Q3 2024 Fomento Económico Mexicano SAB de CV Earnings Call
Melissa: Hello and welcome to Femsta's third quarter 2020 four of the most conference call my name is Melissa and I will be your coordinator for today's event.
Melissa: Please note that this conference is being recorded and for the duration of the call, your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star, followed by one on your keypad to register your question.
Speaker Change: If you require assistance at any point, please press star zero to be connected to an operator. I'll now turn the call over to Juan Fonseca, Director of Investor Relations. Please go ahead.
Juan Fonseca: Good morning, everyone. Welcome to FEMSA's third quarter 2024 results conference call.
Juan Fonseca: Today we are joined by Jose Antonio Fernandez-Garza Laguerra, CEO of our Proximity and Health Division, Martin Arias, our CFO, and Jorge Collazo, who heads Coca-Cola Friends' Investor Relations Team.
Juan Fonseca: The plan for today is for Jose to open the conversation with some comments on the performance of Proximity and Health during the third quarter.
Juan Fonseca: and then to move on to a more strategic set of topics that follows and provides an update to some of the messages he shared with you six months ago during our first quarter call, including some preliminary views on our expectations for 2025.
Juan Fonseca: After Jose's remarks, Martin will provide more detail on the Beltrn business and our quarterly results.
Juan Fonseca: Finally, we will open the call for your questions.
Speaker Change: Jose, please go ahead.
Jose: Thank you, Juan. Good morning, everyone.
Jose: During the third quarter, Proximity and Health delivered a solid set of results.
Jose: As you look at our financials, you see growth almost everywhere and margin expansion in all the right places.
Jose: This is certainly positive, and a testament to the strength of our business platform, the skill of our teams, and the permanent effort to grow and improve quarter after quarter, year after year.
Jose: But Martin will go over the results in some detail in a few minutes.
Jose: I want to focus particularly on what did not go that well, particularly the dynamics of same-store sales at Proximity Americas, which came in flat for the quarter.
Speaker Change: First, let's discuss average traffic, which contracted 5.7%, reflecting a wetter and cooler third quarter, with its negative effects on some of our most important consumption occasions, thirst and gathering.
Speaker Change: The greatest contraction was in key categories such as beer, soft drinks, and water.
Speaker Change: Beyond weather, in the third quarter, we faced a demanding comparison base as same-store sales grew over 15%.
Speaker Change: and traffic increased a remarkable 8% in the same quarter of last year.
Speaker Change: Finally, a growing consumer environment in Mexico also contributed to the weakness.
Speaker Change: This environment is typical for the second half of an electoral year.
Speaker Change: Observing the polling traffic, average ticket grew 6.1%, reflecting revenue management initiatives while having a favorable effect on growth margin.
Speaker Change: A careful review of pricing and market share data lead us to the conviction that these revenue management initiatives have been implemented without losing price competitiveness or market share in the relevant categories, relative to the traditional trade as well as supermarkets.
Speaker Change: It goes without saying that we will continue to monitor the data to ensure that we maintain our competitiveness.
Speaker Change: As we look ahead, our comparison base gets easier and we look forward to an improvement in the Mexican economy in general and the consumer environment in particular.
Speaker Change: Let me walk you through our longer-term plans for proximity and health.
Speaker Change: My team and I have taken the first year of my time as head of the division to carefully review the portfolio and to start adjusting our long-range plans with a renewed empathy on return on invested capital by format, line of business, and country.
Speaker Change: This has led us to sharpen our focus on the investments that we are making by accelerating, decelerating, or eliminating initiatives.
Speaker Change: A significant portion of my presentation to the board in the coming weeks will be focused on an in-depth review of the entire portfolio, with a specific focus on OXO LATAM.
Speaker Change: This would complement the deep dive we undertook earlier in the year in the health and Valora businesses.
Speaker Change: We expect from this session to finalize our medium and long-term plan.
Speaker Change: Although we must receive comments and final approval from the board, I want to take the opportunity today to share some of the initial thoughts I have as to where we need to focus in the next few years.
Speaker Change: First and foremost, OxxoMexico, where we believe the opportunity exists to continue to create significant value for the foreseeable future.
Speaker Change: The business has structural momentum and a very high ROI spread.
Speaker Change: Sustained growth margin at the current levels and sustained high-quality store-based expansion.
Speaker Change: On that note, our preliminary store expansion target for 2025 is in line with the current trend of about 1,100 net new stores in Mexico, or more than 4% of the base.
Speaker Change: We will also continue to evolve OXO's value proposition by developing and integrating additional value layers, with a current focus on three projects, food service,
Speaker Change: Price and Store Segmentation and Cash Management Initiatives to Strengthen Our Fairbanks Businesses.
Speaker Change: And now, let's get started.
Speaker Change: Beyond Mexico we have several compelling opportunities and as discussed six months ago we have the benefits of being able to modulate the pace of an investment given the organic nature of the growth process and according to the stage of development of each forest.
Speaker Change: Let me briefly go over the various opportunities and where we are with our plan for each.
Speaker Change: In the U.S., we just closed our acquisition of the Dellec retail assets. These are very early days, but we're excited to finally get to work in this attractive market.
Speaker Change: So expect more information regarding our tests around El Paso and the broader strategic path we expect to take.
Speaker Change: Focusing on the
Speaker Change: At Vara, we continue to optimize our discount value proposition while we meaningfully accelerate store build-up, with a preliminary target for 2025 of approximately 40% growth rate in the store base.
Speaker Change: We have also undertaken the decision to administratively and operationally segregate VARA from OXO-Mexico to ensure that it has the resources and focus it requires from what we expect to be a new stage of higher growth.
Speaker Change: This segregation may have a short-term impact on certain costs and expansion, but it will provide a solid foundation for the future.
Speaker Change: At OxxoColombia, our mature stars are already ED-positive, even after allocating overhead.
Speaker Change: to them. And we are confident that we have a winning format with food convenience reaching approximately 15% of revenues and average sales per store matching those in Mexico.
Speaker Change: We are excited with the evolution of this market, especially as we continue to develop specific capabilities and fine-tune our value proposition.
Speaker Change: in four days, while we also build out our supply chain infrastructure.
Speaker Change: and improve our processes.
Speaker Change: in assortment, price segmentation, services, and food.
Speaker Change: For certain other Latin proximity operations, such as Oso, Chile and Peru, we are de-emphasizing expansion and we focus on improving their profitability drivers.
Speaker Change: This strategy will also help us reduce overhead in both markets.
Speaker Change: As a result of this initiative, we expect to improve the results of Oxford LATAM generally and reduce the level of investment required in the short term.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: In Europe, Valora continues to perform well, particularly retail and B2B food service. And we are working to improve traffic to B2C food service, which will depend in part on an improvement in German economic growth.
Speaker Change: We expect this improvement in the next 12 to 24 months.
Speaker Change: We are also making progress with our organic growth initiatives, particularly in German retail, but we have chosen to take a cautious approach in recognition of the complexities of that market.
