Q1 2025 Fomento Económico Mexicano SAB de CV Earnings Call

We'll come to the fun stuff plus what does 2025 results conference call. My name is Ellen and I'll be a coordinator for today's EBIT. Please note. This call is being recorded and for the duration your lines will be on listen only.

You will have the opportunity to ask questions at the end of.

This can be done by pressing star one on your telephone keypad. If you require assistance at any time, Please press star zero and you'd be connected to an operator.

I'll now hand, you over to your host one full cycle to begin today's conference. Thank you.

Thank you.

Good morning, everyone welcome to FMC first quarter 2025 results conference call.

Today, we are joined by four components I'm under the Gulf kind of wait to see all of our proximity and health Division.

But I guess, our CFO and a particular gasoline who heads Coca Cola FEMSA to Investor Relations team.

The plan for today is for a whole city opened the conversation with some comments on the performance of the business during the first quarter, particularly our proximity Americas and then to provide a quick update across our retail portfolio.

After his remarks, Marty will provide more detail on our quarterly results.

Finally, we will open the call for your questions.

Please go ahead.

Juan: Thank you Juan good morning, everyone.

Speaker Change: During the first quarter FEMSA was able to navigate a challenging environment across several markets, particularly Mexico.

Speaker Change: Taking advantage of is resilient geographically diversified business platform.

Speaker Change: Within proximity Unhealth, However, Mexico is by far the biggest component.

Speaker Change: And the divisional result will inevitably reflect whatever is happening in these core markets.

Speaker Change: Our results for the first quarter reflect a challenging set of headwinds, particularly in proximity of America.

Speaker Change: Combining a persistently soft consumer environment in Mexico, without adult callendar setup and against a demanding comparison base.

Speaker Change: Therefore, I would like for my remarks today to provide you with three things first.

Speaker Change: Our assessment of the coffers of the underwhelming number.

Speaker Change: Particularly related to same store traffic in OXXO, Mexico.

Speaker Change: Second an overview of some of the actions, we're taking to offset or mitigate the impact in Mexico.

Speaker Change: And finally, our expectations for the remainder of the year, including what we foresee will be a better second half in Mexico that should help us deliver a solid full year result, despite the slow start.

Speaker Change: After that we will give you an update on the rest of the operations.

Speaker Change: During the first quarter same store sales for proximity America contracted by one 8% with average ticket growing five 1% slightly ahead of inflation.

Speaker Change: But average traffic contracting six 6% continuing a trend that has been in place for several quarters.

Speaker Change: The calendar effect are straightforward, we had one less one day less in February and the entire Holy week shifted to the second quarter. This year.

Speaker Change: Adjusting for those be Brexit.

Speaker Change: We estimate that same store sales would have been flat.

Speaker Change: Beyond that there is an undeniable weakness in the consumer environment. The first manifested itself around the middle of last year.

Speaker Change: Just after the election.

Speaker Change: And consistent with previous elect for all the years.

Speaker Change: Moreover, the ongoing uncertainty around trade with the U S has exacerbated what we already expect that would be a slow start to the year due to the postponement of many investment decisions until greater clarity it achieved.

Speaker Change: Other negative traffic drivers include a particularly older month of January impacting high traffic category, such as alcoholic and non alcoholic beverages.

Speaker Change: Alright, and snacks as well I'll start then localized markets, where consumers have reduced their movement outside their home after a certain hour as a response to a heightened perception of risk.

Speaker Change: Finally in terms of channel dynamics, we continue to see the traditional grade gradually recover some of the market share. It lost two modern channels during the Covid pandemic.

Speaker Change: Historically, the provisional trade cut on bettering the economic.

Speaker Change: Slowdown as people got down on impulse buy.

Speaker Change: Seek that smaller price point, it can be a big channel.

As a result of the consumer environment and consistent with what we have seen similar downturns in the past.

Speaker Change: Some of the CPG suppliers are adjusting their package strategy accordingly.

Speaker Change: For example, increasing the availability of smaller price point multi serve and returnable presentations.

That are also well suited for that traditional freight.

Speaker Change: However, we do not have any clear evidence that other channels, maybe gaming competitiveness relative to OXXO.

Speaker Change: And our reading too late is that the majority of the slowdown is attributable to factors outside of our control such as the macro environment weather and calendar effects and consistent with untapped figures for other channels.

Speaker Change: And this is a good segue to move them on and disclose and discuss some of the actions we're taking.

Speaker Change: Yeah.

Speaker Change: We have launched several commercial and cost initiatives with three year objectives, one to drive traffic and top line.

Speaker Change: To maintain our positive trajectory of gross margin expansion.

Speaker Change: And three cost containment initiatives to ensure the leanest organization possible, while not mortgaging, our future pipe coating transformational initiative.

Speaker Change: Within the top line initiative, we should highlight our push for increased before W. Media Cross category.

Speaker Change: Working in tandem with our key supplier partners.

Speaker Change: These initiatives aim to expand our assortment to include more affordable brands and presentations, including in key categories like blackboard soft drink beer spirit and healthy snacks.

Speaker Change: We have launched targeted plans to reactivate the adaptive coffee offering and to support the beer and soft drink category.

Speaker Change: <unk> returnable multi serve.

Speaker Change: Furthermore, we continue to increase the breadth of our financial services and correspondent partnerships with banks in Phoenix, while also increasingly leveraging the insights from our spin premier loyalty program to improve the effectiveness of our promotions.

Speaker Change: And this connects with our efforts to drive profitability at the gross margin level.

Speaker Change: As we keep working with our supplier partners to find incremental value through the precise execution of more targeted promotions.

Speaker Change: On this front as you saw in our results our bright spot at proximity of America was once again the continued margin expansion at the gross level.

Speaker Change: As we look at the pipeline of commercial collaboration within the months ahead. We are optimistic that we can continue to drive these metrics higher.

Speaker Change: There are several important negotiations underway in key categories that we expect to provide us with continued tailwind on the gross margin level.

Speaker Change: Further down the income statement, we again faced pressure from another low double digit increase in the minimum wage as well as the loss of operating leverage from the soft traffic trends.

Speaker Change: And the incorporation of the results from the lower margin Dk operation in the U S.

Speaker Change: We also maintained our pace of store base expansion and capability building activities.

Speaker Change: In an effort to offset rising expenses, we have made great strides, reducing the FTE or full time equivalent per store.

Speaker Change: Generating real efficiencies of scale as well as a reduction in overhead.

Speaker Change: Despite these efforts we saw a swing from an expansion of 120 basis points at the gross level to a contraction of similar magnitude at the operating level.

Speaker Change: I have asked all of our operations to drilling two overhead expenses were I think opportunities exist to be leaner and more effective organization.

Speaker Change: And that brings me to the general outlook for the remainder of the year.

Speaker Change: Based on our projections, we believe we will see a sequential improvement in top line dynamics beginning in the second quarter and speaking for the year during the third quarter.

Speaker Change: Such improvement is partly within our control through the implementation of all the commercial and cost control initiatives I just described.

Speaker Change: Largely outside of our control requiring economic activity and consumer sentiment in Mexico to gradually pick up.

Speaker Change: Therefore, despite the slow start.

Speaker Change: Base case expectation for the full year remains for a high single digit increase in revenues with stable operating margins relative to 2024.

Speaker Change: Moving on let me give you a brief update on some of our other formats in markets that we know.

Speaker Change: Top of mind for investors.

Speaker Change: In the U S. We continue our testing and experimentation as we advanced in the definition of our optimal value proposition for these markets.

Speaker Change: You may remember from our last call. We have already started the FERC conversions of some of the Dk starting to walk so back in February we announced the first one.

Speaker Change: Since then we have reached 15, Oxford unit all of them in the Midland Odessa area in West Texas.

Speaker Change: While consumer reaction to the rebranding has been very positive.

Speaker Change: There is a lot of work to be done as we close the value proposition gap, including in the key prepared food category.

Speaker Change: On that front, we have already made progress, bringing beyond that the coffee offering from our Mexico operations.

Speaker Change: And we are testing improve food offerings in approximately 20% of the store base.

Speaker Change: He also Mexico theme, if also sharing with our U S teams some of its expert capability, such as pricing assortment and segmentation and there is more to come.

Speaker Change: Again, very early days and we will keep you posted on our progress there.

Speaker Change: In Brazil, we continue to make progress reducing shrinkage in employee turnover, which have been two areas of operational focus in recent quarters.

Speaker Change: We continue to see that brand and value proposition growing consumer preference.

Speaker Change: And our expansion plans for this year are unchanged with approximately 100, new workflows in the state of Sao Paulo.

Speaker Change: At <unk>, we had a good start to the year in terms of store base expansion, adding roughly twice as many stores during the quarter compared to last year and on track for a lot of approximately 235 net new stores in 2025.

Speaker Change: We recently opened a new distribution center in Paris.

Speaker Change: We're making progress as we set up our second region in Northern Mexico, while also advancing as we develop and grow the supplier network for our key private label effort.

Speaker Change: In Europe <unk> results show solid growth in Mexican peso, given the meaningful weakening of the peso against European currencies year on year.

