to assess its human, financial and production capacity resources. Below a proposal of check-list that the company can use while undertaking the diagnosis:

 

• description of the company: history, owners, growth trends, number of employees, number of sales outlets, etc.. for the past five years.
• the competitiveness of the company within its industry.
• the financial stability of the company today and in the near future given that export activities may generate additional costs for the company.
• the evaluation of the staff by taking into consideration their experience in terms of international experience (languages, foreign travel, contacts, education, international marketing, logistics, transportation, banking, legal and financial aspects, ..).
• the possibility for the company to devote staff to export project.
• the availability of additional resources to be allocated (budgets, equipment, training, management commitment).
• the production capacity of the company and its ability to meet the needs of the Mexican market without harming the domestic market.
• the reliability of suppliers and service providers (eg logistics).
• the external expertise that the company needs to use in the context of export (other suppliers, forwarders, customs brokers, international lawyers, accountants, bank branches, consultants and support organizations exporters).
• the existence of a strategy for international expansion of the company and the results obtained.

 

• Actions to be adopted by the exporting company

 

The diagnosis of the wine and the diagnosis of the company allow it to confirm whether it has the skills and resources needed for a successful export venture French industry. These means may be human, financial, related to the production or organization within the company. These diagnostics also allow identifying the first actions to be implemented by the company.

 

Once the export project is validated, the company must establish a comprehensive export plan will include the results of diagnostics, human resource requirements, the results of market studies on targeted countries including Mexico, the financial needs, the marketing strategy to be applied and financial projections.

 

Chapter 2. Elaboration of the company’s export plan

 

Section 1.  Strategy of entry in the Mexican market

 

• Selection of the target and the distribution channel

 

The wine market in Mexico is an emerging market which is highly consuming alcoholic beverages such as beer and tequila. This market is expanding rapidly. Wines are gradually consumed in the country. It is still a novice and difficult market especially as Chilean and Spanish competitors are already well positioned.

 

French wines may be positioned on following segmentations:

• Entry-level wine, with a good quality/price ratio, with attractive and intelligible labels: these are wines for a younger consumers discovering wine.
• premium Wines for consumers from high class, for wine connoisseurs and lovers of French wines.

 

The strategy of market entry must correspond to a novice and difficult market as regards the intensive competition and the limited number of wine connoisseurs in Mexico.

 

Five approaches can be adopted in order to successfully entry into the Mexican market. They must be validated through visits and discussions with buyers, distributors and retailers in Mexico.

 

• Approach 1 – Direct marketing: the French exporting company sells its wines directly to consumers. It allows company to create and maintain a direct relationship with its customers on an individual basis. This option eliminates intermediaries and allows companies to benefit greater profit margins and a better understanding of the consumers’ needs.

 

The company has the choice of opening its own outlets or use a Mexican company involved in direct marketing. The opening of outlets requires the company to know well the wine market in Mexico. This option generates additional costs for the company since it must send frequently representatives to travel to Mexico. These representatives must also speak and understand Spanish. The option of using a Mexican company is only profitable if this later has a national scope and if it is particularly specialized in the marketing of wines.

 

It is not recommended for new exporters to choose one of these options. The opening of outlets may be appropriate if the French exporting company wants to sell specific French wines, rare and with excellent qualities that cater to a relatively small market (eg. luxury wines). It thus simplifies marketing and sales marketing.

 

• Approach 2 – Use local importers as wholesalers or distributors: this approach allows the distribution of the products in different regions and allows also the distribution of multiple product lines. This strategy can be profitable for new exporters. This approach has the advantage of basing on the experience and knowledge of an importer to increase sales and promote the wines effectively. These importers may also indicate the preferences of consumers (in terms of taste, packaging, or other) to the exporting company or may indicate the new marketing strategies adopted by its competitors. The use of this approach requires that the French exporting company monitors the performance of its business.

 

The exporting company is exposed to a high risk of non-payment or late payment.             Mexican distributors often ask to be the exclusive representative of the products       in         Mexico. Exporting company should exercise extreme caution before granting this         exclusivity. Indeed, given that distributors do not generally have national coverage,       they sell the products to sub-distributors who take additional margins, increasing the           prices of wines on the market. Instead, the exporting company should identify key      markets it wants to attack and conclude an agreement with a distributor in each of             these             markets.