Speaker Change: We are also driving continued capability sharing with the rest of Proximity by Valora, for example in food service, and from Proximity to Valora, such as the use of data for price and promotion optimization, and leveraging our scale to increase commercial income opportunities.
Speaker Change: Aroxo Garza
Speaker Change: We are continuing to drive growth by increasing volume at our retail stations, as well as pursuing incremental growth with institutional clients.
Speaker Change: passionately optimistic on our ability to obtain permits to increase our station-based organity and pursuing small bolt-on acquisitions in a very disciplined manner.
Speaker Change: We have also launched a pilot truck stop concept, which combines an OXO gas and OXO store with PEMSA and third-party food offerings, as well as specialized facilities for truck drivers such as showers, a rest area, and mechanical services.
Speaker Change: These stops could be located in key highway areas, offering a compelling new value proposition that better addresses the needs of Mexican truck drivers.
Speaker Change: Regarding the traditional trade, after a careful analysis we will recommend to the board suspending our pronto initiative.
Speaker Change: both the franchise model and wholesale distribution.
Speaker Change: We may revisit these opportunities in the future, but given the many priorities in front of us, we have concluded that renouncing certain initiatives is as essential as identifying which ones we want to accelerate.
Speaker Change: Obviously, we will continue to leverage the Proximity and COPS capabilities to pursue the opportunities to provide the traditional trade with services and payment platforms through our digital division.
Speaker Change: Finally, at CENSA Health, each of our four country operations are in different situations and require different strategies.
Speaker Change: For now, let me focus on two countries, the one that presents the most dynamic opportunities and the one that needs the most work.
Speaker Change: In Colombia, we are achieving rapid growth in retail as we de-emphasize exposure to the challenging institutional segment.
Speaker Change: We expect to continue growing our leadership position by expanding rapidly with a unique value proposition for Colombia in pharma and health and beauty.
Speaker Change: We have also identified an opportunity in the wholesale distribution business, where we will use our scale and logistics capabilities to serve the independent pharmacies, which still represent close to 50% of the market.
Speaker Change: In Mexico, we will continue rolling out our new flagship drug stores with an important component of health and beauty as we navigate an intense competitive environment.
Speaker Change: It is still early to determine the results of the new flagship stores, but we are optimistic that the dual format strategy will work as well in Mexico as it has elsewhere for us.
Speaker Change: Thank you.
Speaker Change: Wrapping up, hopefully the message we leave you today is one of ample opportunities for profitable growth in the short, medium, and long term of an organization that is highly focused and a management team that is determined to prioritize and allocate resources.
Speaker Change: according to each project's potential to deliver the healthiest spread between ROIC and WAC in the long term.
Speaker Change: And with that, I will now turn the call over to Martin to talk about the third quarter results.
Speaker Change: Martin, please go ahead.
Martin Arias: Thank you, Jose. Good morning, everyone, and thank you for joining us today.
Martin Arias: Let's begin with Census Consolidated second quarter results.
Martin Arias: In the third quarter, we achieved total revenue growth of 8.3 percent, while operating income rose 14.6 percent compared to the same period last year, reflecting a strong performance across business units.
Martin Arias: Net consolidated income decreased 27.5% to 9.2 billion pesos.
Martin Arias: driven by a higher interest expense of 4.4 billion pesos net of interest gains reflecting a tough comparison based from gains on derivative instruments in the third quarter of 2013.
Martin Arias: A lower non-cash foreign exchange gain of 4.2 billion pesos compared to last year related to FEMSA's U.S. dollar-denominated cash position positively impacted by the depreciation of the Mexican peso.
Martin Arias: which was more than upset by a foreign exchange loss due to our debt positions in all of our currencies.
Martin Arias: and finally a higher loss in net income from discontinued operations which includes an impairment of 3.9 billion pesos from our divestment in Solistica.
Martin Arias: turning to our operational results.
Speaker Change: Jose already discussed the overall overall performance of Proximity America and the same store sales figures, so let me take it from there.
Speaker Change: Total revenues grew by 4.8 percent.
Speaker Change: driven primarily by a steady growth in our store base.
Speaker Change: Gross Margin once again expanded above trend by 300 basis points to reach 44.2%.
Speaker Change: As has been the case recently, this was driven by healthy dynamics in commercial income and a positive contribution from financial services.
Speaker Change: Focusing on the
Speaker Change: Operating income increased 5.9 percent, while the operating margin expanded 10 basis points to 100 percent of sales, reflecting a modest reduction in the growth in operating expenses relative to the first half of the year.
Speaker Change: This includes initiatives to mitigate the impact of higher labor costs and lower variable costs due to the slowdown in sales, partially offset by ongoing investments in capability building such as segmentation, revenue management, and data analytics.
Speaker Change: On the store expansion front, in the third quarter also added 367 new stores during the quarter.
Speaker Change: with 273 openings in Mexico and 94 in South America.
Speaker Change: including 39 new stores in Brazil.
Speaker Change: Year-to-date, OXO added 1,266 net new stores during the quarter, with 961 openings in Mexico and 305 in South America.
Speaker Change: including 124 new stores in Brazil.
Speaker Change: This puts us well on our way to meet our objective for the year, allowing us to reduce the pace of opening and focus on maximizing sales during the P4 quarter.
Speaker Change: Turning to Proximity Europe.
Speaker Change: Total revenues increased by 20.4% in phases.
Speaker Change: driven by growth in our retail and B2B food service business.
Speaker Change: mitigated by still challenging traffic dynamics generally, particularly in our B2C food service, which is more exposed to German train service disruption and a weaker German economy.
Speaker Change: Valora's results also reflect the impact from positive currency dynamics of the weaker Mexican peso, which accounted for three-quarters of the total increase.
Speaker Change: Gross profit rose by 20.5% as well in pesos.
Speaker Change: with post-margin remaining stable year-over-year with a solid contribution from commercial income offsetting the weakness in the higher-margin B2C food service segment.
Speaker Change: At the operating income level, Valora delivered another strong performance with a 62.2% increase and 100 basis point expansion in operating margin reflecting solid cost containment.
Speaker Change: Thank you.
Speaker Change: Moving on to the Health Division.
Speaker Change: Total revenues posted at 12.5% increase in pesos, with theme store sales growth of 7.4%.
Speaker Change: This reflects a strong performance in Colombia's retail segment.
Speaker Change: complemented by steady results in achievement and with favorable currency dynamics which contributed to approximately half of the overall result.
Speaker Change: Operating income increased by 7.2 percent.
Speaker Change: while the operating margin contracted by 20 basis points, reaching 4.3%.
Speaker Change: Although these figures reflect a sequential improvement from the first and second quarters, this does not diminish the need for strategic adjustments to navigate ongoing challenges, particularly in Mexico, as Jose described a few minutes ago.
Speaker Change: Turning to off-sale gas, we continue to perform strongly, posting 7.6% increase in sustained patient sales and 8.2% in total revenues.
Speaker Change: During the quarter, the gross margin was stable at 12.4%.