On a comparable basis, our numbers are sluggish.

Speaker Change: We see positive trends in retail supported by certain categories like Blackwell and from our growing commercial income plus platform. However to be fair. It is lapping a very difficult comparison base from the successful onetime Pretzel project, we executed last year in the U S.

Speaker Change: We continue to work to improve profit to be two <unk> service, which is somewhat dependent on German economic growth and on the retail front in the coming months, we expect to rebrand a meaningful number for bebe stores and German train station store successful IBEX partner.

Speaker Change: Which over time should help us in our organic growth efforts as the brand becomes better known in Germany.

I hope so gas, we did well in the first quarter or in the coming quarters, we will be facing increasing headwinds from the voluntary price commitment we have put in place for a regular unleaded gasoline together with the rest of the industry in Mexico.

Speaker Change: And finally at FEMSA health, we saw improving operational trends.

Speaker Change: Cross most markets, except Mexico helped by the positive impact of FX as was the case in Europe.

Speaker Change: The brightest spot continues to be a retail operator in Colombia, but results out of Chile, and Ecuador were also solid.

Speaker Change: For each part in Mexico as in full operational turnaround mode.

Speaker Change: <unk> a meaningful recycling as we rationalize the store base and continue to fine tune the value proposition of our two format strategy.

Speaker Change: Further news on this front as our new management team complete its work of getting up to speed and fine tuning the new strategy.

Speaker Change: Wrapping up we would like to leave you with the metrics that even that.

Speaker Change: The start of the year was slow in the core proximity Americas business base.

Speaker Change: Based on the information we have today, our expectation remains that the numbers will improve as we go through the year positioning us well to deliver another solid set of results for the full year of 2025.

Speaker Change: And with that I will now turn the call over to Martin to discuss <unk> first quarter results. Martin. Please go ahead.

Martin: Thank you Walter.

Martin: Good morning, everyone and thank you for joining us today as you have seen in our press release, we have added a column to the various income statements representing comparable figures to help you isolate the effects of currency fluctuations as well as acquisitions.

Martin: We are using the same definitions and following the same methodology used for many years that Coca Cola FEMSA in their own disclosure, which will surely be familiar to many of you hopefully you will find this information useful.

Martin: Let me begin with sensors consolidated financial and operational results for the first quarter of 2025.

Martin: Total revenues increased 11, 1%, while operating income grew four 9% year over year, reflecting mixed results from our business units are several of them face a challenging macroeconomic backdrop as softer consumer demand in our key Mexican market as well as the unfavorable calendar effects throughout our businesses.

Martin: On a comparable basis total revenues and operating income grew by five 6% and one 7% respectively evidenced in the currency tailwind, which helped us this quarter.

Martin: Net consolidated income increased 54, 3% to $8 9 billion pesos, mainly driven by <unk>.

Martin: One 630 million peso increase in income from operations.

Martin: Two or $3 billion three.

Martin: 3 billion peso increase in the other financial income related to net foreign exchange gains and gains in our financial instruments, mainly as a result of an increase in the price of our remaining Heineken shares.

Martin: Three a $2 4 billion pesos increase in net income from discontinued operations driven by a gain from the sale of Pts.

Martin: All of this despite interest expense higher interest expense and income taxes as we have explained in our earnings release.

Martin: Moving to the operations I will try to be brief so as not to repeat most of what wholesale already touched on.

Martin: Proximity Americas delivered a six 8% or one 4% on a comparable basis increased in total revenues and 11% 11, 8% decline or 11% on a comparable basis income from operations.

Martin: The decline in operating income reflects soft topline growth.

With a solid gross margin expansion.

Martin: However, offset by higher operating expenses, resulting from increased labor costs continued investment and transformational initiatives and reduced operating leverage.

Martin: As Jose mentioned, we are implementing a series of topline growth and cost containment initiatives, which we expect to bear fruit in the second half of the year ideally.

Martin: And with the reactivation of the Mexican economy.

Martin: On the expansion front oximeter.

Martin: Oxalate Heiko opened 361 net new stores during the first quarter a good start to the year, while net additions reached 31 in Colombia, and 21 in Brazil through our <unk> joint venture.

Martin: Now turning to <unk> proximity to Europe.

Martin: Revenues increased 18% in peso terms or 1% on a comparable basis.

Martin: Gross profits rose 14, 8% in pesos declined one 9% on a currency neutral basis.

Martin: <unk> in a margin contraction of 110 basis points, primarily due to softer performance in our higher margin <unk> foodservice segment and flat results in the other businesses.

Martin: At the operating level.

Martin: While auto reported a 14, 6% decrease in income from operations were 27, 7% on a comparable basis.

Martin: Reflecting a 90 point of.

Martin: A 90 basis point margin contraction.

Martin: Reflecting the impact of the weaker higher margin BTB performance against a very demanding comparison base.

Martin: The health Division delivered revenue growth of 21% in pesos or 7% on a comparable basis.

Martin: Colombia has stellar performance, while Ecuador, Chile had solid results driving division's momentum for the quarter.

Martin: Contrast, Mexico remains challenging, but we have begun the process of closing underperforming stores.

Martin: We expect a total of in excess of 400 400 by the end of the.

Martin: Yes.

Martin: Operating income Rose 27, 4% or 11, 7% on a comparable basis with a margin expanding by 20 basis points to three 5%, particularly reflecting the solid growth in our retail segment in Colombia, and solid performance from Chile and Ecuador.

Martin: Shifting to spin.

Martin: We are executing against our vision to build an omnichannel ecosystem anchored and customer engagement loyalty data driven innovation in financial services.

Martin: Bitten by OXXO continues to gain traction with our active user base showing double digit growth year over year to $8 9 million active users.

Martin: Also seeing increased monetization through a higher number of transactions.

Martin: This being premier loyalty program is expanding its relevant now.

Martin: Now linked to 42, 5% of OXXO, Mexico sales and becoming an important lever for engagement, reaching $25 2 million active users an increase of 16, 1% compared to last year.

Martin: As we continue to grow our focus is shifting towards improving unit economics, using advanced analytics to refine our offering and drive incremental value across the system.

Martin: Lastly, Coca Cola FEMSA delivered another solid quarter underscoring the strength of its diversified portfolio geographic footprint and disciplined operating model. Despite the soft volume trends in Mexico.

Martin: This was largely offset by growth in Brazil, and certain other markets.

Martin: Top line grew by 10%.

Martin: From five 9% on a comparable basis.

Martin: Supported by revenue growth management management initiatives.

Martin: While income from operations grew at a slightly slower pace.

Martin: Of seven 4% or three 2% on a comparable basis.

Martin: Afflicting, mostly higher distribution expenses.

Martin: The team remains focused on protecting profitability through ongoing efficiency initiatives and by leveraging its proven execution capabilities.

Martin: As always we invite you to refer to Coca Cola FEMSA the earnings call webcast for further details.

Martin: Before closing, let me briefly update you on our capital allocation strategy.

Martin: As we announced last February we remain fully committed to balancing disciplined reinvestment in our core businesses.

Martin: While maximizing returns to shareholders as we advance towards our target leverage.

Martin: During the first quarter, we deployed $8 8 billion pesos and Capex, representing approximately four 5% of total revenues.

Martin: With a continued focus on expanding our retail footprint and strengthening our supply chain infrastructure.

Martin: Regarding the return of capital to shareholders.

Martin: First quarter, we repurchased approximately one 3 billion peso.

Martin: For FEMSA <unk> units in the local market.

Martin: We also paid and get paid in January of the last installment of last year's declared ordinary and extraordinary dividends for a total amount of $6 1 billion pesos or nearly $300 million.

Martin: Additionally, last Friday, we distributed the first quarterly installment of both the ordinary and extraordinary dividends for 2025 for total amount of nearly 12 billion pesos or approximately $610 million.

Martin: At current exchange rates as approved by our recent annual shareholders meeting.

Martin: The total amount allocated for shareholder returns from March 24, 2024 to March 2025, including both.

Martin: Ordinary and extraordinary distribution.

Martin: Amounts.

Martin: Is $44 8 billion pesos were around $2 5 billion.

Martin: For the period from March 2025 March 2026, we are committed to returning 66 billion pesos or nearly $3 2 billion at current exchange rates.

Martin: Looking ahead, we remain optimistic about the opportunities ahead, and while we acknowledge that this year represents presents somewhat of an uphill battle. The first quarter, usually is our least important quarter.

Martin: As the macroeconomic and competitive environment continues to evolve we are confident in our strategy our team and the resilience of our diversified portfolio.

Martin: And trust our results will revert back to their long term growth trajectory as they have always done.

Martin: As we move forward, our focus will remain on disciplined execution to deliver solid results for the rest of the year and beyond.

Martin: And with that we will now open the call for questions.

Martin: Operator, Please go ahead.

Martin: Thank you if you'd like to ask a question I will make a contribution todays call. Please press star one on your telephone keypad to withdraw your question. Please press star two you'll be annualized when to ask your question.

Speaker Change: We will take our first question from Tiago Bertolucci Goldman Sachs. Your line is open. Please go ahead.

