Pulse surveys with shopkeepers across Mexico during COVID-19
Pulse surveys with shopkeepers across Mexico during COVID-19
in partnership with 
In our previous publications we have illustrated the different effects of the COVID-19 pandemic on the financial situation of the lowest income segments in Mexico and other countries.
Before the COVID-19 pandemic triggered Mexico’s Phase 3 on April 21, 2020, BFA Global partnered with Frogtek Analytics to learn about the pandemic’s effects on shopkeepers (tiendas de abarrotes). Frogtek is an SaaS firm with an active network of 2,200+ shopkeepers across twelve cities in Mexico. These shopkeepers digitize business operations with Frogtek software on a daily basis.
Our collaboration consisted of executing an initial pulse survey to understand the effects of the epidemic on their operations and their financial soundness. The survey comprised a short questionnaire deployed via Frogtek’s platform, complemented by anonymized data variables from shopkeepers for further analysis.
Below is an abstract of the five most salient findings from this initial survey exercise as we try to better understand the financial effects of the pandemic across Mexico.
1. Purchases on store credit (fiado)
By the beginning of April, shopkeepers in Mexico were forecasting a major shift in the way that shoppers paid for their purchases. The shift has not been as much from cash-to-digital, as it is to obtaining store credit from shopkeepers. An informal system of store credit – known as fiado in Mexico – is set to explode because of the economic impact of the pandemic. As workers lose income from their businesses, shopkeepers believe they will see a spike in purchases on credit. More than half of shops believe they will see a large increase in in-store credit purchases, and the perceived potential impact is not confined to only the smallest (or largest) shops in the Frogtek sample.
2. Credit sales increase more among shops with many small-value purchases
The change in fiado purchasing is predicted across many types of shops in many regions of Mexico. Which shops are predicting the greatest increase in fiado use? It is neither the shops with the most sales alone nor those with the least sales. Instead, it is the combination of many sales transactions and their low-average value that best predicts the rise in reliance on fiado sales. Think of a shop that sells very small packets of fast-moving consumer goods, rather than a shop that sells expensive goods or fulfills large orders. Shopkeepers with higher transaction volume and lower transaction value forecast the greatest increase in purchases that won’t be paid-on-delivery. In the chart below, the points that fall to the lower right of the diagonal line have lower value density on each purchase.
3. Financial distress from poor cash flow
Shopkeepers are already reporting that financial distress has affected their purchases. Due to a lack of funds, they will need to either borrow money to finance wholesale purchases or reduce what they order. As with the fiados plots above, we explored whether the problem primarily affects small, medium, or large stores and found that it was uncorrelated with stores’ turnover. Financial distress is the reality for shops, large and small, as well as in all regions of Mexico.
4. Financial distress drives fear of consumer default
Shopkeepers’ own financial distress drives their perceptions of default risk. Shopkeepers in Mexico do not assess customers’ credit with the same tools and information that banks do. Instead, they rely on personal relationships and customers’ reputation to assess whether customers are able to pay the fiado amount. We might be tempted to think that shopkeepers’ forecast of increased fiado purchases would be correlated with their concern for customers’ default, but it isn’t. Instead, the shopkeepers who have felt the pinch of tight cash flow are the ones worrying about whether their customers will repay. Shopkeepers whose own wholesale purchases are already at risk from tight cash flow are the most likely to express concern about consumers’ default.
5. Public health fears are tied to fiado sales
Public health risks are the common thread driving merchant forecasts of purchases on store credit. There are not many places forecasting lower sales on credit in the next month. But what they have in common is that the shopkeepers there are much more likely to respond that they are not concerned about serving the public during the pandemic. We asked to what degree shopkeepers are concerned about the health risks of operating a shop during the pandemic. Those with the highest level of concern are the very same who forecast increasing levels of sales on store credit. That is, increasing credit sales are correlated not with concerns about consumer default, but with concerns about health risks under COVID-19.