Speaker Change: The operating margin expanded by 40 basis points and stood at 4.9%, reflecting effective cost management and operational efficiencies. Income from operations grew a strong 17% relative to the same quarter in the prior year.
Speaker Change: turning to Digital Ascension.
Speaker Change: We continue to work on our strategic initiatives to drive growth and capitalize on the large customer base we have captured in our platforms.
Speaker Change: The number of active users for SPIN by OXO reached 8.2 million, marking a 28% year-on-year growth and indicating still solid customer adoption trends.
Speaker Change: Our SPIN Premier Loyalty Program also showed robust growth, with a 35% year-on-year increase reaching 23.8 million active users.
Speaker Change: Thank you.
Speaker Change: Approximately 38.5% of OXXO-Mexico sales are now linked to SINFREÑA.
Speaker Change: While year-over-year user growth has been impressive, sequentially we are seeing a moderation in the pace of growth.
Speaker Change: Partly due to the scale we have achieved, but also as a result of a purposeful policy of reducing customer acquisition costs further, focusing more on driving engagement and usage from our existing base, and thus, generally increasing recurring revenues.
Speaker Change: Thank you. Thank you.
Speaker Change: By leveraging data analytics, we are gaining valuable insights into consumer preferences, allowing us to better tailor our promotional offerings.
Speaker Change: We remain focused on building an omni-channel strategy that ensures we provide a seamless experience across platforms.
Speaker Change: Finally, Coca-Cola Femsta reported a strong set of results, with a 10.7% increase in top one, reflecting a solid revenue management strategy, telling confirmed operations improved by 13.9%.
Speaker Change: expanding the margin and reflecting operational efficiencies across territories.
Speaker Change: A repaid COPS quarterly call, which was held last Friday, is available on their website.
Speaker Change: and many more. Thank you.
Speaker Change: In terms of our capital allocation strategy, we remain committed to sustainable growth and shareholder value creation.
Speaker Change: Our approach involves strategically deploying capital across our business units while prioritizing return on invested capital in each initiative.
Speaker Change: This quarter, we allocated 12.1 billion pesos in capex, representing 6.2% of total revenues and a 26.4% increase compared to the same period last year.
Speaker Change: These investments are critical to keep growing our installed capacity and footprint, driving operational efficiency.
Speaker Change: and maintaining our competitive advantage in the industries we serve.
Speaker Change: Earlier this year, we announced our plan to return to shareholders capital in excess of our ordinary dividend totaling $50 billion over a two- to three-year period.
Speaker Change: In the first year, we allocated 30.7 billion pesos in a combination of approximately 10.3 billion pesos in extraordinary dividends, and 20.4 billion is shared by that.
Speaker Change: In this process, we repurchased 102.2 million shares, equivalent to approximately 3% of our total shares outstanding, leading to an increase in our earnings per share of 2.8% to 6.14 pesos year-to-date.
Speaker Change: As you know, we have set a leverage objective of two times net debt to EBITDA, X4, ARPA, La FEMSA, by the end of 2026.
Speaker Change: At the end of the quarter, that ratio stood at 0.68 times, basically flat to where it stood three months before. So it is clear we have more work to do.
Speaker Change: As we move forward, our focus remains on prioritizing investments that can deliver the best risk-adjusted returns within our three core verticals.
Speaker Change: We aim to balance our expenditures with prudent cash management, ensuring we retain the flexibility to seize growth opportunities.
Speaker Change: including potential acquisitions.
Speaker Change: Our ongoing capital allocation strategy exemplifies our dedication to driving long-term value for our shareholders.
Speaker Change: Martin, before we head out for questions, let me have just some comments on our joint venture in Brazil.
Speaker Change: In Brazil, we're expanding the store base in the state of Sao Paulo at a steady state. We continue to grow same store sales for the almost fifth quarter in a row on double digits.
Speaker Change: And while we continue to fine-tune the value proposition and refine certain processes to reduce shrinkage and employee turnover.
Speaker Change: While these have yet to be presented to the board of group on us, in terms of store base, expansion, we will recommend to our partner and increase of approximately 20% during the next year [inaudible]
Speaker Change: And with that, we can open for questions.
Speaker Change: Thank you very much. As a reminder, if you would like to ask a question on today's call, please press star followed by 1 on your keypad.
Speaker Change: To withdraw your question for any reason, you may press star followed by 2.
Speaker Change: and you will be advised when to ask your question.
Speaker Change: Our first question is from Ricardo Alves with Morgan Stanley. Please go ahead.
Speaker Change: Thank you.
Ricardo Alves: Hi everyone, thanks so much for the call. My first call, my first question on the
Ricardo Alves: that also seems to our sales kind of the hiccup that you saw
Ricardo Alves: in the third quarter. Can you elaborate on that from a couple of different angles? First.
Ricardo Alves: maybe prospects for also getting back to the mid-single-digit expansion if that's something that
Ricardo Alves: to December, for example, a very key month, or if you see...
Ricardo Alves: You know, some of the headwinds that we that we saw in the third quarter, the weather improving in a better, same story, serious direction. And second, still related to OXO.
Speaker Change: While the same-store sales came below what market expected, the 6% increase in average ticket was certainly a very positive highlight.
Speaker Change: The preliminary remarks were quite interesting in terms of the management reiterating the new revenue management initiatives.
Speaker Change: revenue segmentation strategists.
Speaker Change: Can you talk about that, those pricing initiatives, that revenue management, can you give us some examples of, you know, the good stuff that you're implementing within OXL, retail media and so forth, that is probably
Speaker Change: may be misunderstood by the market at this point. Thank you so much.
Speaker Change: numbers in particular. It was our toughest quarter in terms of comparison, so in the fourth quarter we do have a better comparison.
Speaker Change: numbers, but to me, to make a prediction on how the market is going to behave.
Speaker Change: given how uncertain the weather and how volatile the weather has been.
Speaker Change: All these years, it's hard for me to say. I do expect a better end of the year, same-store sale comparison.
Speaker Change: but I'm not ready to give a prediction. I would say the team is working very hard.
Speaker Change: and Juan Fonseca.
Speaker Change: hopefully a better quarter, but without me expecting or being able to predict much better in terms of sales. As you know, we are in the midst of the end of a presidential election.
Speaker Change: calendar and the start of another, and that's always the shift between the new team getting in and budgets approved, etc. Always there's some expectation of softer economic environment. It has always been the case.
Speaker Change: after every sexennial, so I'm still expecting it will be a soft economic development. Hopefully with better weather for the rest of the year and especially next year.
Speaker Change: And obviously, we are extremely excited about what we're seeing with the
Speaker Change: with our promotional and our price and segmentation capabilities is giving us very good results.
Speaker Change: And that's coupled with an expansion in vendor income by doing all these special promotions and flagship stores decorated with, have been a good source of revenue and we expect that revenue to continue.
Speaker Change: to keep going forward. On the services level, we continue to add, it's still a source of growth.
Speaker Change: all these years has been a remarkable growth in financial services and we expect that to continue as we expand our infrastructure in cash services so we can start playing in the remittances market and as we add other banks.