Tiago Bertolucci: Yes, hi, good morning, everyone wholesale marketing one thank you very much for the call and the opportunity of sparking Chugai is always a pleasure.

Tiago Bertolucci: I would like to explore a little bit more the momentum for pressing media Americas, particularly Mexico right.

Speaker Change: The initial remarks nature shared we're super helpful, but double clicking in shutdowns right I think the first point I would love to hear from you is what's your feeling regarding traffic chair right.

Speaker Change: You alluded to one third, but obviously, we can imply necessarily how much traffic has moved there, but I think it's fair to ask Tom OXXO has apparently lost some traffic share in the quarter right. So just to understand if this is you are reading and if you have a clear view on.

Speaker Change: Who you are losing that and what are your efforts.

Speaker Change: To adjust this is number one.

Speaker Change: The number to you.

Speaker Change: Sure.

Speaker Change: In the fourth quarter in a row that show our declining traffic right.

Speaker Change: This trend change at all your appetite for further growth are the projections for the returns on capital Disney stores that were opening in the region and then finally, the third point within this per Sami to debate.

Speaker Change: Mix has been an important source of compensation at the gross margin rate could you. Please give us the ballpark how your mix has evolved over the last three years Mark curious just see how much financial services and commercial income penetration you have there and potentially to where you believe this could get.

Speaker Change: Over the next two years.

Speaker Change: Those are the questions. Thank you very much.

Speaker Change: Yeah, well, thank you very much.

Speaker Change: Very spot on question.

A lot of color to address.

Speaker Change: These things so I would say first on the traffic.

Speaker Change: Issue.

Speaker Change: The biggest impact that we see are the calendar calendar effect.

Speaker Change: Equally obviously the loss of the Holy week or the shift of the Holy week through the second quarter now of very cold weather in the north of Mexico in January.

Speaker Change: On a broader economic slowdown.

Speaker Change: So those are what we think are the biggest.

Speaker Change: Drivers of traffic slowdown and we see it because.

Speaker Change: We saw how in January we're grading in hot Hot beverages, and we were very soft on cold beverages.

Speaker Change: I mean, it's very particular to our competency.

Speaker Change: When we talk about Cologuard unexpected January.

Speaker Change: If you look at share we've been monitoring closely.

Speaker Change: Our Nielsen measurements of share and we what we call the modern trade or the convenience modern create or the OXXO channel.

Speaker Change: We lose marginal market share, but on the low single percentage of single digit. So it's very granular, but we do see a gain in share from the traditional trade.

Speaker Change: And then if you look at that the six regions that Nielsen measure.

Speaker Change: 80% of our four market.

Speaker Change: Loss decline is in the Pacific region, which is a region that includes all the way to pick one or two not yet.

Speaker Change: Going to close in a law and the northeast region, which includes all the way from Chihuahua to Tomo Lipa for basically the north of Mexico is 80% of our share loss.

Speaker Change: And those are regions that were.

Speaker Change: There were other channels like the hard discount channels are not really present, so it's really the traditional trade that.

Speaker Change: The two took again.

Speaker Change: We see a much bigger share loss from the modern create non convenience in the modern trade also service deal and losing much more share done off so that's that's where I think.

Speaker Change: Recovering some of it yeah.

Speaker Change: So some of them and Thats, where we see the biggest.

Speaker Change: Sure So I'm not too concerned about although the other channels are gaining manav and then.

Speaker Change: If you look at category, where we're losing share in the traditional trade is gaining share the biggest driver is tobacco.

Speaker Change: And that is obviously a concern for me because I do see a shift towards.

Speaker Change: At <unk> on a single deployment.

We are not allowed to do that in OXXO part of traditional trade can fail.

Speaker Change: On a per seat basis and also add.

Speaker Change: Lower price debacle products, even some telco probes that are without all its proper customs.

Speaker Change: Fading so that is something I am concerned with.

Speaker Change: We are working with our suppliers to launch some value brands in tobacco.

Speaker Change: What we're impressed we've already launched a brand.

Speaker Change: With our help of one of our <unk>.

Speaker Change: The lack of players and we did see a huge increase in traffic and not a lot of shift from higher value brands to sell value brands. We're just getting incremental traffic from people that are already.

And to the value brands of tobacco.

Speaker Change: So I'm not too concerned about.

Speaker Change: Traffic from other channels that doesn't mean, we're not doing the best we can to increase traffic in value in value or affordability presentations and I do think there's a huge opportunity for OXXO to do execute even better.

Speaker Change: <unk> value brand category in soft drinks.

Speaker Change: Go back to our affordable returnable packages.

Speaker Change: We have a huge.

Speaker Change: Campaign, with our beer suppliers to to to drive growth there.

Speaker Change: Im positive that we're going to be able to drive.

Speaker Change: Growth.

Speaker Change: In the store expansion front.

Speaker Change: I am still seeing huge opportunities for us to grow and so thats why were not very aggressive on on on declining the number of store expansions, we're very aggressive on measuring the quality of the stores. We're opening we're really prioritizing quality over over heating a number.

Speaker Change: By region.

Speaker Change: C arguably theres going to be some cannibalization as we as we continue to grow.

Speaker Change: It's still very profitable return on invested numbers and we still see a huge opportunity for us to expand.

Speaker Change: So I am not.

Speaker Change: I'm not seeing a decline yet.

Speaker Change: And more disciplined I mean 70 biting the regions the quality of the stores we're opening.

Speaker Change: And finally, I would say financial services is a category that still growing it is growing.

Speaker Change: I mean.

Speaker Change: Mid single digit it's helping us we're growing.

Speaker Change: With all of its Fintech initiative with a lot of alternative payment.

Speaker Change: Some of these e-commerce sites.

Speaker Change: People are really using also pay to lose their payments and we're growing a lot there and we're growing a lot in that.

Speaker Change: Using <unk> as an ATM machine basically going with your debit card over with your Fintech credit card ongoing for cash.

Speaker Change: That's a big growth segment, and we still see that.

Speaker Change: A huge growth opportunity and it's going to keep growing as we.

Speaker Change: And increase the number of players that we led into the OXXO based network I would also say obviously the OXXO income.

Speaker Change: Our retail media thing Scott.

Speaker Change: Just getting started and has huge opportunity.

Speaker Change: To keep keep growing we are seeing a lot of excitement from our player.

Speaker Change: From our key suppliers to use the <unk> brand.

Speaker Change: Information two to expand and we see a huge opportunity still for gross margin expansion.

Speaker Change: From retail media from services and from promotional income.

Speaker Change: That we still see a lot of opportunity.

Speaker Change: I think I would I would ask Diego to what I, just said I mean.

Speaker Change: The way you framed the question about mix.

Speaker Change: Certainly financial services and commercial income I'm surprised myself.

Speaker Change: At how quarter after quarter year after year, we continue to talk about these two drivers.

Speaker Change: And then of course, you look at where the growth margin is.

Speaker Change: And you know kind of in the mid 40, <unk> and in some courtyard fourth quarter of last year.

Speaker Change: We almost approach 50% so.

Speaker Change: It's been completely incremental.

Speaker Change: Two.

Speaker Change: We've added the number of Skus we have.

Speaker Change: Strengthened and enriched the mix of actual merchandize, but theres no question that financial services and commercial income have been doing a lot of heavy lifting in terms of the margin performance and I think that's fantastic right because two horses comment a few moments ago. It looks like certainly on the commercial income front.

Speaker Change: Yeah.

Speaker Change: We think there is a lot more where that came from.

This is super helpful. Thank you very much both I appreciate it.

Speaker Change: We will take our next question from Ben <unk>.

Speaker Change: Casey Your line is open. Please go ahead.

Speaker Change: Yes, good morning, and thank you very much for taking my question.

Speaker Change: To follow up a little bit.

Speaker Change: What like what is within your control right within OXXO and you've talked a couple of initiatives. So wanted to get a little bit more detail and granularity as to the initiatives that you're looking at.

Speaker Change: Be it in store.

Speaker Change: <unk> site.

Speaker Change: <unk> certain cost savings to really kind of like get maybe a little bit of a leaner structure in place within the OXXO in Mexico to.

Speaker Change: To help drive that gross margin expansion also further down the line because it feels like a lot of it is.

Speaker Change: This loss and even more than is actually lost and what is gained on the gross margin level. So maybe help us understand.

Speaker Change: A couple of ideas initiatives, what you're looking for in order to drive that gross margin expansion throughout the income statement down to the EBITDA. Thank you.

Speaker Change: Just one second please.

Speaker Change: So yes.

Speaker Change: Thank you so first on the gross margin.

Speaker Change: The initiative I think there is there.

Speaker Change: A lot of things that we're doing on on financial services that would increase our gross margin. We are still to get authorization to begin again, but in order to stay on.

Speaker Change: I think we already have bank of pickup, but not a base is set to come in.

Speaker Change: Our new banking customer and those are initiatives that will help us drive our gross margin.

Speaker Change: We see opportunities for four <unk>.

Segmentation and adjusting the value proposition.

Speaker Change: To increase.