 

The exporter must also avoid the deposit of wines,: some distributors refuse to buy and     to be owner of the products. Risks incurred by the French company consist of    unpredictability of cash flows and a loss of control on wines. This option can be possible if the distributor agrees in writing to fulfill a certain volume of sales.

 

Agreement contracts between importers and companies must contain terms such as           price limits, geographic areas to be covered, marketing activities to be undertaken,        sales volumes involved, the locations of products (in the case of distributors having        supermarket chains).

 

Selecting one or more distributors of French company should be subject to scrutiny.          Several factors are considered: experience as distributor, financial capacity, storage            capacity, coverage in national level, specialization, reputation.

 

 

• Approach 3 – Use of agents: The agents represent the French companies, they are not the owners of wines. They can negotiate contracts on behalf of the exporting company. Several exporters in the world use Mexican agents: this approach provides tax benefits. In fact, all sales for which the transfer of title is in Mexico are subject to income tax and value added tax. Therefore, a large number of exporters enter into agreements that do not give the officer the authority to bind the company to contracts of sale. The agent is more responsible for promoting wine exporter exclusively. He also provides visibility of the French company in Mexico and acts as an intermediary between potential Mexican customers and exporter. This agent (an individual or a business organization) liaise with government authorities and buyers to resolve any problem.

 

The company must carefully select its Mexican agent. It can use the lists of Mexican         industry associations, or trade shows, or agents competitors or ask the Embassy of   France in Mexico to find names. It must verify the following information on the            selected agents: their skills and experience (client list and references), knowledge           about the product and the market (wine), other products represented (competing and      complementary range), sales teams (size, mode of remuneration), technical sales   promotion, territory and client groups covered, marketing strategy and forecasts             preliminary sales for the wines of the company, the expectations of the agent,         additional services proposed (eg. translation and interpretation, storage). Agents must             be listed in the National Register of importers and exporters of the Ministry of             Economy (Secretaría de Economía), which is managed by the Ministry of Finance            (Secretaría de Hacienda y Crédito Público). Agents must be Mexican citizens or          employees of Mexican companies.

 

• Approach 4 – Building Partnerships: In addition to direct exports mentioned in the three approaches above, there are also other forms of partnerships or strategic alliances that can enable exporters to better integrate and adapt to the Mexican market. The main advantage of this approach is that the exporting company shares its costs and its risks with a Mexican company. It can also access new markets without having to implement added organizational structures. Partnerships are effective as far as the companies succeed in establishing and maintaining good working relationships. The exporter must seek the advice of a good law firm for some topics such as the protection of intellectual property.

 

The entry into the Mexican market involves costs for the exporting company including the participation to trade fairs, the cost of testing the market and distribution of information materials (sales brochures, …). Sessions of tasting are also a popular and successful approach in the Mexican market. This strategy allows presenting the wines to consumers.

 

• Selection of the product and definition of the promotion strategy

 

Promotions of the wines marketed in Mexico are insured by the exporting company itself or by the distributors. The French company may participate to the promotional costs if the distributor is in charge of the promotion activities. The realization of the promotion activities depends largely on the agreement concluded between the French producer and the Mexican distributor.

 

• Media Infrastructure in Mexico: The Mexican media infrastructure is well developed and perfected. Approximately 86% of Mexican households have at least one radio and more than 90% at least owns one television. The radio displays the largest audience since the country has nearly 384 FM and 758 AM stations. Consumers are highly influenced by the media. Advertising is the most used promotional tool in Mexico (in printed or online version), accounting for more than half of the marketing and promotion activities in Mexico. Most retailers expect that the advertising activities are carried out by the supplier, except in the case of private brands. Television, radio and the panels are the most popular advertising media in this country.

 

            Advertising will make the consumers aware of the wines offered by the exporting company and its distributors. It is governed by many laws and regulations in Mexico            including the Federal Law for the Protection of Consumers (FLPC).      Advertisements must be truthful and verifiable, they should not contain any elements   that would mislead or confuse the consumers.           Companies can compare their             products and services with those of their competitors within the      advertisements.           They cannot be abusive in their presentation.