Speaker Change: that are coming back into the corresponsalia or cash out and cashing in.
Speaker Change: So I expect that financial services will continue to help us and be an important part of the process. Thank you.
Speaker Change: at their Wink.
Speaker Change: Does that answer you, Ricardo?
Ricardo Alves: That does end super helpful. I just had a final follow-up on the digital side. When we look at the others, I think that the negative contribution on EBITDA was actually lower than expected, so meaning the number was better. I suspect that some of that could be driven by
Speaker Change: lower cash consumption at digital. I just wanted to confirm if that's the case, if digital is already turning the corner. I think that that would take a little bit longer.
Speaker Change: but given how much we've been talking about digital...
Speaker Change: the loyalty program, new fintech capabilities, we have been talking about credit, for example. There's a lot going on at DigiTube that we, analysts in the market, we don't have enough visibility. I just wanted to understand if there is a...
Speaker Change: if there's a relevant new update that you care to share with the market or if maybe indeed it's consuming less cash. Thank you very much again.
Speaker Change: Thank you for your question, Ricardo. Yes, in effect, on a sequential basis...
Speaker Change: The cash burn from digital has been lower, as I mentioned in my statement.
Speaker Change: There's a renewed focus on the part of digital, on leveraging and taking advantage of the scale we already have and focusing a little bit less on simply customer acquisitions.
Speaker Change: particularly on some of the more expensive digital channels that have been used last year and at the beginning of this year. So generally, DETA has had a better improvement in terms of its cash burn.
Speaker Change: And again, one of the challenges of measuring digital is that there are a lot of the benefits from digital that are hard to measure. For example, despite our...
Speaker Change: are of clear conviction that the loyalty program has had a significant improvement in sales at both Oxogast and Atoxo, a reality that is very difficult to measure and is scientific.
Speaker Change: because of the lack of sort of any accounting standard to them.
Speaker Change: And so what you see in digital and its burn rate really is just the cost of all the initiatives that they're doing. There is some revenues that they charge OXO and so on, but it does not reflect the increase in sales of both OXO gas. And if you calculate the break-even point.
Speaker Change: of what you would have to believe in terms of improved sales is actually quite low. So we're highly confident that digital is doing its job, that it's quite productive, and that it's making progress.
Speaker Change: You still don't see in these numbers any big numbers associated with the credit opportunity. We're still at the very early stages of that, and our expectation is that that be included within the total cash burn, and that
Speaker Change: that you wrote about as we make progress on some of the other initiatives. I hope that answers your question.
Martin Arias: It does, Martin. Thank you so much.
Martin Arias: Focusing on the
Speaker Change: Thank you. Our next question is from Bob Ford with Bank of America. Please go ahead.
Speaker Change: Thank you for watching.
Bob Ford: Thank you, good morning everybody, Jose, Martin, Juan. How do you feel about your activation capabilities within PEMIA and how does PEMIA change the way you're thinking about further upside to commercial revenue?
Speaker Change: and Martin, you were talking a little bit about, you know, the focus on expenses and digital, but in the press release you also mentioned...
Speaker Change: a greater focus on transaction-based, or I should say on greater profitability, right, on recurring revenue. And how do you think about the balance between fee and transaction-based revenue over the coming year, and where do you think the monetization opportunities will be over the next 12 months?
Speaker Change: Thank you. Bye.
Speaker Change: So I got your first part on PREMIA, but I didn't get your second. Can you repeat that?
Speaker Change: Sure, I apologize for that, Jose. It was long. In the press release, there was a reference to a greater focus at Digital or the HIDAL on recurring revenue, and I was wondering how we should think about
Speaker Change: spin in the balance between fee and transaction-based revenue over the coming year, and you mentioned remittances in your comments, but I was wondering how you're thinking about the monetization opportunities there within.
Speaker Change: within the financial services over the next 12 months? That's a great question. Thank you. I would start with, so for SPIN PREMIA, I would say we're still on very early days on understanding the amount of power that data, that is...
Speaker Change: that is delivering us. We are very, we're shifting our capability of understanding elasticity by SKU with our analytics in a very dramatic way on a store-by-store basis. With SpinPremia, we will be able to do it on a per-person basis.
Speaker Change: Subs by www.zeoranger.co.uk
Speaker Change: And that really keeps me excited about the ability to tailor promotions and really bring the best of Oxford to each consumer. And so we have a lot of work to do yet, but the early show, the early promises is very promising. Already this year.
Speaker Change: It's still a small fraction of our retail media efforts.
Speaker Change: screens that we're putting in OXO, but already almost 10% or so of the revenues is coming from SPIN premia initiatives and that should that should take a much bigger share in the next few years.
Speaker Change: So, I'm very excited about that. On spin, and obviously Juan Carlos, my colleague, could comment much more, and hopefully he'll be here in another call, but I do see, and we've been talking together about the evolution of spin and spin biopsy.
Speaker Change: A big chunk of his recurring revenue comes with more financial services. A big chunk of it would be remittances.
Speaker Change: and many more. Thank you.
Speaker Change: but there's many other things that we see in the pipeline, obviously credit.
Speaker Change: being one, regardless, I mean, still I think Juan Carlos is analyzing many alternatives of how to start credit within Steam Bioxo, so it's still early to comment on a specific route, but I do know it's part of the plan for him in the next medium term, or 12 to 18 months, I would say.
Speaker Change: Very exciting Jose. Thank you so much.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you. Our next question is from Antonio Hernandez with Acton Burr. Please go ahead.
Antonio Hernandez: Hi, good morning. Thanks for taking my question. My question is regarding the healthy vision. Stem cell sales have performed our estimate, so if you could please provide some light on the drivers, also maybe a little bit on the stem cell sales trend in Mexico, that would be really helpful. Thanks.
Speaker Change: Yes. Thank you.
Speaker Change: So, Antonio, as you know, health, it's a business that operates in four markets and each market
Speaker Change: have very different dynamics. I would say, first of all, there's some currency dynamics that really help the division this quarter.
Speaker Change: So some of that revenue growth comes from currency dynamics.
Speaker Change: although there are some interesting things that are coming in. One is Colombia.
Speaker Change: Colombia
Speaker Change: The government health sector is going through some tough issues and the private sector is taking a much bigger share of the market and with that, we are the, I would say, the best
Speaker Change: pharmacy chain in terms of the amount of growth in same store sales, the amount of expansion of stores that we are overseeing all over the country.
Speaker Change: and the results have been outstanding.
Speaker Change: That, coupled with our business in wholesale distribution, which we've done it in Chile very successfully, is really helping us offset our struggles with the institutional business.
Speaker Change: Chile is seeing some moderate growth.
Speaker Change: stable in share. We're already by far the largest players and we haven't lost share.
Speaker Change: in Chile, and we are still growing.
Speaker Change: Same-store sales were growing in some store expansion as we begin to see more competition. But we are confident that Chile will continue to be a very healthy source of profit.
Speaker Change: Ecuador is doing well, unfortunately the country is going through some issues.
Speaker Change: We had some energy disruptions that were not only for us, all through the country, and that affected some of our...