Speaker Change: There are certain categories that have opportunities for better margins by adjusting the face and the variety and we see an opportunity there and finally.

Speaker Change: We're expanding dramatically.

Speaker Change: Our retail media.

Speaker Change: <unk>.

Speaker Change: Platform currently we are promoting over a little bit over 3000.

Speaker Change:

Speaker Change: Digital screens throughout the store network and we're more than doubling that throughout the rest of the year and that that brings.

Speaker Change: Incremental revenue.

Speaker Change: Very very dramatically. We are we are also very excited about our expansion of our controlled environment stores, what we call. The OXXO Neutrals also are very profitable.

Speaker Change: Fourth they tend to mature very quickly the investment required to open them or.

Speaker Change: It's much slower much smaller investment in the regular OXXO.

Speaker Change: Almost.

Speaker Change: We're going to be opening almost.

Speaker Change: About a quarter of our new store network will be OXXO neutral. So over 300 stores will be that that will also help us on profitability on terms of that overhead opportunity without giving you an estimate or a precise number I would say there is.

Speaker Change: We see it.

Speaker Change: We have some transformational initiatives that we're investing heavily owned and those weighed on the overhead.

Speaker Change: Well, they're already bringing a lot of revenue. So we're not going to cut on adults also being funded on the foodservice investment things on retail media themed film the eye catching betterment those require a full set of talented teams. Our full set of people that are working hard on creating those new avenues that will.

Speaker Change: Provide us a lot of value down the road and we're not calling on those but we do see opportunities on all of their sites of the overhead some on the on a region by centralizing certain administrative.

Speaker Change: Processes that are still scatter around 12, the region, we see an opportunity there.

Speaker Change: And then on the other categories.

Speaker Change: Frankly in some in some aspects of the OXXO team that the teams have opportunities to to become leaner.

Speaker Change: And address them. So I think those are the main the main issues.

Speaker Change: I would add there are other parts of proximity where I think we we were investing heavily on developing teams and now that the local teams, especially in OXXO international or more are more fully on in place, we can be leaner and the overt having the central offices.

Speaker Change: So those are where we're at.

I would say are the biggest opportunity I think the number would be significant what I would I would fail to give you a precise number as to how much savings will be there.

Speaker Change: Let me also come in with some numbers as you you just drill down to OXXO, making goal and you look at the growth of selling expenses.

Speaker Change: You can explain all the growth that we had this quarter by inflation and expansion.

Despite there being.

Speaker Change: The increase in the minimum wage of 12% if I'm not mistaken.

Speaker Change: Through the initiatives that were implemented with regards to staffing.

Speaker Change: A much more dynamic staffing per store take into account the peak period.

Speaker Change: We were able to offset and keep the growth.

Speaker Change: The selling expenses.

Speaker Change: Lower than you would have otherwise expected.

Speaker Change: And very close to the sum of inflation and expense.

Speaker Change: I think that's a rather than point, Ben the fact that even though.

Speaker Change: Theres been talk would be supersensitive to topline.

Speaker Change: And operate operating leverage is a key part of profitability, we have chosen to keep opening stores not only to keep opening stores at the same pace of 112 100 per year.

Speaker Change: Against the slightly.

Speaker Change: Slow down to the top line, but we again frontloaded. The opening so if you look at kind of the vis vis last year nothing that wasn't quite the same number but almost so it's again going to be a year, where a lot of the openings take place in the first half.

Speaker Change: All of which I think factors into the calculation that Martin just addressed in terms of.

Speaker Change: Just inflation plus that roughly 5%.

Speaker Change: Of the store base being added this.

Speaker Change: This year it accounts for an important part of the expense increase.

Speaker Change: Okay. Thank you.

Speaker Change: We will take our next question from bank.

Speaker Change: Bank of America. Your line is open. Please go ahead.

Speaker Change: Hey, Thank you so much.

Speaker Change: How should we think about the monetization.

Speaker Change: Spin and spin payment I mean, you alluded generally to some opportunities in China and.

Speaker Change: And data, but more specifically when you look at the financial services opportunity.

Speaker Change: How are you are you mapping that out right now.

Speaker Change: Immediate term.

Speaker Change: Sure.

Speaker Change: The Williston team thinks about this financial services first financial services credit broadly.

Speaker Change: Concept.

Speaker Change: And obviously it includes.

Speaker Change: Increasingly providing the customer with the ability to execute honest transactions through our app.

Speaker Change: And that in itself then generate the data that gives you insight into their spending habits.

Speaker Change: In order to do that and to maximize the effectiveness of the application as a method for payment.

Speaker Change: Ideally you want to take that outside of the store.

Speaker Change: And we're running already some tests.

Speaker Change: With our.

Speaker Change: Cornwell of FEMSA and <unk>.

Speaker Change: Of putting up terminals.

Speaker Change: Allowing the mom and pop stores to actually be able to accept payments. So there are mom and pop stores in the city, where people can actually pay their electricity Bill for example.

Speaker Change: And other utilities and other.

Speaker Change: And that platform, then becomes a waiver people compared with a few of our code.

Speaker Change: You managed to create that ecosystem, where you become the preferred payment system.

Speaker Change: In.

Speaker Change: Exit go the Optionality there.

Speaker Change: Series of ancillary businesses around that payment platform our norms.

Speaker Change: Distinguishing factor.

Speaker Change: Which our payments platform will have which other payment platforms in Mexico will not have is the loyalty component of the <unk> points.

Speaker Change: I've actually been in the stores.

Speaker Change: As the owner of the store what is the perennial great team and they say.

Speaker Change: It allows me to be competitive with oxo believe it or not it allows me to offer a similar loyalty point that also offers so they actually do not associate spin with the actual OXXO store and they see this as a sort of advantage that allows us to be competitive.

Speaker Change: As to the other mom and Pops.

Speaker Change: Once you create that ecosystem of payments platform, which is a distinguishing feature of loyalty. You then again, you're driving more data more information more engagement with the App.

Speaker Change: We're using the App two to three times, a day to make all sorts of payments to transfer money not only amongst themselves locally to receive the remittances to do their cash in cash out in the OXXO store with the.

Speaker Change: Recycling machines that were putting in and then you have the ability to layer in that actual fine.

Speaker Change: The actual products and that includes taking deposits and making loans.

Speaker Change: As I've mentioned on previous calls we do expect that over time, we're going to upgrade what now is basically our fintech license, we will upgrade into a full banking license, which will provide us with greater flexibility. Obviously, we're at the very very very beginning stages of that and we will get there.

Speaker Change: Everybody have full time and guidance as to how that is evolving.

Speaker Change: There is no need to have any concern over the next few years of us all of a sudden growing our balance sheet dramatically because of a significant amount of lending and so on it will be done in a very typical.

Speaker Change: Very slow very cautious way. So we avoid some of the mistakes that have been made by other retailers in rolling out these.

Speaker Change: Types of financial products.

Speaker Change: So again the theme and generally in the answer to your question is it's all about the ecosystem. It's not one initiative is integrating OXXO is growing outside of OXXO is integrating a whole panoply of services and alternatives for the consumer for payment that ecosystem then created.

Speaker Change: <unk> Optionality, all sorts of things as people engage ever more with the application.

Speaker Change: Hope that was helpful.

Speaker Change: It makes it makes sense and then just as a follow up.

Speaker Change: Separate question separate topic and that is you saw the same store sales in Mexico were particularly weak and I was wondering if you could just expand on what youre doing across price assortment and service and what's different this time in terms of how you're.

Changing the way you go to market I think as I said something about going through with two four pads, which sounds a little bit more structural but whatever you could say it would be helpful.

Speaker Change: So again I think obviously the numbers are weak, but they're weak, particularly on traffic.

Speaker Change: We've got a healthy ticket, but it's much more related to mix them to them to any price increases or anything.

Speaker Change: Yeah.

Speaker Change: In the traffic since obviously.

Speaker Change: A big chunk of that has to do with the with the weather conditions on the calendar effect, but still are.

Speaker Change: Even so isolating for those affected the traffic numbers are not where we want them to be and we're not capriati. We do think there is a shift in the economic conditions in Mexico and there is.

Speaker Change: And appetite to go back to certain value.

Speaker Change: Opportunities in our core.

Category I think we should go back to Provo at providing value opportunity.

Speaker Change: Affordability returnable packaging in beer and soft drinks.

Speaker Change: And we see.

Speaker Change: Okay.

Speaker Change: We're already seeing.

Speaker Change: Increasing traffic.

Speaker Change: In Delek would joke by incorporating a fuel value brand and we're not seeing a shift from from.

Speaker Change: Premium smokers to value smokers consistent incremental traffic.

Speaker Change: Im confident that the full.

Speaker Change: A strategy that we're putting in place towards value and affordability in our core.

Speaker Change: Category, but also in thermal bore supermarket category.

Speaker Change: Or our groceries and stuff.

Speaker Change: <unk>.

Speaker Change: We'll increase our traffic and then we will compensate on the gross margin front with all of the.

Speaker Change: Activities, we're doing in promotional income.

Speaker Change: And some of the financial services. So that's why I'm very confident that we will turn it around but.