 

The complexity of the Mexican advertising law is due to the close link between this          later and the laws on trademarks, copyright and intellectual property. A company can    proof that it uses its trademark authorization through advertising. Local authority may        annul the trademark of the company in the registry if it was not used for a period of         three consecutive years.  Considering this complexity, an exporting company should          seek for legal advice to ensure it applies to rules. It can also recruit for a local             promotion and communication agency which is the best positioned for conceiving             promotion spots and for choosing the most appropriate media tools. Internet    advertising becomes more and more popular in Mexico. This country currently has          over 45 millions internet users: 77% of them look at online advertising and 41% click      on advertising banners.

 

• Participation in trade fairs: Trade shows are a great way to become familiar with the Mexican market and know-how to promote products. Participation in these fairs enables exporters to present their goods, to build business relationships, to study the market and to learn about competitors and their products, as well as to know the mentality of the local business. Exporters should initiate discussion on the possibility to be represented by a Mexican company and identify the best means to promote their products. Mexican distributors, agents and local manufacturers often participate in trade fairs.

 

It is advisable for wine exporters to participate in trade fairs in Mexico including, for        instance: (a) the fair food products « Alimentaria México » which takes place       annually and    organized by the Asociación Nacional de Tiendas de Autoservicio y          departamentales (ANTAD). Alimentaria gathers more than 450 exhibitors from over   20 countries and over 11,000 trade visitors, who are mostly buyers from drinks and             food sectors. Visitors are mainly composed of large retailers, distributors, restaurants, the hospitality industry, food services and schools of gastronomy.

 

• Organization of press trip for Mexican journalists: this activity aims to sensitize journalists to French wines. It constitutes one way for promoting products and the exporting company may get good press coverage to boost its sales. Journalists and personalities to invite may include:
• chief cookers who host cooking shows on television in Mexico.
• specialized journalists or reporters in wine and gastronomy who write articles in magazines, newspapers and cookbooks.
• journalists who host cooking shows on national radio.
• bloggers, columnists and editors on the themes of wine and gastronomy on the internet.

 

• Organization cocktail and tasting sessions: These sessions aim to raise awareness of wines and to develop the image of French wine export business with professionals. These sessions can target a professional audience or a consumer audience.

 

For cocktail and tasting sessions targeting a professional audience, following persons        should be invited:

• chief cookers, sommeliers, gastronomy schools (teachers and students) ,
• buyers (specialized chains, distributors, supermarkets, ..),
• managers of outlets wines,
• distributors in other major cities of Mexico,
• and journalists.

 

These cocktail and tasting sessions are often associated with distribution of            information flyers (about the company and the wines) and press kits for journalists.

 

• Promotion off trade of the wines: this consists of organizing promotions within  independent outlets and specialty channels. Communication within the outlets is essential because it is the most promotion method used by Spanish, Chilean and Argentine exporting companies. French exporting companies must adopt this method in order to tackle their competitors.

 

Its objectives are to: (a) support the sales growth of the company’s wines; (b) create awareness and develop the image of the wines to the concerned distribution networks. The company must determine the number of outlets to target and program promotion for a well-defined period and points of sale.

 

The company should associate “cavistes” while doing its promotional activities. It may use various promotional materials including roll-ups, or kakemonos on wine shops and wine market. The exporter can also send samples to restaurants and to event organizers targeted to publicize its wines.

 

• Training of the restaurants’ sommeliers and the wine selling points’ vendors: It motivates the restaurants and the vendors: (a) to order and buy the wines of the exporting company; (b) and to prescribe he wines to their clients.

 

The training should be conducted by a professional sommelier who knows perfectly the wine business. The number of trainees per group should be limited to 15-20 for      instance.

 

To be attractive, training may be associated with a sommelier competitions chaired by         a jury of Mexican sommeliers. The best sommelier may be awarded with a trip to          France that will allow him to exchange experiences with other French sommeliers.