Speaker Change: to lower our capital invested in Ecuador as much as possible. And as we've been very upfront, Mexico has been a struggle for us. It's been a very intense competition.
Speaker Change: and I think we needed to have a much stronger value proposition.
Speaker Change: I'm optimistic of what we're doing with our new flagship stores. We have some in Mexico City and we're doing in our core regions in the southeast and in the pacific region and the results so far have been it's too early. We've opened
Speaker Change: Maybe 40, and we are set to open a few hundred, but the results so far are promising, I would say cautiously optimistic.
Speaker Change: Does that answer you, Antonio?
Antonio Hernandez: That's very helpful. Thanks a lot. Have a nice day.
Speaker Change: Thank you. Our next question is from Rodrigo Alcantara with UBS. Please go ahead.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: and many more. Thank you.
Speaker Change: I think we can move on and maybe Rodrigo gets back into cue.
Speaker Change: Thank you. Our next question is from Ben Thor of Barclays. Please go ahead.
Speaker Change: Mr. Thurr, your line is open, please go ahead.
Speaker Change: I think they might be having some issues. Can you hear me now?
Speaker Change: Yes, yes. Who is this? This is Ben? Yes, this is Ben, yeah.
Ben Thor: All right, does it work?
Ben Thor: Does this work? Okay. All right. Usually they say don't use the speaker, but in this case speaker works. No, my question is related to the plans of breaking out some of the other formats, particularly Bada in Mexico. Help us understand a little bit the size of the business right now. How many
Speaker Change: stores within that 20 plus thousand OXO stores is actually already a BARA format. And what is what's the value proposition? What's the differentiating factor of BARA versus OXO and how should we think about like the drivers, the consumer drivers into those stores? What's different in particular to kind of understand this as we think about how to model it going forward? Thank you.
Speaker Change: So I wish I could, I would try to hide Vara as a secret for longer, but the honest answer is...
Speaker Change: Vara has been performing incredibly well the last two or three years, I would say. For the last at least six quarters, we've been outgrowing other players in the space in terms of same-store sales.
Speaker Change: Today, Bara is a 420 store count, it's not counted in proximity America, we don't count it when we give you the number of oxos, that's not in the number.
Speaker Change: really transforming into a going from a soft to a hard there I wouldn't say still a hard hard discount but going to a harder discount type of format
Speaker Change: and we are very pleased with the evolution of BARA so far. We've been bringing talent from the hard-discount place into the concept.
Speaker Change: and we've been slowly adapting the concept very very well. So far it has grown mainly in the Bajio region with some expansion in Jalisco.
Speaker Change: and I would say Barajas, the help
Speaker Change: of that still have about 25% of its revenue comes from convenience categories.
Speaker Change: and frozen food, etc.
Speaker Change: It's been a very pleasant surprise how big, how fast it's growing, how fast it's growing in same-store sales.
Speaker Change: and we are planning to accelerate the store expansion of Vara.
Speaker Change: But being very careful, as you know, as we go out of the Bajio region, the stores are less crowded.
Speaker Change: well-known, so we need to prove ourselves that we can expand geographically outside of that region, with very good results so far in Jalisco, but I expect the Pacific and the North eventually to be a very good source of growth.
Speaker Change: and so on. Thank you. Thank you.
Speaker Change: Sociedad Anonima, or it's been the whole infrastructure of OXO operationally.
Speaker Change: Not in talent, it has its own CEO, but we need to be able to separate all the systems and the processes out of VARA. That will cost us a little bit, especially in cost, in extra layer of cost, but I'm very excited about the future of VARA.
Speaker Change: in the coming years.
Speaker Change: Thank you. Thank you.
Juan Fonseca: And perhaps just to add, Ben, this is Juan, you know, some of the differences...
Juan Fonseca: that drive the decision to segregate the...
Juan Fonseca: The organizations having to do with supply chain, the SKUs are not the same as also the mix of products that comes from, you know, DSD suppliers that go to the store versus people that go to distribution centers.
Juan Fonseca: is different, and to the part of your question about get a headroom or, you know,
Juan Fonseca: and the potential size of this business, we definitely think that it will be measured in the thousands. So, early days still, but as Jose said, it's looking very promising.
Speaker Change: Great, fantastic, thank you very much.
Speaker Change: Thank you. Our next question is from Diego Bartolucci with Goldman Sachs. Please go ahead.
Speaker Change: and many more. Thank you.
Speaker Change: Mr. Bartolucci, your line is open. Please go ahead.
Speaker Change: and many more. Thank you.
Speaker Change: and Juan Fonseca. Thank you.
Speaker Change: We've got it here. Yeah, I know. There seems to be so many, too. I don't know if it's on there. Oh, there you are, Tiago. Yep. Yeah.
Speaker Change: Yes, good morning everyone. Thanks for taking the questions. We have two here. The first one operationally regarding traffic at OXO, right?
Speaker Change: Do you see any risks of having more challenges to drive operating leverage going forward on a 12-month horizon? This is the first one.
Speaker Change: And the second one on capital allocation, you just completed your second ASR, your leverage is below one times EBITDA.
Speaker Change: When should we expect more news regarding capital allocation? Is there a chance you could do something prior to the annual shareholders meeting? Or should we expect this to be a milestone to define what you'll do next? Thank you very much.
Speaker Change: So, I will answer the first and I'll pass to Martin for the second one.
Speaker Change: Obviously, the traffic is a very big concern of mine.
Speaker Change: As much as I hate that excuse from my team, it's been raining here, I don't have official numbers and I don't want to use it.
Martin Arias: It's been one of the most rainiest years in a long time, at least in the north of Mexico, and that really had a big impact on us. So I don't think it's structural, and as you see, most of our decline is in cold.
Martin Arias: beverages, almost half of it.
Martin Arias: However, obviously I think there's a lot of things that we need to work
Martin Arias: are well staffed, ships are open, you know, and that the team has been doing a fantastic job in making sure no corner of the region has an off so that it's not servicing properly. But obviously we will be
Martin Arias: fighting with in terms of supply chain in operations to make sure
Martin Arias: It's not on us, but it's just on the consumer.
Martin Arias: I don't see any structural, I do think it will be medium term because
Martin Arias: the next year still part of the election and that the election aftermath always creates.
Martin Arias: some softening of demand, but I'm convinced that some of the value levers that we're playing and putting in place will get us back to traffic growth.
Juan Fonseca: I would add one thing. Hi, this is Juan. Sometimes it's hard to look at traffic, especially when you look at the long-term series.
Juan Fonseca: and look at it in isolation from...
Juan Fonseca: the number of stores that we've been adding every year, right?
Juan Fonseca: You're adding close to 5% new store base every year, and that has to play a role in the equation.
Juan Fonseca: because at the end of the day, consumers are satisfying their needs. If you would have gone five times to a store in a week...
Juan Fonseca: Now, maybe you go...
Juan Fonseca: you know, the same five times, or maybe you worked six times, except you split it between the two stores, the old one and the new one.