Speaker Change: Yeah, there's a lot of things under our control that we need to work hard on to bring back to increase the traffic numbers again.

Bob: Bob This is Juan.

Bob: I mean, we've seen this in the past right where.

Bob: When.

Bob: Slowdown kind of presents itself and then the consumer begins to shift from larger purchases less frequent larger purchases and bigger boxes. The privilege from a cash flow standpoint going more frequently to the store that is close to them. So they are.

Bob: Have been several instances in the past where OXXO benefit actually from this change in habits when people say well I'm just going to go buy a smaller package. Okay. Maybe on a per unit per ounce basis is not.

Bob: The most.

Bob: Economic way to do it but it allows me to manage my cash flow better.

Bob: And then of course you bring in this we mentioned how again this is something that happens every time the cpg's I'm of course being so close to Coke FEMSA, we know how good they are.

Bob: Coming up with more returnable as bigger presentations in many ways. The skus that are well suited for the mom and Pops are obviously skews that are well suited for us as well.

Bob: And you notice how the changes in the mix and it doesn't happen by itself. We obviously work on it that you increase and sometimes you had abandoned return ability because the consumer was not buying returnable anymore and then they start asking for them again and you are going to make sure that you can accommodate that.

Bob: So I think that's another component of the confidence which is.

Bob: There is really nothing unique to what we're seeing right now in terms of if you look at our 2020 year series, we've only been in these types of situations before.

Bob: <unk>.

Bob: So as usually quite defensive in quite resilient.

Bob: You start seeing we've talked a little bit about this.

Bob: Things like spirits.

Bob: The suppliers coming up with a special small 200.

Bob: Bottle basically for OXXO right and so you work with these partnerships.

Bob: And it ends up being in some cases, it's fairly neutral if not even beneficial in some cases.

Bob: The question the.

Bob: The question was about that and I should have said FEMSA helped Mexico and I think you misunderstood me, but it was about <unk>.

Speaker Change: FEMSA help Mexico, where the same store sales number was down 11 five.

Bob: Okay.

Bob: <unk>.

Bob: Linda.

Speaker Change: The defense to help Mexico business, which is down 11 in half on a same store.

Laurie: Laurie yes.

Speaker Change: Sorry, we didn't get that we get.

Laurie: Give you another five.

Laurie: Alright.

Laurie: Which I'm sure everybody appreciates.

Laurie: I would just say.

Laurie: Health.

Laurie: Our health Mexico operation is on a full turnaround mode.

Laurie: <unk> had a business model that with.

Laurie: Set up.

Laurie: Yes.

Laurie: So it's a cost structure that was.

Laurie: Sustainable when we win before the cost of the labor cost.

Laurie: Did not rise dramatically and when the cost of labor started to expand the first few 20% increases in minimum wage did not hit any of our businesses because we were.

Laurie: The same way above that.

Laurie: Even though for our lower salary spot eventually after five.

Laurie: Year or more of 20% that minimum wage increases that started to heat up and our health business in Mexico West did not cut.

Laurie: They'll be enough scale to have a very aggressive.

Price to compete with a value player and.

Laurie: We've got a cost structure that became too on or off and so we are transforming the business modeling.

A more mainstream.

Laurie: Premium type of store format that lead to the gate gain giving us good results, but some of them many of our all legacy stores.

Laurie: Or just not profitable.

Laurie: We're doing a whole restructuring of that.

Laurie: The good thing is that we've been able to do that successfully in Chile, and Ecuador, and Colombia, we have a very strong business model, where we have premium store.

Laurie: Both.

Laurie: Quite a lot of we have the <unk> score.

Laurie: Lay out which is.

Laurie: Very good premium store layout, and we have the the Amazon, which is our value store format and both businesses are growing dramatically we have a similar model in Chile and in Colombia.

Laurie: Growing dramatically with all these changes in the regulatory framework.

Laurie: Colombia has a huge opportunity for growth.

Laurie: In health so in Mexico.

Laurie: Rethinking and re founding that whole business model. If you if you think about it.

Laurie: <unk> opportunity for that business to rebound itself on a more omnichannel strategy to think.

Laurie: Take advantage of the OXXO platform to deliver some of some.

Laurie: Some of that.

Laurie: OTC uneven prescription.

Laurie: Drugs through our store network. So you will see a lot of initiatives of how we found that business model, but it's going to take us out.

Laurie: Yeah.

Laurie: A few months, even a couple of years to turn that business around.

Laurie: I think I would I would remind everyone I mean.

Laurie: That operation really came to be in terms of the three are very regional acquisitions, where we we bought three small.

Laurie: Good brand locally operations and the effort to turn that into a national platform.

Laurie: Has it been an uphill battle and so it's always been a function of scale I think and.

Laurie: At wholesale we are saying.

Laurie: The the two banner strategy that has served us well elsewhere.

Laurie: It's something that we're testing now in Mexico.

Laurie: But really you know thinking thinking out a little bit outside the box in terms of how to compete in an industry where there are.

Laurie: Two or three big incumbents that we haven't quite been able to catch up to.

Laurie: Thank you so much.

Laurie: Yeah.

Speaker Change: We will take our next question from Ricardo Alves Morgan Stanley. Your line is open. Please go ahead.

Laurie: Carlo.

Carlo: Hello, everyone. Thanks for the call I Hope you can hear me and thanks for the opportunity as well.

Laurie: I have a couple of follow ups.

Laurie: In Mexico, OXXO, but then in the U S and Brazil as well in Mexico.

Laurie: The color on competition and one of the first question was really helpful. So thanks for that but I wanted to explore a little bit more the cannibalization so competition with yourself if you will.

Laurie: It's been really impressive the pace of growth of your stores.

Laurie: We have been highlighting that for a while.

Laurie: But I wanted to understand specifically from you.

Laurie: Why is this major expansion.

Speaker Change: It has not been detrimental to your same store sales I'm always perhaps you can share some.

Speaker Change: Metrics that you use to evaluate each oak. So that you are opening in the bedding ratios that we've talked in the past maybe.

Speaker Change: It may be.

Speaker Change: Our metrics that you use to assess the best path to open new stores.

Speaker Change: I think that.

Hearing from you why or where it comes you have real conviction that there hasnt been a lot of cannibalization.

Speaker Change: Would be very helpful.

Speaker Change: For for.

Speaker Change: The growth outlook in terms of new store openings in Mexico.

Speaker Change: The U S.

Speaker Change: Very quickly just.

Speaker Change: Just a quick update on the on the expansion as we think about the inorganic side. If there is anything I know you are limited into what you youre able to comment.

Speaker Change: But qualitatively speaking how how you were thinking about the inorganic alright.

Speaker Change: Our key the inorganic part.

Speaker Change: It will be for your U S expansion.

Speaker Change: And then as it pertains to your organic expansion I am very curious to hear any updates on the prepared foods side. If there is any at this point any any updates in terms of.

Speaker Change: Targets that you have for prepared foods as a percentage of your total versus what you achieved in other regions like Mexico.

Speaker Change: And how could that be accretive to your margin I think that this is the most interesting part of the ramp up that youre doing in the <unk>.

Speaker Change: U S outside of the conversion into OXXO stores, which you already mentioned.

Speaker Change: And then my last follow up would be on the Brazil side I. Appreciate the comments about the slower pace of openings in Brazil, which I think I understand but.

Speaker Change: I think that the pace of growth in terms of top line is still surprises to the upside.

Speaker Change: So, let's say if the shrimp create zinc rich.

Speaker Change: And employee turnover issues that you're facing you resolve them.

Speaker Change: Before I expected.

Speaker Change: How realistic wood would be for us to model.

Speaker Change: Tim stepping up and speeding up the current gross Tonight.

Speaker Change: Any bottlenecks as it pertains to your partner in Brazil today that would make that.

Speaker Change: Impossible to execute or maybe the answer is not.

Speaker Change: So just assessing the possibility of speeding up Brazil.

Speaker Change: These operational struggles are resolved.

Speaker Change: Thanks again.

Speaker Change: No. Thank you very good questions.

Speaker Change: I will start with.

Speaker Change: The last one to be quick and I think we should spend more time on the cannibalization issue, but in Brazil are we.

Speaker Change: We're incredibly happy with the last few months in Brazil.

Speaker Change: Not only on the cost controls on turnover.

Speaker Change: Shrinkage, but also on topline.

Speaker Change: We are incredibly happy with the momentum we're seeing.

Speaker Change: And we won.

Speaker Change:

Speaker Change: I mean, it's just it's a lot.

Speaker Change: Yes.

Speaker Change: If the year continues like that we are.

Speaker Change: Very happy that it's going to turn out to be a great opportunity for us in Brazil, we need to to.

Speaker Change: Sure.

Speaker Change: We liked the rate of expansion around 20% to 25% of our base that was the rate of expansion of OXXO, even at its highest.

Speaker Change: Number so I think those are the numbers that you should expect.

Speaker Change: Going forward about 20% to 25% of our store base.

Speaker Change: And I think Brazil.

Speaker Change: Certainly continue to grow that for the foreseeable future. So you would see from 100 to 120 to 140 et cetera.