 

The different promotion methods used by the exporting company must demystify     the perception Mexican consumers have about French wines and should    position their             products as an accessible beverage, good for party and social events.

 

Section 2. Financial analysis of the export project

 

 

• Sales forecast, margin and export costs

 

The exporter must establish a financial analysis for the export project. This financial projection should include:

 

• the needs for equipments and facilities to supply the foreign market. If the company decides to implement its own point of sale, it must invest in the cost of purchase or lease of land or building, costs of logistics and transportation (pallets, …). The transportation costs amount to US$ 1,450 per container in 2013. They cover the costs of a 20-foot container including the costs associated with the export of procedure, costs for documents, administrative fees for customs and technical control, customs broker fees, handling charges of goods in the terminal and ground transportation. The costs do not include customs duties or trade taxes.

 

• sales forecast for 3 to 5 years: they must include the number of units to be exported, the price per unit, the monthly sales volume for the first year. The company must also provide the cost per unit exported, the total cost of goods sold, the profits from exports, the projection of revenues and expenditures, cash requirements (taking into account the delays associated with logistics and transport).

 

• in addition to the usual operating costs, costs for export must be carefully studied by the company so that it does not occur to unexpected expenses that can lead to

 

• Adjustment fees may be necessary when the exported wines need to be adapted to consumer tastes. They may relate to the production aspects or to the labeling or packaging. For the case of the wines, the labels must be replaced to comply with Mexican law.

 

• variable marketing costs are also expected to increase: they correspond to the cost distribution (agent commissions …) or logistic costs that depend on the target market accessibility or infrastructure … Fixed costs include marketing expenses, advertising, sales promotion, distribution costs, … The exploration costs can be considered as an investment which can be amortized by allocating these costs to the products. When exporting company chose to sell its products through subsidiaries, overhead costs are included in the calculation of the local price.

 

• Expenses related to the operation of the export department are also integrated to the cost of the exported wines. If the company exports to several markets abroad (eg. Mexico, China, …), its expenses are shared between each export market (direct assignment or allocation in proportion to the export turnover of each market ). These expenses include, for instance, payroll dedicated to export, mission expenses of the commercials or the representatives of the company, the cost of participation in exhibitions or trade fairs, the operational costs of the service, the fees paid for the export documentation (customs documents, …), the cost of insurance against non-payment.

 

• When the exploration costs are high, they are treated as investments and must be amortized. They are not directly reflected in the selling price of exported wines. Indeed, a higher selling price can make market penetration more difficult and cause significant differences between selling prices of competitors and those of the company. It is therefore advised that the company charges these costs by applying an allocation key to distribute these costs among different products sold by the company or add a margin to the cost that would be the contribution of wine to cover these costs.

 

• the level of breakeven volume and value to cover the cost of the wine to be exported and expenses related to export.

 

• the financial needs and the potential funding sources. In addition to the equity of the company and any bank loans, the company must first identify the various financial aid programs that can be regional or national.

 

Exporters located in Languedoc-Roussillon, for instance, may benefit from ASTREE        program that funds the elaboration of an export plan (grants of 50% limited to € 30,000);  the diagnosis and the assistance to the establishment of all necessary      forecasts; the payment of a repayable advance which may amount to € 100 000; the    funding of the  25% of the wage cost export sales over a period of 24 months. The             exporter may also ask for a COFACE aid which facilitates the financing of            prospecting activities and ensures the beneficiaries          against the risk of failure of the          export project. COFACE also provides pre-financing credits.

 

The total cost of the products to be exported is calculated as follows:

 

Production costs (variable and fixed):

Supplies, production costs, costs of adaptation to standards and tastes, possible purchase of new production tools, development costs for the export,…

+

Marketing costs (variable and fixed):

Taxes, duties, logistics costs, insurance, selling and marketing costs, market research, prospecting costs, sales staff, advertising costs, distribution costs

+

Other indirect fixed costs:

Financial costs, administrative costs, shipping costs, specific staff costs, costs for covering risks

 

 

The definition of the sales prices and the margins while exporting depend on the main objectives of the company (profitability or market penetration). Defining the price policy is a crucial decision and may be a quite complex. The pricing exercise depends on the company’s objectives, its policy and its products. Indeed, the selling price of a wine depends also on the position that the company would give his offer of wine in Mexico. This positioning influences the level of maximum prices consumers are willing to pay as well as the degree of substitution of this wine with those of competitors. The price of exported wine must be consistent with the positioning of wine, its packaging, its brand or its quality.