Speaker Change: to try to come up with an aggregate measure as well. Because the part of your question that talks about operating leverage, I mean, at the end of the day, we are getting a lot bigger every day.
Speaker Change: From a transactional standpoint, the absolute traffic number gets bigger every day regardless of what happens at the average store level. So anyway, we'll keep talking about this going forward with you guys, and you'll love to pick your brains.
Speaker Change: But you can't just not bring into the equation the fact that, you know, the speed at which we add stores, because it plays a role.
Speaker Change: I see your second question relating to capital allocation as I mentioned of the 50 billion pesos that we committed to distributing in the form of extraordinary capital return to shareholders.
Speaker Change: We've done about 60% of that.
Speaker Change: About 30 billion pesos.
Speaker Change: Our expectation is as a matter of discipline.
Speaker Change: All I can speak to is as to our current plans, and our current plans is not to launch another ASR, in part because just discipline would tell you we should pace this out over time.
Speaker Change: and not get ahead of ourselves. We have a U.S. election coming up, so if that were to cause volatility...
Speaker Change: As everyone, we're curious to what the result will be.
Speaker Change: Thank you.
Speaker Change: and then I would expect towards the end of the first quarter of next year.
Speaker Change: that will start thinking about...
Speaker Change: what we need to do with regards to the shareholders meeting to announce any additional extraordinary.
Speaker Change: dividends. And, you know, as we've said in the past, we're always
Speaker Change: were agnostic as to whether we return capital through extraordinary dividends or through buyback of shares. It's really just a function of where we may see.
Speaker Change: opportunities and for the most part they're small opportunities like all these questions are easy to answer at any given moment because we have to take into account a whole bunch of information. So I don't expect any announcements until then.
Speaker Change: Focusing on a new project to create a new project.
Speaker Change: That's clear. Thank you very much, everyone.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Alvaro Garcia with BTG Pactual. Please go ahead.
Speaker Change: Hi, can you hear me?
Speaker Change: Thank you.
Alvaro Garcia: Great. Two questions. One, just a pretty easy follow-up on, you mentioned you want to de-emphasize some Oaxacan Latin, some Oaxacan Latin markets, if you could just clarify which ones I wasn't able to catch.
Alvaro Garcia: which ones and the second question a bigger picture question on your payments business sort of in the context of
Alvaro Garcia: of Cofesa's FinTech report from last week and your great banking correspondence business. What sort of pushback, if any, have you seen from banks that pay you for access to your platform? Given the growth of SPIN, given your aspirations there, how do you envision these agreements to evolve over time? Thank you.
Speaker Change: We remain very excited on the region in general.
Speaker Change: But we are much closer to accelerated growth and profitability in Colombia, and we want to emphasize Colombia, and Brazil. The evolution of the store, and with same store sales growth on the double digits over the last two years.
Speaker Change: at least through the year. Keep me excited that we're close, close.
Speaker Change: to have a good plan. Obviously, that has to be aligned with our partner.
Speaker Change: but I think continue to evolve the value proposition.
Speaker Change: We will do it by not expanding outside of Sao Paulo and concentrating on expanding maybe 100 to 125 stores. Again, this has to be approved and agreed with my partner, with our partner. But Brazil and Colombia are the ones that...
Speaker Change: Keep us excited. Chile and Peru are much behind in the curve towards profitability.
Speaker Change: strain, so we are reducing the velocity of growth there.
Speaker Change: And by that, we may do some overhead adjustments as well to reduce the amount of cash burn and be able to concentrate much more on the ones that are very, very low.
Speaker Change: close to success. So that's Colombia and Brazil.
Speaker Change: And in terms of the FinTech evolution, I have no comments on the COFETE thing. Obviously, we're always monitoring and cautious on whatever recommendations from authorities.
Speaker Change: We provide a fantastic service throughout the country. Most banks that have left us or leave us are coming back.
Speaker Change: We are very eager to provide services to all banks and to all communities. And everywhere we go, we love and welcome to have much more players.
Speaker Change: We don't like being the only guy in a region or in a town. It's good for us that we have a lot of people in the community. We don't like being the only guy in a region or in a town. It's good for us that we have a lot of people in the community.
Speaker Change: that financial services are serviced by many many people. We like to see other convenience store players in Oaxaca, in Chiapas, and I hope to see much more correspondent players throughout the country. So I have no...
Speaker Change: No worries about that. I hope that that will expand.
Speaker Change: Yeah, and I would just add that, I mean, people...
Speaker Change: who regularly underestimates the cost and complexity of what it involves for oxylome.
Speaker Change: administering, transporting, counting, depositing the money, the complexity to add to lawns in the store, and so on. So I would generally say, and emphasizing what Jose said, we're providing an amazing service to the community, we're very proud of it, and you know.
Speaker Change: Just check the return on equity of the financial institutions to see they're doing just fine.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Totally agree by the way and just had to ask and super helpful and thank you for for those answers.
Speaker Change: Thank you very much.
Speaker Change: Thank you all very much.
Speaker Change: Thank you. Thank you.
Speaker Change: Hi, good morning again. Can you hear me now?
Speaker Change: Hello.
Speaker Change: Yeah, awesome. Hey, thanks. Hi, Jose. Thanks. Hi, Martin.
Juan Fonseca: Juan Fonseca
Juan Fonseca: So, my question would be here for Jose, if you can perhaps comment on the...
Juan Fonseca: Price, and Income Elasticity of Box Office.
Juan Fonseca: and how comfortable you are with current OCSUS prize competitiveness relative to the mom-and-pops and the self-service formats in Mexico.
Juan Fonseca: That would be my first question.
Juan Fonseca: on price competitiveness. And a second one, very quickly, also, if you can comment more on what you mentioned in the press release about commercial capabilities driving higher OPEX, a talk. So if you can comment more about that, that would be also very, very helpful. Thank you very much.
Speaker Change: Yes, these are great questions.
Speaker Change: So I think on pricing
Speaker Change: When we are proud of our pricing, I'm using our AI model to optimize price.
Speaker Change: We are not talking about raising prices, it's actually a blended mix. We are reducing prices on certain categories that have high elasticity, and we are increasing prices in others. So pricing is up and down.
Speaker Change: and we will continue to monitor that. We monitor the share on the other channels.
Speaker Change: a significant portion of the fulfillment of...
Speaker Change: of the Mexican consumer. And I would say we've been seeing very healthy growth in share for the traditional trade. A big chunk of it is recovering after COVID. I think pre-COVID they had a higher share and they lost a bunch of it.
Speaker Change: during COVID, and they are slowly recovering, and we welcome that. I think it's a very healthy channel. It's healthy for the FMCGs. We like to have a healthy traditional credit.
Speaker Change: in Mexico, we are not...
Speaker Change: concerned. We have not been losing share on the measures, share measurements we make. We've been seeing that evolution of the traditional trade growing competitiveness against supermarkets mainly.
Speaker Change: big supermarkets especially.
Speaker Change: I'm still not concerned, obviously I monitor that very closely and if that requires a change or we need to be more aggressive on pricing we will do it, but so far we see opportunities for us to raise some prices and to lower some prices and we will continue to work on that.