Speaker Change: And eventually.

Speaker Change: To a level of growth.

Speaker Change: Similar to Mexico.

Speaker Change: Decade or so.

Speaker Change: So we're happy with Brazil.

Speaker Change: Continue on terms with our partner.

As you know.

Speaker Change: We are we are in a JV there we come out.

Speaker Change: <unk> partner, there, but we wouldn't continue to invest heavily behind our Brazil.

Speaker Change: Business, I mean, I need for any reasons for any financial complications they do not flow through we would we would come to an understanding with them.

Speaker Change: On the U S.

Speaker Change: It's too early to talk about the food issue.

Speaker Change: Ida rating a few format, we are already launching beyond that the coffee brand and we're seeing incredible results.

Speaker Change: We are going to try some stores that don't have thought that and we are we have a partnership with a pizza.

Chain.

Speaker Change: We are very excited to continue growing its that its a great opportunity for us to learn a category that we have not developed well in Mexico, and making huge opportunity.

Speaker Change: And we are trying a few other things.

Speaker Change: In terms of frightful et cetera, but it's too early.

Speaker Change: We would love to achieve up to 10% of our revenues of in store sales on foodservice, but it's too early.

Speaker Change: To tell you yet how that will turn out we need more more months flattery.

Speaker Change: I think in the U S question. There was also an issue about organic versus inorganic growth I guess.

Speaker Change: I would just add on inorganic.

Speaker Change: We are offsetting fully focused.

On getting the value proposition right I think the roof deck exactly the wrong way to do it is try to be M&A driven without the value proposition right you see what's happening in the UAV following probably more than I do.

Speaker Change: The players that are winning share.

Speaker Change: Superregional is why it was the case. These these are quick <unk>. Those are the ones that are under are not offset with big M&A process of getting the value proposition right and expanding organically that's what we want.

Speaker Change: Obviously, we have annually.

Speaker Change: Look for us.

Speaker Change: M&A opportunity.

Speaker Change: If it comes.

Speaker Change: In the regions that we think we could we could.

Speaker Change: <unk> be a big consolidator, which is the southwest and the southeast without California, without Florida, we've been very public on that.

Speaker Change: The most important thing is for us to have the right value proposition, we're very happy with what we're seeing.

Speaker Change: Terms of excitement around the OXXO brand in West, Texas in Midland Terminal, that's up but it's too early to.

Speaker Change: Claim any type of big three or to expand both our obsession with the organic growth with certain.

Speaker Change: Inorganic opportunity exceeds 8%.

Speaker Change: And then I'll just on the capital allocation.

Speaker Change: Aspect.

Speaker Change: Look I've seen into August 2018, and the first projects I have to work on what our Bacon relocation project, because we were concerned with.

Speaker Change: The electoral year very similar to the.

Speaker Change: 2018, right after the election.

Speaker Change: And there were a lot of concerns of traffic declines.

In the period up negative thing more closeout, albeit northern Cds in Mexico.

Speaker Change: And they are still our highest return on invested capital third we never stopped opening we're still opening stores today.

Speaker Change: Where we have our feet.

Speaker Change: More and more density.

Speaker Change: Source there is cannibalization.

Speaker Change: We measure it last year of the 1200.

Speaker Change: More than 1200 stores that we open about 600 of them cut some type.

Speaker Change: Type of cannibalization effect around.

Speaker Change: The stores in <unk>.

Speaker Change: Having said.

Speaker Change: That is we've seen the margin we feel.

Speaker Change: Okay.

Speaker Change: The return on investment capital is still.

Speaker Change: Way way up flat debt gives us confident that some level of cannibalization.

Speaker Change: Is tolerable and we move more into OXXO niche in OXXO in control with immediate we are being much less cannibalization.

Speaker Change: That's a huge opportunity for us to continue growing we know that that format.

Speaker Change: We will continue to expand it and I think that will need a little bit of that.

Speaker Change: The cannibalization impact.

Speaker Change: We are incentivizing our regions on our expansion to focus on.

Speaker Change: Stores that limit cannibalization as much as possible and that.

Speaker Change: <unk> return on invested capital.

Speaker Change: Much of possible.

Speaker Change: So we.

Speaker Change: Prioritizing quality over quantity, but we that we still see an opportunity to grow above I would say.

Speaker Change: About 1000 stores per year for the foreseeable future and I think that will continue.

Speaker Change: For at least <unk>.

Speaker Change: Several years okay.

Speaker Change: I think there was also embedded in your question a broader question about foodservice in Mexico.

Speaker Change: And.

Speaker Change: The reality is we have high expectations and high hopes for foodservice in Mexico. When you look at places like the U S, where food is 20% to 25% and our leading players of sales. When you look at places like Japan, where it's over 50% of fresh food there's definitely.

Speaker Change: And an enormous amount of room to grow for FEMSA.

Speaker Change: Mexico is a different place.

Speaker Change: And the good and a bad way in a bad way as it has significantly broader informal food offering throughout Mexico. So the tag.

So stand at every corner.

Speaker Change: <unk> cards and so on all of those are potential competitors.

Speaker Change: Good side, the Mexican have many meal occasions.

Speaker Change: Yes.

Speaker Change: Breakfast.

Speaker Change: There's a famous mid morning snack.

Speaker Change: Launch then they have another mid afternoon snack and then they have dinner at each one of those eating occasions as a variety of.

Speaker Change: Reds cookies.

Speaker Change: The thought of that.

Speaker Change: It really is a very wide variety of things and so there are we believe theres plenty of opportunity here, we definitely have to do better. We don't have a specific target. There is an ongoing debate about how many of the stores that we have where ultimately we have a food offering.

Speaker Change: And there's a general consensus it's not going to be in all 24000 stores.

Speaker Change: The home occasion, where the homes segment of stores that are really meant to cover daily repositioning need probably you won't have food with definitely youre going to have it in the downtown.

Speaker Change: <unk> traffic office related or school related or near a hospital related.

Speaker Change: Type storage.

Speaker Change: So that is still a work in progress and we don't have any clear targets to share with you at the current time.

I would just add.

Speaker Change: Got it.

Speaker Change: The analytical data that we've been exploring on cannibalization, it's no more than 20 to.

Speaker Change: 30 basis points of same store sales.

Speaker Change: So.

Speaker Change: Where.

Speaker Change: I mean, we want it to be as <unk> as possible within that range. We are okay with it continue to expand given our or hot or high ROIC, our marginal high ROI in our stores.

Speaker Change: That was 20 to 30 bps right sorry, yes.

Speaker Change: Got it.

Speaker Change: Thank you. Thank you so much everybody. Thanks for answering all the questions and the questions within the question I appreciate that.

Speaker Change: Guys are you guys doing.

Speaker Change: Simpson, one we're being very generous here, but I'll keep it apologies apologies.

Speaker Change: Do you have a card if you haven't started at the very beginning of trading on its own so.

Speaker Change: That's okay.

Speaker Change: Yeah.

Speaker Change: We will take our next question from Alvaro Garcia of BTG. Your line is open. Please go ahead.

Speaker Change: Yes.

Speaker Change: Hi, gentlemen, thanks for a lot less.

Speaker Change: I was wondering if you could give us more color on oxo neutral on what it is exactly.

Speaker Change: Why do you think it might have higher ROIC.

Speaker Change: And then to follow up on the pilot employers between spin and kudos for spin and cough.

Speaker Change: What are some of the early learnings.

Speaker Change: But what are the early challenges you're seeing in sort of really.

Speaker Change: Firing up that flywheel. Thank you.

Speaker Change: Okay.

Speaker Change: <unk>.

Speaker Change: On the OXXO neutral.

Speaker Change: To give you more color on average in OXXO neutral is imagine we get a call from a factory a big factory here in Monterrey.

Speaker Change: And they tell US Hey, you know I have 2000 workers here.

Speaker Change: Our cafeterias are not and often they are on the on the old ore from out of town when they wanted to financial services can go on.

Speaker Change: I actually did one one shifting the OXXO in.

Speaker Change: In in the key.

Speaker Change: Factory and they have that's acute and they already have over to Oxford in that tier.

Speaker Change: Korean.

Speaker Change: Auto auto manufacturer there.

Speaker Change: And the way. It works is usually they are asking for us to come in so rents tend to be.

Speaker Change: Sometimes it's negative.

Dave: And then Dave.

Dave: And to pay our electricity bills and.

Dave: And so you can imagine and then most of the installation and the cost of.

Dave: The Capex requirement is already there so it is very friendly economics.

Dave: Turning to mature very quickly because it's already a controlled environment people know the story.

Dave: And they love it I mean, they see.

Dave: Workers need a benefit.

Dave: Obviously, there are some Mexico you control so that the that works against it so they tend to sell less debt.

Dave: Usually do not sell alcohol some of them do not allow Baldwin gone more or stuff like that they're from SBU controls there are some our shaped, but even though even taking all that into consideration they sell it but their cost.

Dave: The investment cost is much less.

Dave: And so they tend to create.

Dave: Value expand.

Dave: Pension because before that.

Dave: Usually not getting us not get an extra snack for the day.

