Background and Relevance of Raquel Jiménez
Raquel Jiménez, the leader of Customer Success at NielsenIQ (NIQ), has raised concerns about the potential temporary closures of small stores, or “tienditas,” in Mexico due to the upcoming increase in the Impuesto Especial sobre Producción y Servicios (IEPS) on beverages.
Historical Context and Impact of Previous IEPS Implementation
In 2014, when a similar IEPS was applied to soft drinks, around 19,400 out of nearly one million traditional stores in Mexico closed. These closures were a result of retailers not adjusting their budgets to accommodate the increased prices, leading them to reconfigure their purchases.
- Retailers prioritized high-turnover products like soft drinks, snacks, and juices.
- They reduced the variety of other categories, including non-taxed items like food and household products.
- As a result, stores became less stocked, leading to a loss of customers and eventual closures.
Consumers, in turn, started purchasing from more affordable channels such as wholesalers, discount stores, price clubs, and even supermarkets due to the increased soft drink prices.
However, Jiménez notes that this effect was temporary, as the number of stores rebounded by 2015 and 2016.
Impact of the Upcoming IEPS Increase
The new IEPS, set to take effect on January 1, will increase the price of sugary beverages by 3.08 pesos per liter and, for the first time, will tax diet beverages at 1.50 pesos per liter.
With the principal sales channel for soft drinks being the traditional small stores or “tienditas” – approximately 1.1 million nationwide – the implications of this tax hike are significant.
Potential Consequences for Retailers
Retailers may once again face negative impacts due to the increased soft drink prices, potentially leading to temporary store closures.
Consumers might allocate slightly more of their budget to purchasing soft drinks, compensating for the additional expenditure by cutting back on other items and activities such as entertainment outside the home.
Consumer Behavior Adjustments
To offset the price increase, consumers may seek savings in other areas, like reducing expenses on going to the movies, dining out, or ordering food delivery.
Key Questions and Answers
- What is the IEPS? The Impuesto Especial sobre Producción y Servicios (IEPS) is a special tax in Mexico applied to certain products and services.
- Which beverages will be affected by the new IEPS? Both sugary and diet beverages will experience price increases due to the new tax.
- How many small stores are there in Mexico? There are approximately 1.1 million traditional small stores, or “tienditas,” in Mexico.
- What happened during the last IEPS implementation in 2014? Around 19,400 small stores closed due to increased soft drink prices and retailers’ inability to adjust their budgets accordingly.
- How might consumers react to the new IEPS? Consumers may cut back on other expenses, like entertainment and dining out, to accommodate the increased soft drink costs.