Speaker Change: to do that. And then we are
Speaker Change: segmentation and all our analytics in segmentation.
Speaker Change: It's a wide spectrum of projects that we're being able to do it much more granular. One is space segmentation and how we accommodate the store, but there's things in variety.
Speaker Change: where we should put more SKUs, more high-end SKUs, more lower-end SKUs.
Speaker Change: a lot of things we're studying and we have more and more learning about, in certain stores you put a big bench where people sit down and food minions grow dramatically.
Speaker Change: ask for it, and now with what we're learning with Speed Premia we're being able to do them much more granular.
Speaker Change: I would say it's a complex team, but that requires some investment in people, in capabilities. It's a big, big team and growing, but we will continue to do that because so far it's been worth the investment.
Speaker Change: Hopefully we will offset that overhead with maybe other other initiatives that can we can be much tougher in overhead expansion and control that line item.
Speaker Change: Awesome, so thanks for the atmosphere, Jose.
Jose: Thank you.
Speaker Change: Thank you. Our next question comes from Carlos Laboy with HSBC. Please go ahead.
Carlos Laboy: Yes, good morning everyone. Jose, maybe you can take a step back and give us some historic context.
Carlos Laboy: on the strategy for bringing traffic into the OXO stores over time. How has this evolved?
Carlos Laboy: and how much of a reacceleration that you see looking forward over the medium term can be can be digitally enabled. If you can help us with some with some granular examples it would it would help. Thank you.
Speaker Change: Thank you, Carlos. I'll try not to extend myself to many decades in the past, but you know the story of OXO as well as me, and obviously OXO started as a beverage first.
Speaker Change: channel, and that was a big value lever for many years. Then it got into more and more value levers in grocery, tobacco, expansion, and it has always been this
Speaker Change: fantastic machine of adding levers and extracting levers.
Speaker Change: Some things have, you know, we used to sell the, a big chunk of our business was selling la latel or the tar, that one. Phone cards. Phone cards, and that moved away, and other services came.
Speaker Change: Then financial services started with municipal permits and paying your fines, and then that evolved into a fantastic business. And that business, obviously, is evolving faster than...
Speaker Change: Don't know their one
Speaker Change: Obviously, a big chunk of them will eventually go digital.
Speaker Change: but we see...
Speaker Change: and a very interesting evolution of more services coming in.
Speaker Change: and others. Maybe people are buying less airtime in Oaxaca, but people are paying their online shopping with all this e-commerce.
Speaker Change: not only the Amazons and Mercados Libres, but Temu and Shane are growing dramatically and people love to go and pay at the OXXO. People that are banked and they just don't want to use their financial services and rather pay cash.
Speaker Change: And I see there, it's too early.
Speaker Change: But I've always been doing numbers on when we can really become a part of the fulfillment sector. And I'm also studying that hard.
Speaker Change: and we see an interesting evolution of becoming a much more omni-channel.
Speaker Change: presence where we own, we can help on the first and the last mile of products. We are already doing incredibly well with Amazon. We are starting to do some stuff with Mercado Libre.
Speaker Change: But I'm much more eager to be able to help, you know, the Facebook marketplaces and people and usually also for pickup or for drop or pickup or for reverse logistics. I would say that's one that's too early to say if it's going to...
Speaker Change: I would say the other one that's obviously a big one that we need to upgrade dramatically is convenience.
Speaker Change: We've been playing a good role in Mexico with food, but I wouldn't say a fantastic role. We still have a much better team to play.
Speaker Change: role to play, and I'm very eager from what we've been able to do in Colombia, in Brazil.
Speaker Change: And in Chile, I would say as well, but in Colombia in particular, almost 15% of our business is food.
Speaker Change: got a big share in the cities where we operate, especially in Bogota.
Speaker Change: We own the breakfast category, we own the lunch for the office worker category and we will continue to grow, share on that. And I think in Mexico, obviously Mexico has a...
Speaker Change: a full dynamic that's...
Speaker Change: very different. People like to eat in the street and compete with that. It's a tough, tough market. We have street vendors winning.
Speaker Change: Michelin stars, so that's the type of competition you face. But I do see an evolution to more food on the go, easy to carry food, and I think maybe evolving from the taco to the burrito or things that you can carry in your hand.
Speaker Change: with much less shrinkage, and I do hope that we can
Speaker Change: to start winning in certain categories like breakfast, snacking, dinners. So that's something that also excites me. And I would say the third one...
Speaker Change: that we're just scratching the surface, we're in...
Speaker Change: finally putting a lot of cash infrastructure that will allow us to do big cash-out deposits.
Speaker Change: who were the kings of cashing.
Speaker Change: a bigger role of connecting the two ends and do DELEC to OXO or eventually OXO to OXO payments.
Speaker Change: But I would say we're also learning a lot about the remittances market on the other side and how we can
Speaker Change: gain share by convincing the easiness to send to the OXO or to the SPIN and then cash out in OXO is something that could bring us some value of growth.
Juan Fonseca: I would just add, Carlos, it's Juan, Jose's reference to the cash infrastructure just for the benefit of everybody listening. We are rolling out these cash recycling machines that, you know, we've had the conversation with many of you.
Juan Fonseca: These machines allow us to increase significantly the amount of cash.
Juan Fonseca: that can be disbursed at the store without increasing the risk profile.
Juan Fonseca: And that's how we can play in remittances where the average remittances
Juan Fonseca: with the Nikon 5S.
Juan Fonseca: and I will also make just one reflection on your question and everything that Jose just said. I think at the end of the day, what OXO has done remarkably well over the decades
Juan Fonseca: is identifying consumer needs and finding a way to serve them.
Juan Fonseca: Right? And obviously, in the past, all of them required physical, you know, exchange of cash or exchange of goods. Now, obviously, some of those are spilling over to the digital realm. But the capillarity of the—excuse me—the capillarity of the store base
Speaker Change: the trust level, what the brand means now for people. If you think about a lot of what Jose said, none of that would be happening if we weren't just everywhere, and kind of a part of people's lives.
Speaker Change: and so it's really been a story of
Speaker Change: people doing more.
Speaker Change: from our side of the equation, it's making their lives easier.
Speaker Change: but it really is about finding other things. Jose talked about Temu and Shane, those e-tailers that weren't present in Mexico a couple years ago and now they are everywhere and we have found a way to play a role and make it easier for people to buy from them without increasing their risk, if you will. So I think that is part of the story, Carlos.
Speaker Change: from beer, to soft drinks, to tobacco, to snacks, to services, to e-commerce. It's just being everywhere and finding a way to make people's lives easier every day.
Carlos Laboy: Thank you. And just to comment, Juan, Martin, Jose, the step up in the quality and the insight of these calls is really phenomenal. Thank you for helping us with all the insights you're giving us.
Speaker Change: Thank you, Carlos. We enjoyed it. Really, thank you for your question. Thank you, Carlos.
Speaker Change: Thank you. Our next question is from Hector Maya with Scotiabank. Please go ahead.