Dave: Get there whatever all of their product.

Dave: That's in OXXO neutral.

Dave: Bayer has been phenomenal for us.

Dave: I don't think we have the network effect that most people want to have our Knoxville, there because he would allow them to connect with financial services and send money to their home. So we tend to have a much higher market share.

Dave: In OXXO and it shows a mutual concept and what we have.

Dave: In the street.

Speaker Change: I got you.

Speaker Change: Theres more type of OXXO Theyre thinking University.

Speaker Change: In buildings, the OXXO smart, but I will tell you on average that's that's the gist of it.

Speaker Change: On your second question.

Speaker Change: On your second question with regards to the learnings on spin.

Speaker Change: One.

Speaker Change: No particular order of priority the relationship of the mom and pop was the sales force or Rolla FEMSA is extremely valuable and that doesn't mean they have to participate in the execution of the actual sale and implementation of the platform, but the relationship with the simple introduction by the sales forces.

Speaker Change: Coca Cola FEMSA is very valuable to getting your foot in the door with a mom and pop.

Speaker Change: Two premier points do seem to be a distribution rate.

Speaker Change: <unk> factor.

Speaker Change: Relative to other payment platforms that don't have the same thing.

Speaker Change: And we are noticing in the stores people, sometimes have 2% to three terminals. So they don't they don't they haven't yet committed to any one terminal. So they will have a medical leave at a terminal and they will have the center of their product until they have a third one and they will pick and choose which terminal they use depending on.

The value proposition. So you need to have a value proposition, which basically can compete in all the different elements with all the different platforms.

Speaker Change: Next thing we've learned is.

Speaker Change: Our points of sale amount of past values of the cash flow.

Speaker Change: They are a cfo's dream and how they understand their cash flow needs and managing their cash.

Speaker Change: April it's really is a spectacular to see and for example, you need to move to crediting balances.

Speaker Change: Almost immediately for them.

Speaker Change: As opposed to doing it once a day or doing it twice a day, if you're not doing that for then you will not be able to maintain competitiveness over time. So a lot of these smaller and texts that whose model was based on a float for two to three days of the money was coming in that's not going to work and that's not going to cut it.

Speaker Change:

Speaker Change: <unk>.

Speaker Change: There is definitely Kinks to work out in terms of how you allow that mom and pop to use the cash flow for pain points and four crediting.

Speaker Change: On crediting the payment of bills that they received.

Speaker Change: That's the bottleneck that needs to be worked out and nobody has really figured it out and finally training the mom and pop owner is fundamental you can just see the difference between a mom and pop where the owner the sore understands the value that this brings to them.

Speaker Change: And.

Speaker Change: And how they engage with the consumer to remind the consumer that they have the good points, they remind the consumer to consumer points.

Speaker Change: No. There was one Lady in particular that I met who was just amazing at how she did she has a balance of the points that she receives in the points that she gives out. So she is not buying any point. She is net net.

Speaker Change: Zero because she manages constantly the points that she receives versus then making sure. She uses those points to generate revenue for for our store. So those are the learnings.

Speaker Change: We're having and we purposely kept the experiment in one city and relatively small so that we learn all of those things before we do massive rollout.

Speaker Change: And are there any city or in any region.

Speaker Change: Awesome, Thanks for the color.

Speaker Change: Thank you everyone.

Speaker Change: We will take our next question from Hector Maya Scotia Bank. Your line is open. Please go ahead.

Speaker Change: Thank you very much a question on your marketing plans for taking my questions. Just if you could please expand on the initiatives for more affordable brands at OXXO.

Speaker Change: To understand the potential extent of the push for value brands and affordability.

Speaker Change: None of this could eventually translating to a longer term strategy.

Speaker Change: Also focusing more on private label Alright. This is more strategic in short term and we're focused on is that exit product presentations to Japan.

Speaker Change: Thanks.

Speaker Change: Great.

Speaker Change: So I would say, obviously private label would play a part.

Speaker Change: In certain.

Speaker Change: Actually in our groceries with R. R.

Speaker Change: Our cooking oil plus we.

Speaker Change: We have our beats snacking and those will play a part, but I would say the biggest contributor.

Speaker Change: <unk> are things, we're working on with our major suppliers in Hey, let's launch either a value brand together.

Speaker Change: We're doing it with the lack of weak quite impressive result.

Speaker Change: Now for for this month, they're not we're not seeing a big shift again from from a from their premium brands to their local branch or the value rent and we're trying to privileged that they have to be marginal expansion in traffic.

Speaker Change: On gross margin, even if it's on a smaller gross margin that it helps us.

Speaker Change: With incremental revenue.

Speaker Change: And then for beer and soft drinks. We are doing are two types of strategies one is.

Speaker Change: Coming back to returnable packaging.

Speaker Change: Yes.

Speaker Change: Returnable packaging is a complex operation for us in the convenience store.

Speaker Change: It's Matt the sat rates, our warehouse, but we know how to do it and we know how to do it well.

Speaker Change: Going back to that with our suffering partners and with our beer partners.

Speaker Change: And that's going to play out.

Speaker Change: A major plant then.

Speaker Change: Yes.

Speaker Change: I would say we are doing some things with them that would be our coffee offering.

Speaker Change: On promotions on and that the and get out and.

Get some extra.

Speaker Change: A smaller piece of a brand or a small snack or something in that when you buy two coffees and things on warfarin.

Speaker Change: Good opportunity there and we're rolling out more promotions there.

Speaker Change: What I would say those are the main main ones.

Speaker Change: Planned mentioned the many spirit bottles that we launched back in 2018, we're launching them again.

I mean, they've been already there, but we're launching new new flavors new variety.

Speaker Change: Tend to work very very well.

Speaker Change: We're also doing some kooky assortment in.

Speaker Change: Some snacks on the value.

Speaker Change: And all of those things will help us.

Speaker Change: I would say.

Speaker Change: We have an opportunity to expand on grocery.

Speaker Change: Our quantum mentioned.

Speaker Change: Tend to become a very interesting point of.

Speaker Change: Of.

Speaker Change: Interest for the value conscious consumer that.

Speaker Change: <unk>.

Speaker Change: A smaller packages.

More frequent visits to the store with cash on hand, and we want to remind everyone that.

Speaker Change: That we are a great player for the.

Speaker Change: For the little sabbatical allowed ROE promotions that we executed in the past with a lot of success, but I think we need to showcase again, so all of those things.

Speaker Change: Our being launched as we speak.

Speaker Change: Get some results.

Speaker Change: Got it. Thank you and also quickly with what you are seeing in the U S.

Speaker Change: You and adapting the value proposition how much time do you think you can think you can say, okay. We got it right now we are ready to push for much stronger organic growth with the right assortment of prepared food.

Speaker Change: Can we consider that this could happen maybe in the next two years or should it be more like five years from now.

Speaker Change: Yes, I was going to tell you I'm not ready to give you an update but I think within the next two years, we should be able to have a winning value proposition given what we are seeing in the momentum.

Speaker Change: In West Texas.

Speaker Change: Also given that we get a lot of feedback from from the consumer what they want what I do think we need to be not only better than the rest, but also unique and unique means it's a tough thing to mail.

Speaker Change: I mean.

Speaker Change: Theres very good players out there.

Speaker Change: But I think there is very it's very easy to go to their stores learned what's working and copy that what it's going to really make us we need something that.

Speaker Change: Only OXXO can deliver and that really drives traffic away from from the main stream big players and from the Big Regionals that I mentioned.

Speaker Change: Okay, great. Thank you very much thank you.

Speaker Change: We will take our next question from <unk> <unk> Santander.

Speaker Change: Santander. Your line is open. Please go ahead.

Speaker Change: Thanks, very much hi, equaled one.

Speaker Change: Thanks, Thanks for the added insight that's always that's a that's a very appreciate it just wanted to see if you could provide some more color into the rebranding viral decay talk so in the U S. I know its sights Super Super early and you've made some comments I'll grab it but any readings or maybe any expectations into sales and profitability profitability sorry lift on the rebranding.

Speaker Change: And the fine tuning of offerings Youre doing there on the on the value proposition and also is there any timeline you guys are targeting and maybe should we expect to see a 100% of rebranding of the source or what's the strategy. There. Thanks so much.

Speaker Change: So.

Speaker Change: Aye.

Speaker Change: It's too soon to tell.

Speaker Change: They have been for pricing on the op side, the increasing sales and traffic has been significant I would say even in the double digits for the first store. We just were granted another 14.

Speaker Change: <unk>.

Speaker Change: We are seeing very similar increases.

Speaker Change: There's probably a honeymoon phase and they we should stabilize stabilize.

Speaker Change: Too soon to tell but yes, eventually we would convert.

Speaker Change: <unk>.

Speaker Change: Not all of the historic 99% I mean, maybe there's a couple of them that are.

Speaker Change: Alright, either.

Speaker Change: On the issue of probably closing and we're also going to.

Speaker Change: Open up new stores, we're planning to open a few stores, even these year to play out but again.

Speaker Change: It turned out.

Speaker Change: It's below 10.