 

The export prices also depend on the distribution strategy of the company. Direct sales to consumers enable the company to completely control its pricing policy in Mexico. The use of a distribution network including several intermediates does not allow the company to control its pricing policy. Indeed, the nature and length of the distribution network impact on the final sale prices to the consumer: in fact, every intermediate in the distribution network has its own operating margins and they varies from an intermediary to an another.

 

The export prices of the wines vary also from one country to another one. They can be impacted by several factors: heterogeneous structures and distribution practices across markets; different and varying currency exchange rates; different inflation rates; competitive situations; different consumption taxation; different marketing mix of product sold. Indeed, the price level is crucial for at least two reasons:

 

• it determines the success or the failure of the company’s commercial policy and therefore its sales volume, revenues and its commercial viability. If the price level is too high, sales volume could decline. In contrast, if the price is too low, the company risks a shortfall, or may sell at a loss.
• it reflects the positioning of wines compared to those of competitors.

 

The pricing of export sales can be done in several ways:

 

• the selling price is calculated based on the cost of production and by adding different costs (commercial, production, transportation, logistic, customs, …) and margins. The company established its export prices from the cost of the wine in integrating all the additional costs of selling abroad. The price so determined is a level floor price below which it would sell at a loss.

 

If the company wants to fix an optimal price, it must set its price taking into account         its costs, the market characteristics, the strategy it pursues and the prices consumers       are willing to pay. This exercise must also be engaged in a marketing approach.

 

• the selling price is fixed according to the price charged by competitors for a rapid market penetration. For some products (such as basic wines subject to intense competition in Mexico), the company must consider the wines offered in the Mexican market, the prices charged by the competition, consumer preferences and their power purchase. It must therefore adjust the price of wine and its market positioning.

 

• exporting company may also apply in the foreign market the same price applied on the domestic market or just apply a coefficient multiplier on the domestic sales price. However, this approach lacks rigor and reliability. It does not optimize the price as it simply ignores the characteristics of the market. This price does not allow maximizing sales and profits of the company, or o optimizing its commercial viability.

 

This method can be used by a company that made its first steps in export. It may   subsequently revise prices based on any feedback received from trading partners. The   revision of the prices should be carefully considered in order to not alienate istributors            and customers.

 

Thus, to fix its export prices, the company must consider:

 

• the actual costs of production and delivery of wine in Mexico,
• the costs of financing exports and the proposed terms of payment,
• the business objectives of the company and its product, distribution and marketing policies,
• the information provided by market research (eg. similar types of wines offered by competitors, knowledge of the wines offered by the company, prices offered by competitors).

 

• Risks management

 

Risk management is a crucial step for a company, especially for SMEs that do not have a strong financial ability to offset losses in case of failure of an export project. The company that wants to export its wines in Mexico must assess the various risks associated with export project. These risks include:

 

• Country risk: it consists of identifying political risks and those related to regulations and economic conditions. The evaluation aims also to identify potential problems (advance payment, insurance, etc..).

 

Changing regulations constitutes a risk for exporters. Increases in customs duties and taxes for instance, may increase the prices of wines in Mexico and further penalize the competitiveness of the company. It is the same if the country decides to revise the regulations relating to products in terms of their packaging or labeling or others aspects. These revisions may require costly adaptations or may increase the administrative proceedings to which the company is facing.

 

The company must also check the level of legal security in the country in case of problems with distributors / importers / customers. Indeed, for a small French company, it may be difficult to enforce contract terms to importers / distributors or customers located in Mexico. The company shall recruit lawyers or translators on site, which involves high costs. Sometimes, these additional costs outweigh the costs of the products which are the subject of litigation.