Hector Maya: Hi, thank you very much for taking my questions. First, if you could please go deeper on details regarding the line of non-cast charges at OXO that help to drive the EBITDA margin.
Hector Maya: Just to confirm, what was the main change in the digital platform that resulted in the lower cash burn there, and how sustainable this could be going forward?
Hector Maya: and also if you could give us more details on the decision to suspend the PRONTO initiative.
Hector Maya: It would be interesting to know what plans remain in place to empower the traditional channels with a digital platform, particularly to understand if the company is still thinking about being a supplier of the channel, or if this is over and FEMSA will just focus on B2B payments. Thank you.
Speaker Change: Thank you, Hector. Give us just one minute.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change #100: Hi, on the non-cash charges, you know, we
Speaker Change #101: Because of an optimization process that we did with regards to the reporting from the different operations, we found that there were certain non-cash charges that were being treated as cash expenses in the past. And so we tightened a little bit more the definition from the classifications and so on. And so what you're seeing really is just a more detailed and a better way of classifying cash versus non-cash charges. And this happened not only in Proximity to Health, there was a little bit of that also in Cobra-Bola-Premsa.
Speaker Change #102: Thank you. Bye-bye.
Speaker Change #102: and Victor. Thank you. Thank you.
Speaker Change #102: I would say
Speaker Change #103: We have many initiatives to serve the traditional trade. The ones that are most exciting and we think are much more promising are two. One is the one that our Coca-Cola FEMSA is doing.
Speaker Change #103: with using their Coca-Cola truck to supply other categories. That's evolving from what I hear.
Speaker Change #103: interestingly coupled with their Juntos Plus program.
Speaker Change #103: which uses the loyalty infrastructure that Digital FEMSA provides.
Speaker Change #103: So that will continue. Secondly, Digital Pensa has very interesting projects still on pilot, I would say, but evolving interestingly of using their payment infrastructure, the SpinPremia initiative to...
Speaker Change #103: to create a network of, it's working on the traditional trade, but more in fonda, small restaurants, flower shops, etc. I think, if I'm not mistaken, the trial is in Puebla and it's evolving interestingly well.
Speaker Change #103: The one where we were performing well, but we had a good traction on that, but we saw the distance to profitability was so high.
Speaker Change #103: that we thought we needed to refocus was the PRONTO initiative. And in the PRONTO initiative, the main business was creating routes where we would take certain OXO products
Speaker Change #103: to the traditional trade.
Speaker Change #103: And I would say that cost to serve of that business was too high, and these traditional trades are served by...
Speaker Change #103: other
Speaker Change #103: Other wholesalers that have an infrastructure and costs that are much different than the ones we would need to provide a good service.
Speaker Change #103: I do see a service where we could provide an interesting service, but I would see...
Speaker Change #103: I don't want to get ahead of myself but eventually I think the cost to serve would need to be served on a cash and carry type of system where we leverage our distribution centers to create something different. But so for now,
Speaker Change #104: We are so encouraged by the BADA evolution that we much rather concentrate our resources in where we see a good opportunity to become a significant player in the market. And that is...
Speaker Change #104: Vara, and our other avenues, Cafenio, and et cetera. So we decided to put Pronto on hold and we're stopping that business.
Speaker Change #104: reducing the cash burn of that of proximity significantly through that and so that hopefully in the future we can come back with a business that's not so high cost to serve.
Speaker Change #104: And now we're going to talk about some of the things we're going to talk about.
Speaker Change #105: and then you had a I believe a question about the cash burn of digital and what was causing the improvements and just to get a little bit more specific than I did in my statement. One
Speaker Change #105: Now the digital ecosystem is connecting directly to CEI, which is the Mexican payment system. That has allowed us to save significantly on fees for the parties that we were using to make that connection.
Speaker Change #105: Number two, we're negotiating better with credit card companies.
Speaker Change #105: on some of the fees they were charging us. And number three, we're using some of the more, we're using less some of the more expensive customer acquisition channels where, you know, with the guidance from Juan Carlos, he has maybe.
Speaker Change #105: You know, the cost-benefit analysis of some of those channels in terms of churn and the quality of customers you were acquiring wasn't as good and so there was a decision made to de-emphasize those channels. I'll tell you those are the three biggest
Speaker Change #105: things that have helped reduce the cash burn.
Speaker Change #106: Perfect. Very, very clear. Thank you very much.
Speaker Change #107: Thank you, Hector.
Speaker Change #108: Thank you, and our next question is from Ulysses Argate with Santander. Please go ahead.
Ulysses Argate: Hi guys, thanks for the space for questions. I just want to hear from my side to Jose Antonio, so on your remarks you mentioned there the kind of organic growth re-ignition for Valora, I was wondering if you could give us a little bit more detail on what kind of potential are you seeing for openings and maybe on what formats or regions, you mentioned something there around Germany, but maybe if you could be a bit more specific on what the plans entail for this part
Ulysses Argate: Thank you.
Speaker Change #110: Thank you, Ulises. Yes, that's a good question. So, we are very happy with the development of Valora.
Speaker Change #111: I think, by now, it's not a...
Speaker Change #111: post-COVID recovery, the team has been doing a very solid set of results.
Speaker Change #111: in the three businesses, but more importantly, obviously, the B2B business has been very healthy, and I would say the Swiss convenience business as well.
Speaker Change #111: and train stations.
Speaker Change #111: that is
Speaker Change #111: We see two avenues to do that. One is to partner with few providers that do not have a convenience platform or have an underserved...
Speaker Change #111: convenient offering.
Speaker Change #111: and there's a lot of them out there.
Speaker Change #111: Forget the number off the top of my head, but it's a big chunk of fuel providers.
Speaker Change #111: need to enhance the value, and we're talking to big ones, medium ones, and small ones about selling convenience stores in their fuel stations, and hopefully we will have some updates soon, some relevant info there. And the other one is in high-street areas, and we are taking a longer...
Speaker Change #111: time to really evaluate where we put ourselves given the softening of the German consumer.
Speaker Change #111: but we still believe a big chunk of our projection to grow that business.
Speaker Change #111: opening certain stores in cities that are not as affected economically, especially in the south of Germany, but
Speaker Change #111: So far, we're opening much less than what we thought, but eventually we hope we can be able to open maybe 50 to 100 stores a year and have positive momentum. But it's early, it's early.
Speaker Change #111: And we are more eager to see what we can do with fuel stations, which have proven demand and we know how to run them.
Speaker Change #112: That's very clear, perfect. Thank you very much.
Speaker Change #113: Thank you very much. I would like to turn the call back over to Mr. Fonseca for any closing remarks.
Juan Fonseca: Thank you. Obviously, we're around, my team and I, for follow-ups. You all know where to find us. Thanks for participating in the call and have a great week.
Speaker Change #114: Thank you very much. That concludes today's conference. You may now disconnect.
Speaker Change #115: This graphic collector does not intend to promote a good business. These are only the purposes of my youtube videos. If you want support and videos made for cuisine, then please, like and comment. Thank you for watching.