Speaker Change: We're just going to see how how.

Speaker Change: The momentum of it work and we're trying different concept for doing one for more geared towards grocery and.

Speaker Change: Like.

Speaker Change: Land of a dollar store with a convenient stores were doing one.

Speaker Change: More geared towards coffee offering.

Speaker Change: We are willing to take those experiments because we really want to learn what works and what we can rollout nationality. So we're going to take our time.

Speaker Change: But so far we're very happy with.

Speaker Change: We did the OXXO brand in West, Texas, It's been a very happy for price and we see a lot of.

Excitement for the brand in the region.

Speaker Change: Perfect. Thank.

Speaker Change: Thank you very much.

Speaker Change: Yeah.

Speaker Change: We will take our next question from Froylan Mendez of Jpmorgan. Your line is open. Please go ahead.

Speaker Change: Hello, guys. Thank you very much for all of that thank you very much for taking my question I want to dig a little bit more into BARDA given the opening of the new distribution center should we expect a piece of openings to accelerate in coming years in coming years, even these or the next and what is the long term.

Speaker Change: Tour side that you see for this format and also in the same in the same in the same route.

Speaker Change: Your take on how the format performed during this quarter specifically, what you saw a loosening in OXXO was this something that was captured by the bye Bye Nevada format. What was your take on the downturn that we're seeing in Mexico. Thank you guys.

Speaker Change: So, yes, but actually keeps.

Speaker Change: Doing great we did see.

Speaker Change: Slower.

Speaker Change: Momentum from the fourth quarter of last year, where we were growing.

Speaker Change: Hi on the teens.

Speaker Change: On a same store sales basis.

Speaker Change: And we saw singles.

Speaker Change: A single store.

Speaker Change: Single growth or single digits.

Speaker Change: But still.

Speaker Change: <unk> is doing incredibly well the stores, our new stores are performing even better.

Speaker Change: We see a huge opportunity ahead, yet we want to accelerate.

Speaker Change: The expansion. The reason we are not expanding as fast as we won.

Speaker Change: Is because we are working hard internally on decoupling from OXXO, except it's a concept that's still on the same.

Speaker Change: On the same LLC or equivalent.

Speaker Change: Also the same systems.

Speaker Change: We're changing all that.

Speaker Change: And that's taking off.

Speaker Change: Some time to do that.

Speaker Change: We are.

Speaker Change: Using basically wear.

Speaker Change: Turning to investing in a big.

Speaker Change: Big set of teams to cover that.

Speaker Change: <unk>.

Speaker Change: Yeah.

Speaker Change: Great.

Speaker Change: In place and that will allow us to basically double our or our rate of expansion.

Speaker Change: From 230 that were planning for this year to more than double that in the next couple of years.

Speaker Change: We do think there is there is room for for many thousands of bottles.

Speaker Change: Good.

Speaker Change: I wouldn't give you a number a precise number but theres going to be thousands of bought us in Mexico.

Speaker Change: That that segment is getting gaining a lot of momentum and there is a lot of <unk>.

Speaker Change: People that are understanding the great value that the discount stores spring.

Speaker Change: We have.

Speaker Change: A huge opportunity because we know.

Speaker Change: What works basically we've done a lot of outsourcing in regions, where BARDA would have been successful and we're learning a lot held about a concept can bring.

Speaker Change: A lot of a lot of bundling in those in those neighborhoods. So we're very excited from what we're seeing and we're just getting.

Speaker Change: Our stores to keep getting better and better and performing better and better so yeah. The sky's the limit.

I would add.

Speaker Change: On the bottom side.

Speaker Change: Well I mean, we've talked a little bit about private label and how.

The mix of private label and bar is still.

Speaker Change: Lower than we would like.

Speaker Change: We're probably somewhere in the 2030 30 approaching 30% on some of our competitors are higher than that and so.

Speaker Change: What we're seeing is.

Speaker Change: Having some really good conversations with potential partners on the private label side, you know large corporations from different parts of the world that look at the opportunity for <unk>.

Speaker Change: I'm happy to to accompany you know I'll I'll build a plan for you.

Speaker Change: If we can we have.

Speaker Change: The company is that we can work together for the long term so it.

Speaker Change: Again, I think scale is a beautiful thing and we're getting a little bit bigger on of course, there's the.

Speaker Change: The overall FEMSA umbrella, if you will the OXXO.

Speaker Change: Umbrella.

Speaker Change: Potential partners the confidence that we're going to do what we say we're going to do.

Speaker Change: And things are things here.

Speaker Change: Moving into place quite nicely.

Speaker Change: Thank you very much I appreciate it.

Speaker Change: We will take our next question from Rodrigo Alcantara UBS. Your line is open. Please go ahead.

Speaker Change: Hi, Thanks for.

Speaker Change: All I can tell.

Speaker Change: Thanks for taking my question one.

Speaker Change: And just one I promise.

Speaker Change: Yes, I mean in a context of you know a number of store, having seven employees per store right.

Speaker Change: The returns.

Speaker Change: Yeah.

Speaker Change: Difficult for me to understand how much more lean.

Speaker Change: Good.

Speaker Change: Laura.

Speaker Change: Labour stroke.

Speaker Change: Our store could get so just curious if you can elaborate a bit more huron.

Speaker Change: These initiatives, having a more efficient.

Speaker Change: And just for the sake of modeling.

Speaker Change: And if you can comment on when you started to deploy these niche it keeps kind of like the ramp up.

Speaker Change: It's just for us to kind of look how about how about ideal when we could see the obligations on margin already reflected.

Speaker Change: That would be my question. Thank you very much.

Speaker Change: But we've been working a lot in there.

Speaker Change: A number of source a number of people per store and we are already below that 10% threshold actually we were at $6 seven last year and we're aiming for $6 five this year.

Speaker Change: As you can imagine that our scale going from $6 $76 five used and they work.

Speaker Change: No not at all.

Speaker Change: Damaging the value proposition.

Speaker Change: And that is giving you that some stores are going all the way to 10 or 12 people per store some high traffic stores have much more people.

And some people some stores are working with fyfe.

Speaker Change: People.

Speaker Change: And we are being much more precise in our analysis, we used to do a number of transactions.

Speaker Change: I'm pretty much of that tape.

Speaker Change: Now if it costs a lot of coffee and coffee requires a lot of cleaning and we may we may put more people find that a lot of financial services. They may require a little bit more people sometimes they require.

Speaker Change: In regions like Oaxaca, and chop as we need.

Speaker Change: People with banking experience, so that people have been bank better because they need to count feels very quickly.

Speaker Change: And so we'd be deemed with specialized much more in the level of people and the types of people that we can we can hire.

Speaker Change: <unk>.

Having an initiative we call trail that.

Speaker Change: Basically using all of these.

Speaker Change: Machine learning and analytics to be much more precise on the amount of people that the store.

Speaker Change: It needs to have.

Speaker Change: Where can we get I mean, our ambition is let's get it as low as possible without harming that all the value proposition.

Speaker Change: Is that a $6 three or six.

Speaker Change: <unk>.

Speaker Change: I think it's doable, but it's going to take us a while to get there.

Speaker Change: Obviously.

Speaker Change: The retail landscape is changing and there is more and more tools for automation.

Speaker Change: Some of them are feeling decades away in this part of the world, but some of them are not.

We will use.

Speaker Change: And we're leaning.

Speaker Change: Creatively on understanding our machine learning, how even the Llm's can help us.

Speaker Change: Optimize not only the start with the supervisory part of their role and get to more.

Speaker Change: More stores per supervisor.

Speaker Change: We see an opportunity there as well too.

To lose some some getting some scale there and I think we will.

Speaker Change: We'll continue to monitor that number and get leaner and leaner.

Speaker Change: Not necessarily requiring too.

Speaker Change: Less people because we're still opening in our historical we wouldn't be able to accommodate that hopefully all of our all of our group of performers in all of our routes Supervisors, we see still a lot of opportunity.

For growth and for four becoming leaner.

Speaker Change: And I think another thing rather than maybe we've talked about this in the past a little bit but it involves as you might imagine certainly the number of people, but also things like you know what time do they start their shift.

Speaker Change: So going from kind of a basic three shifts each shift comes in at the same time to a much more dynamic well you know one person can come in at X hour and then the other person comes in you know three or four hours later, because that's what the numbers tell us that they're not needed.

Speaker Change: Same time, so again, it's something that sounds relatively straightforward, but you need the data to tell you how to do it obviously.

Speaker Change: We're assuming they're going to be more a minimum wage increases in the coming years. So this is something that not only addresses what's already happening, but we need to be ready for the coming years for this probably will continue.

Okay.

Speaker Change: That's super helpful wholesale ones. Thanks for the color on that.

William: Thank you William.

Speaker Change: We have no further questions in the queue. So I'll hand, you back to your host for closing remarks.

Speaker Change: Thanks to everyone for joining obviously, you know where to find US. If you have follow ups are you can you can get in touch with my team and myself.

Speaker Change: Anytime you need otherwise should have a great week.

Speaker Change: Thank you and thank you for joining today's call you may now disconnect.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: <unk>.