 

Some countries are also gangrenous with corruption which can pose serious risks for the company: it may have to pay large amounts to meet its international operations. His image can be challenged if, for example, a problem of corruption between the country and the company or its representative has to occur.

 

Mexico, second Latin American economy and 14^th economic power has enjoyed a remarkable recovery since 2010 with 5.5% GDP growth and continues to grow with 3.7% in 2013. Due to its policy of openness with multiple bilateral and multilateral agreements combined with its dynamism, Mexico has become a regional power. The country is the largest trading power in Latin America for a total of over US$ 740 billion.

 

Mexico is one of the best Latin American countries according to JP Morgan and is rated « investment grade » by international rating agencies (Standard & Poor’s, Moody’s and Fitch) that recognize the stability of its political institutions, the independence of the Central Bank and the prudent macroeconomic policies pursued by the authorities since recent years.

 

Mexico is also one of the most accessible markets in Latin America with a changing business environment that offers important facilities: many measures to simplify foreign investment and product certification (electronic, cosmetics, administrative, or other …) were implemented since few years and are effective.

 

• Customer risk: the company must assess the creditworthiness of its distributors / importers / customers, and the risk of non-payment or the refusal to accept the goods. Customer risk may increase more dramatically in a foreign market than in the domestic market. Indeed, there is often more difficult to recover amounts of unpaid bills.

 

• Currency risk: it consists of anticipating potential problems in maintaining the value of the selected currency (fixed exchange rate by contract, future contracts, currency options, etc.). Currency losses occur when the currency of the domestic market appreciates against the currencies of the target markets and the revenues generated by the activity abroad consequently lose their value.

 

Recessions in foreign markets and the deepening of the debt may be strong evidence for estimating the degree of currency risk in a country: indeed these situations cause a collapse in demand for the company’s products. They can also lead to a shortage of currency or the inability to transfer currency. The latter will be obstacles to the implementation of activities abroad. The company will have difficulties to collect its money.

 

• Internal risk: the company must identify the problems related to its operations (control of production costs and distribution, availability of commercial staff …). It includes for example the risk of distribution: there may be a delay in the arrival of ships carrying wines, or a delay caused by customs clearance. Quantities of wine can also be damaged or lost in transit. Deliveries may be incorrect or incomplete. These uncertainties may cause additional costs to the exporting company.

 

• Market risk: it is to assess the risks of changing conditions in domestic and foreign markets.

 

• Business risk: the company must be able to quickly identify new market trends with respect to alcoholic beverages (including wine in particular) as well as the changing needs of the customers to take adequate measures not to lose its market share. It must therefore ensure that they have the necessary arrangements to obtain this information. If the foreign company representatives do not inform on time or did not inform the company about the changes they have observed in the market, the company loses its markets to compete or cope with new entrants.

 

 

• Competitive risks: Exporting AOC wines and wines specific to a French terroir don’t expose the French company to intensive competition. Indeed, it is difficult for competitors to reproduce the same quality of these wines. They cannot dismantle the wines and duplicate the colors, the tastes or the production costs. Even the representative of the exporting company moves to another competitor, it is not representing high risks for the company. In this case, the risk of the company is more commercial.

 

• Risks related to the staff: the risk of the company lies in the loss of skilled staff in its export department. Indeed, it is not easy to find qualified staff with strong experience in international trade. The company is also exposed to the risk of fraud or misuse on the part of its representatives who work abroad. These risks are favored by the remoteness and the difficulty of controlling the actions of a remote collaborator. A representative can double the price of the wines he sells to customers and pocket the difference by reporting the agreed price in the exporting company. The company may be cantilevered to clients if these latter find that the prices charged by the company are significantly more expensive than the prices charged elsewhere. It may also a problem of reputation and image.

 

To better manage its risks, the company must:

 

• evolve to what extent it is exposed to risks in connection with its export activities.
• estimate the potential damage caused by each risk and assess the possibility of occurrence of these risks. These estimates are based on the experience of the company in international markets and on the analysis of the information available about trading in Mexico.
• determine whether the export opportunities are greater than the risks. If there is significant potential for damage to the project that can threaten the life of the company, it is recommended to abandon the project.
• take measures to mitigate critical risks.
• conduct monitoring of the implementation and effectiveness of the measures adopted.

