The Mexican Home Appliance Market

The Covid 19 pandemic has changed buyers' and consumers' behaviors worldwide. As people have been forced to spend more time at home due to home office, digital classes, and lockdown measures, they started to use their kitchens more frequently. Often, households noticed a lack of or the need to renew home appliances, which was very beneficial for electro domestic manufacturers and their providers.

These developments are especially noticeable in the Mexican market, as can be seen in graphs 1 and 2. With an increase in demand, international companies began investing heavily in their Mexican locations or even opening new ones. Recently, the German BSH Group, a subsidiary of Bosch, as well as the Chinese Hisense Group, announced the construction of new home appliance plants in the state of Nuevo Leon, each investing $260 Mio. Further Million-Dollar investments are planned by Whirlpool, Mabe, and other multinational manufacturers. An overview of the manufacturers already located in Mexico can be seen in the following:

The following analysis explains why the Mexican market is especially interesting for home appliance manufacturers, and what chances the investments provide local and international suppliers with. Furthermore, it will give an overview of the Mexican consumer market and provide an outlook for the sector.

Firstly, establishing production plants in Mexico is beneficial for companies wanting to lower their costs without lowering standards. Land and material prices, as well as salaries, are at a lower level than in developed countries, while the workforce is highly skilled, especially in the industrial sector.

Secondly, Mexico counts with a well-established infrastructure in the sector. Particularly Nuevo Leon with over 40% of the national home appliance production, and Querétaro, with over 20%,  are states that have already attracted several international manufacturers from the sector and a supplier network consisting of local as well as international providers. San Luis Potosí (>9%) and Guanajuato (>7%) rank 3rd and 4th in electro domestic production.

Thirdly, reaching the North- and Central American markets is easy when your plant is located in Mexico. Due to Mexico’s closeness to the US, Canada as well as the North and South American continents, it is a strategic location with transportation opportunities via sea, air, and road. Delivery times are shorter and more cost-efficient than delivering from Europe or Asia. Additionally, as a member state of the USMCA treaty, all products produced in Mexico can be shipped duty-free to the U.S. or Canada.

Lastly, nearshoring has gained importance. During the Covid-19 pandemic, supply disruptions have slowed down international trade, especially im- and exports from and to other continents. US and Canadian companies are therefore increasing their presence in nearby countries, mainly Mexico, to avoid problems and ensure a fluent trade. Since the US is the second-largest home appliance market in the world, this means increasing import rates from Mexico and lots of development chances for Mexican and international countries. 

As in most countries worldwide, Mexican consumers have increased home-cooking and baking during the past two years and oftentimes began to eat more consciously to protect themselves from the covid-19 virus. But their increasing demand for electro domestic products was often challenging for them. Unlike households in developed countries, Mexican families did not receive government aid and due to financial cutbacks as a consequence of the economic crisis, they often had to wait for promotions to buy new home appliances.

In the upper-income classes, however, there has been a high rise in purchased home products. Especially smaller equipment, like blenders and juicers, have been of high demand. But also eco-friendly machines with shorter cycles, that save energy and are sustainable, have been popular in Mexico and all over the world.

The rising demand for electro domestic products can be seen in graphs 1 and 2. In 2021 alone, Mexicans have purchased over 42 Mio. home appliance goods with a revenue of over $3.35 Bio. Experts estimate continuous growth in the next years, which means that by 2026, revenues will have more than doubled to $7.2 Bio. This demonstrates the enormous potential that the national market has. Companies just have to meet the needs of the consumers and the local economy has to continue growing in a fast way. 

Another trend that has arisen with the pandemic is the shift from buying in-store to online. As it can be seen in graph 3, between 2017and 2021, online home appliance purchases have risen by +16.3% nationwide and will continue to do so. Not only does this show a shift in purchase behavior, but it is also a sign of a maturing market, where digitalization grows month by month, lifting the economy up with it. 

A growing home appliance market offers plenty of opportunities to local and international suppliers. Manufacturers are forced to rely increasingly on local providers, because of the USMCA agreement, which states that 60% of a product has to be produced in Canada, the US, or Mexico. For the manufacturers, it is also an advantage to source locally, because costs in Mexico are lower and ways shorter.

This means, that with increasing demand for parts, international and local suppliers get the chance to construct their own plants close to the OEMs. For companies from abroad (often with already established Supply Chain relationships with the manufacturers) it gives an opportunity to expand their business and benefit from lower production costs. Both locals and internationals, manufacturers and suppliers will furthermore create jobs. The BSH Bosch plant alone will need 1,500 employees to reach its production capacity of 600,000 refrigerators a year. Hisense is starting with 1,000 employees, with the potential to grow to a need for 7,000 workers. These investments and opportunities will generate impactful economic benefits for Mexico, helping step by step to lower poverty and unemployment rates.

Further market opportunities that the pandemic has accelerated are the market entrance of new brands and e-commerce. Especially low-budget products are needed in the Mexican market, to provide lower-income families with needed home appliances, and convenience is driving more and more people to buy online. Experts estimate that by 2025, the e-commerce market share will rise from 22.8%(2021) to 43.5%. This will give brands the opportunity to enter and operate in the market more easily. 

FINAL THOUGHTS

As we have demonstrated in this article, the home appliance goods industry has enormous potential in the Mexican Market. The national and international market is not saturated yet, driving more and more foreign companies to invest in Mexico and local companies to expand and lift up the national economy. Those who have not arrived yet and are looking for ways to expand will have to enter the Mexican Market soon before their competitors take their seats at the table.

To get more information on the local market and ways to establish or expand a business in Mexico, please do not hesitate to contact our Zeitgeist Team anytime via info@zeitgeist.mx. Our market experts will happily advise you on possibilities and any other legal, accounting, and human resources topics.