 

To mitigate risk, the company could, for instance:

 

• customer risk: remove the risk of payment default by requiring advance payments from customers. It could gradually establish credit limits depending on the payment behavior of its distributors/importers or customers. Credit limits may increase over the years for reliable customers. The company could also implement a systematic management of debtors who quickly sends reminders when customers exceed the time allowed for payment.

 

• currency risk: the company may realize forward transactions and purchases goods or services in foreign currencies.

 

• commercial risk: the company can transfer its risks through insurance for export risks. Insurance costs money and reduces the margin. However, it avoids the company to incur substantial damages it cannot assume. It allows a better planning of the activity. Some companies manage to integrate export risk in the price of their products and thus transfer them to their customers.

 

Conclusion

 

Mexico is a strong consumer market of alcoholic beverages. He recorded nearly 250 launches of new brands of tequila and beer each year. Wine consumption in Mexico is gradually increasing since recent years, both for local wines and imported wines. Local wine producers realize indeed continuous campaigns to encourage people to consume wine.

 

The offer on the wine market in Mexico includes classic table wines and high quality wines. Intense competition exists in the segment of the classic table wine with several competitors in the market (Spain, Chile, Argentina). France is the second largest importer of wine in terms of value in Mexico. It is well positioned in the market for good quality and expensive wines.

 

To be successful in the Mexican market, it is thus recommended to the French company to export AOC or specific wines. The advantage to marketing these kinds of wines is that they are specific to a well defined France “terroir”. These are products that have a great history and are evidence of French know-how, which constitute their comparative advantages. They cannot be copied by the competition. These elements can also be used and widely exploited in the marketing and communication strategy of the company.

 

The company must then identify its targets: seniors with good purchasing power belonging to the upper class as well as trendy young active people who want to taste new products.

 

The company must also participate in exhibitions (for wine or food industry) in Mexico and discuss with local operators to know how the business is running in this country.

 

The company must define its distribution policy and carefully select its distributors and importers in Mexico: they are responsible for the promotion and the sales of the wines. It must be careful not to give exclusivity to its distributors because few of them have national coverage. The company may opt for opening its own outlet if it sells luxury wines with comparative advantages compared to competitors.

 

Wine labels must comply with the regulations in force in Mexico and must adapt to the tastes of Mexicans who love bright colors and warm atmosphere. The company must register in the list of importers in Mexico and must engage the services of legal counsel (for contracts), one or more agents (who will represent Mexico), agency communication (to better meet the specific needs of the Mexican market and the advertising law in this country).

 

The company may use various means of promotion and communication for its wines including direct marketing, tasting sessions at the point of sale or in events, training sommeliers and commercial agents.

 

The definition of price is a complex exercise for the company which must be careful not to sell at a loss and release good profits. The approach by cost or by the market approach is motivated by the positioning of the wines on the market, the competitive intensity for similar wines, the objectives of the company (rapid market penetration or profitability).

 

The financial projections are not neglected because they allow the company to identify investments that are necessary, financing requirements and reorganization to implement such as the implementation of an export department…

 

The company must also assess the various risks that may arise and take appropriate measures to mitigate. Mexico country risk is lower because the investment climate is good for business. Commercial risks are also low because the wines are difficult to reproduce. However, operators may run into payment problems and corruption issues. The company must ensure and be paid before sending the goods.

 

 

Bibliography

 

• Agriculture et Agroalimentaire Canada (2011), Tendances de consommation – vin ; bière, spiritueux au Mexique,
• Fleishmann-Hillard (2010), Guide de préparation à l’exportation au Mexique, Exporter des produits agricoles et agroalimentaires au Mexique, pour le compte de Agriculture et Agroalimentaire Canada,
• Resnick Evelyne et James de Roany (2012), Guide pratique de l’export du vin, Editions Dunod,
• Ubifrance (2012), Fiche de synthèse: Le marché des vins et spiritueux au Mexique,
• USDA Foreign Agricultural Service (2009), Mexico: Food and Agricultural import regulations and standards,